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"The Psychology of Money" by Morgan Housel Book Review: Profile Traders

Updated: Nov 6, 2022

The Psychology of Money by Morgan Housel is a mind-boggling reading experience that tickles your impulses to sit tight.

You are about to dive deep into a book on personal finance, investing, and business decisions.

It brings forth stories exploring strange ways people think about Money. These short passages can be read individually but revolve around the same theme, The Psychology of Money.

Financial success is a soft skill

Doing well with Money has little to do with how smart you are and a lot to do with how you behave.

A genius with no control over his emotions can be a financial disaster. Ordinary folk with no financial education can also be wealthy with a handful of behavioral skills that have nothing to do with formal measures of intelligence.

Financial success is not a hard science. It's a soft skill where your behavior is more important than what you know. Housel, in a rather intriguing way, explains that everyone thinks about Money in a way that they experience it.

Someone who has seen a recession may not have the same thought process as someone who has not seen a recession in many years.

The blunt truth is that no amount of study can recreate the power of fear and uncertainty. You can read about how it feels to lose everything in the great depression, but I don't have the emotional scars of those who experienced it.

In Pursuit of Happiness and the Importance of Having Enough

Housel says, "The quality of education and the doors open for you are not heavily linked to your parent's socio-economic status. Failure, which can be anything from bankruptcy to not meeting a personal goal, is equally abused."

Everything worth pursuing has less than 100% odds of succeeding, and risk is just what happens when you end up on the wrong side of the equation. It is tough to judge how much of it was out of a conscious decision that makes you think you were not lucky.

The line between bold and reckless can be thin. When we don't give luck and risk their proper billing, it's often invisible. Risk and luck are so hard to pin down.

Not all success is due to hard work, and not all failure is due to laziness. It would help if you always kept this in mind when judging people. Focus less on individuals and case studies and more on broad patterns.

For a critical element of our society, including the wealthiest of people, there seems to be no limit today to what enough entails. It's so smart and so powerful. Yet, why would someone successful with so much money risk it all in Pursuit of more?

Crime committed by someone at the edge of survival is one thing. Then there are the others who have everything but no sense of enough.

Compounding and the Key to Staying Wealthy

Housel provides a fascinating analogy between the formation of glaciers to the compounding of wealth.

As glaciologists claim, it's not the amount of snow that causes ice sheets but snow, however small, it lasts. A big takeaway from the ice age is that you don't need tremendous force to get outstanding results.

If something compounds and a little growth fuels growth, a small starting base can lead to extraordinary results that defy logic. So it is with Money.

Warren Buffet's skill is investing, but time is the secret to the compounding wealth he has generated.

Housel interestingly says staying wealthy requires some amount of frugality and paranoia. You will, though, find thousands of books that talk about getting rich.

Jesse Livermore, one of the greatest traders of all time, made a killing during the 1929 stock market crash. However, he could not keep his wealth because he started creating larger and larger bets with overconfidence. Yes, that's what Money can do when it comes easy at some point.

Anything huge, profitable, and famous results from the tail event.

Life, Freedom, and Rational

Housel beautifully says' "The highest form of wealth is to wake up in the morning and say, I can do whatever I want to today."

That's the highest form of dividend money can pay. He makes you think deeply about the real meaning of the stories he shares. One such one was about John D Rockefeller.

He used to keep himself, remained silent most of the time but kept his ears wide open. The more you listen, the less you speak. It helps you think and make good decisions.

We tend to judge others' wealth with what we see in front of us. Wealth in the real sense is not what you see but the cars not bought, the jewels not worn or the mansions not owned.

Being rich is in a way that lets you showcase it. Wealth, on the other hand, is hidden; its income is not spent. How many of us think of Money in that way?

He says minimizing future regret is hard to rationalize on paper; however, it is easy to justify in real life. A rational investor makes investments based on mere facts.

A reasonable investor makes them surrounded by co-workers in conference rooms. You will be able to touch a chord when he explains the difference between being rational and reasonable. He does this by referring to how you would react when you are down with a fever.

Some key takeaways from the book

  1. Everyone is here to run his race.

  2. It is wise to be more reasonable than rational.

  3. Wealth is created when you save and invest, not when you flaunt them.

  4. Financial success is not a science but a soft skill.

  5. You cannot win them all, so you should learn to play accordingly.

  6. Everyone only looks at success rather than the long tail.

  7. Future risk is hard to measure but simple to justify now.

  8. To not end up with nothing, you have to learn to recognize when is the enough moment

  9. It is a world of uncertainties, and the margin of safety can be used miserly

  10. Optimism lets you play the game longer


This is an excellent book that is both insightful and thought-shaping.

You will indeed have a different perceptive on Money by the time you end this book.

This book, in simply readable language, has been able to convey the message it is the mind that works for and against you.

You can buy it from here

(Amazon Paid Link)

Guest Post - Written by Mr. Lal Bajaj, Bangalore

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