I’ve always been fascinated by figuring out how things work, why things function the way they do, and how things can be improved. My parents remind me of stories when I was a kid, having ten million questions about anything and everything under the sun. They were both patient with helping me and encouraged me to figure it out, which has helped shape how I function today. Today, I try to surround myself with great people who have the mindsets to learn constantly.
Recently, my great friend and business partner Kelli Garrett (Managing Partner of our lending business, Rehab Wallet) recommended a brilliant book to Dan and me. We read the book and found some remarkable insights that the three of us shared and discussed. The book had several takeaways and exciting ideas about money and investing that I think you, as an investor, would appreciate.
The Psychology of Money by Morgan Housel is a friendly reminder that everyone has a different background, experience with money, and lessons learned around money.
Housel talks about how baby boomers have a different belief system around money and savings because they were raised by parents who experienced the Depression. Those who lived through the Depression had compelling experiences that caused them to share powerful insights with their children. Housel is saying baby boomers might have depression-era thinking even though they did not experience it personally. He then says that your individual experiences with money represent maybe 0.000000001% of all money experiences in the world, but individuals favor their experiences and think the world usually works that way most of the time. Is one way of thinking right or wrong? Could we have somehow inherited biased money thinking without even knowing it?
Another eye-opening takeaway is if you look at the returns of the S&P 500 one decade at a time, usually only five to ten companies created the returns. Most of the remaining companies lost value. He is basically saying that picking single stocks to hold in a portfolio can be difficult. For example, in the last ten years, most of the returns have been created by Apple, Microsoft, Amazon, Google, Tesla, and NVIDIA.
Housel does an excellent job of using data to help drive points home (at least for me, being a numbers/data person). One thing I never knew was that “$81.5 billion of Warren Buffett’s $84.5 billion net worth [per the year of book publishing] came after his 65th birthday.” Housel goes on to say that Buffett’s “skill is investing, but his secret is time. That’s how compounding works.” It’s interesting when you get that type of perspective on Buffett and how impactful compound interest has been for him. Overall, we each really enjoyed the book and found good takeaways from it.
