When you'll Believe Anything
Imagine an alien dispatched to Earth. His job is to keep tabs on our
economy.
He circles above New York City, trying to size up the economy and how it
changed between 2007 and 2009.
You'll Change
Igrew up with a friend who came from neither privilege nor natural
intellect, but was the hardest-working guy I knew. These people have a lot
to teach because they have an unfiltered understanding of every inch of
the
road to success.
You & Me
The implosion of the dot-com bubble in the early 2000s reduced household
wealth by $6.2 trillion.
The end of the housing bubble cut away more than $8 trillion.
It’s hard to overstate how socially devastating financial bubbles can be.
They ruin lives.
Surprise !
Stanford professor Scott Sagan once said something everyone who follows
the economy or investment markets should hang on their wall: “Things
that
have never happened before happen all the time.”
History is mostly the study of surprising events. But it is often used by
investors and economists as an unassailable guide to the future.
Confessions
Sandy Gottesman, a billionaire investor who founded the consulting group
First Manhattan, is said to ask one question when interviewing candidates
for his investment team: “What do you own, and why?”
Not, “What stocks do you think are cheap?” or “What economy is about to
have a recession?”
Just show me what you do with your own money.
All Together Now
Congratulations, you’re still reading.
It’s time to tie together a few things we’ve learned.
This chapter is a bit of a summary; a few short and actionable lessons that
can help you make better financial decisions.
First, let me tell you a story about a dentist appointment gone horribly
awry.
To understand the psychology of the modern consumer and to grasp where
they might be heading next, you have to know how they got here.
How we all got here.
If you fell asleep in 1945 and woke up in 2020 you would not recognize the
world around you.
Room for Error
Some of the best examples of smart financial behavior can be found in an
unlikely place: Las Vegas casinos.
Not among all players, of course. But a tiny group of blackjack players who
practice card counting can teach ordinary people something
extraordinarily
important about managing money: the importance of room for error.
The Seduction of Pessimism
“For reasons I have never understood, people like to hear that the world is
going to hell.”
—Historian Deirdre McCloskey
Optimism is the best bet for most people because the world tends to get
better for most people most of the time.
But pessimism holds a special place in our hearts. Pessimism isn’t just
more
common than optimism. It also sounds smarter. It’s intellectually
captivating, and it’s paid more attention than optimism, which is often
viewed as being oblivious to risk.
Nothing's Free
Everything has a price, and the key to a lot of things with money is just
figuring out what that price is and being willing to pay it.
The problem is that the price of a lot of things is not obvious until you’ve
experienced them firsthand, when the bill is overdue.
General Electric was the largest company in the world in 2004, worth a
third of a trillion dollars. It had either been first or second each year for
the
previous decade, capitalism’s shining example of corporate aristocracy.
Then everything fell to pieces.
Man in the car paradox
The best part of being a valet is getting to drive some of the coolest cars to
ever touch pavement. Guests came in driving Ferraris, Lamborghinis,
Rolls-
Royces—the whole aristocratic fleet.
Wealth is What You Don't See
Money has many ironies. Here’s an important one: Wealth is what you
don’t
see.
My time as a valet was in the mid-2000s in Los Angeles, when material
appearance took precedence over everything but oxygen.
Freedom
The highest form of wealth is the ability to wake up every morning and say,
“I can do whatever I want today.”
People want to become wealthier to make them happier. Happiness is a
complicated subject because everyone’s different. But if there’s a common
denominator in happiness—a universal fuel of joy—it’s that people want to
control their lives.
Reasonable Rational
You’re not a spreadsheet. You’re a person. A screwed up, emotional person.
It took me a while to figure this out, but once it clicked I realized it’s one of
the most important parts of finance.
With it comes something that often goes overlooked: Do not aim to be
coldly rational when making financial decisions. Aim to just be pretty
reasonable. Reasonable is more realistic and you have a better chance of
sticking with it for the long run, which is what matters most when
managing money.
Tails you win
“I’ve been banging away at this thing for 30 years. I think the simple math
is, some projects work and some don’t. There’s no reason to belabor either
one. Just get on to the next.”
—Brad Pitt accepting a Screen Actors Guild Award
Heinz Berggruen fled Nazi Germany in 1936. He settled in America, where
he studied literature at U.C. Berkeley.
Save Money
Let me convince you to save money.
It won’t take long.
But it’s an odd task, isn’t it?
Do people need to be convinced to save money?
My observation is that, yes, many do.
Past a certain level of income people fall into three groups: Those who
save, those who don’t think they can save, and those who don’t think they
need to save.
John Bogle, the Vanguard founder who passed away in 2019, once told a
story about money that highlights something we don’t think about enough:
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs
his pal, Joseph Heller, that their host, a hedge fund manager, had made
more money in a single day than Heller had earned from his wildly
popular
novel Catch-22 over its whole history. Heller responds, “Yes, but I have
something he will never have … enough.”
Comfounding compounding
Lessons from one field can often teach us something important about
unrelated fields. Take the billion-year history of ice ages, and what they
teach us about growing your money
Luck & risk
Luck and risk are siblings. They are both the reality that every outcome in
life is guided by forces other than individual effort.
NYU professor Scott Galloway has a related idea that is so important to
remember when judging success—both your own and others’: “Nothing is
as good or as bad as it seems.”
Bill Gates went to one of the only high schools in the world that had a
computer.
No one's crazy
Let me tell you about a problem. It might make you feel better about what
you do with your money, and less judgmental about what other people do
with theirs.
