The Psychology of Money: Timeless lessons on Wealth, Greed, and Happiness- Morgan Housel

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[00:00:00]Welcome to Subramani. Uh please subscribe, please hit the bell icon and if you like this uh like these videos, please share it with your friends that ensures more number of people will uh watch it. Um today I'm going to talk about a book and I think it's a really useless uh session that I'm going to do because most of you must have read this book that is the psychology of money timeless lessons on wealth, greed and happiness by the great Morgan Hel.

[00:00:26]Morgan Housel writes very well. uh I think he writes uh better than he speaks.

[00:00:33]So he had come here for one session um for the CFA institute which I attended and he was very good at it but then I still think he writes much better [snorts] because uh every time I read something which he has written on his blog or somewhere and I think uh what new am I going to learn from organ there is something that I learn for example in this book uh uh which is not a traditional personal finance book with uh charts and goals and stuff like that uh [snorts] I learned of this concept of course he has written about it in blog of uh uh getting wealthy and staying wealthy. This is a beautiful concept. I have spoken about a concept saying are you rich or are you wealthy, right? Two completely different things. I mean there are get me rich uh theme uh themes available. But there's nothing called get rich wealthy. You can't get rich I mean sorry get uh wealthy fast. You can [snorts] get get rich quick but you can't get get wealthy quick. You can't wealth takes time. Wealth take times. uh wealth takes time to build [snorts] because you have to build different assets, different cash flows and all that that makes you wealthy. So I have spoken about that concept but this beautiful concept of saying getting rich and staying rich because you can get rich playing a game, you can get rich playing cricket, you can get rich playing basketball, baseball, whatever but doesn't mean you will stay wealthy.

[00:01:52]So many cricketers I recently read about uh old [snorts] cricketer I was fan of and who is 8 years old and he's not very well off financially. looking for help.

[00:02:02]It's so sad. I mean, it's not that he earned a lot of money, but somewhere that money did is not working for him.

[00:02:08]It's not there. All right. So, so there is that uh fear and risk which uh which happens. So, uh it's not really like I said, it's not a traditional book, but a lot of learnings in that book. So, therefore, this could be useful even for those who have read uh if you have not read some of these things. So, this could be useful. Uh so house's central idea is of course coming from doing well with money has little to do with how smart you are and a lot to do with how you behave which which is something which I have also learned over 40 years plus of uh investing experience in fact 46 47 years of investing experience I realized [snorts] that uh staying calm spending less than uh what you earn these sound very basics but there are so many people who can't do it there [snorts] is somebody who's got a lot of debt debt maybe about 5xes annual expenses as debt and this is nothing to do with his housing debt. [snorts] Uh and uh so every rupee that he spends to me looks like oh my god what is he doing? Why is he spending so much money? Because he should be repaying his debt but he doesn't repay his debt. He keeps spending. So you see such people and you realize why such people can never create wealth. I mean he has to first get into the positive range and then create wealth. So u so it's uh like I like Buffett also says creating wealth is not about IQ it's about EQ. So you have to sit tight during tough times. Uh so history, luck, greed, fear and personal experiences shape our decision much more than what we think it will. My father gave me a lot of confidence by leaving his purse open. Right? So you would I I would just go and say, "Dad, I need 100 bucks and I would get 100 bucks. I need 50 bucks and I would get 50 bucks." Never asked a question uh about why I wanted what I'm going to do. Or I I would still say something and uh he would give the money. I had no problems asking money for uh movie or buying books or anything right. So my life was great and that gave me confidence later on in life also saying okay I have money if I lose it I can make it right that kind of confidence uh very many of my friends don't have especially those who take up a job are very [snorts] insecure about job and I had the security not to take up a job at all right so some of that comes from luck and uh parent parent parents attitude towards money I think all these things are very important we we lose track of it and say oh I made it myself no we uh all this was shaped by our parents right so and he uses a lot of uh anecdotes and examples even from Buffett and other billionaires who lost money etc and [snorts] uh I mean he says simple things in luck and uh um luck and luck yeah luck and risk are other sides of the same coin right so so I'll come to it so first of all so 18 19 lessons chapter by chapter uh the book is hang somewhere here only. So I could have shown you the book but yeah uh your personal experience with money. So next is luck and risk. He says luck and risk are same uh either sides of the same coin which is so true. When we get lucky we think it is skill and when uh we lose money we say oh bad luck. Uh right is very easy. I didn't expect the markets to come down so much. I did not market to go up so much. Right? So those are things which we say. Uh [snorts] extreme success or failure is nearly uh 100% skill. uh I mean I wouldn't say you know he's 100% rarely 100% skilled being at the right time at the right place for example uh the base of creating wealth for our family because I invested but it was my father's money is all the MNC shares which went uh which had to do an IPO thanks to George Fernandez um and uh and that that's the reason why we got those shares at those ridiculous prices right 25 rupees for Colgate and uh I think comes was 30 rupees or something like >> [snorts] >> So all those prices which I got were just fantastic luck. I mean the skill was in sitting tight with it right. So over 45 years 47 years I've just not sold enough of it. Recently I sold some but uh very small quantities is what has been sold. So that gives us a huge div gives me a huge dividend now. [snorts] Uh so you have to accept where it started or what happened. Yes. sitting right through bad recessions doing disastrously from say ' 92 to 2002 including a 94 boom or say 94 to 2002 market doing nothing market falling 45% sitting through such tight uh markets bad markets that's a skill but having got it at those ridiculous prices I still had a huge margin uh mode available for me to stay around so that's luck uh the hardest financial skill is getting the goalpost to stop moving. We are unable, most of us are unable to say no uh and uh enough and stop. These words don't exist. Like uh if I get a chance to handle a big sum of money, I tell people I don't have the infrastructure to do it and and no willingness to do it. So somebody comes and says will you manage 1,000 crores for me? It sounds very tempting but I know that I don't want to create that infrastructure to manage it to earn that uh 5 6 crores that I can earn out of it.

[00:07:17]I'd rather skip it because the effort to earn that money is not what I want to do because I have enough. I have to just spend what I have, right? So no point in uh adding more to the kitty which is I mean pretty unnecessary. Let's say I require X amount for uh retirement. I think I have something like 5x if not 10x. So how does it really matter whether I have 5x or 10x or 200x?

[00:07:40]Doesn't really matter. Everything is going to be a surplus. [snorts] So the ability to say no and enough is very important. Most of us are struggling with it. Confounding [snorts] compounding compounding is a very powerful tool powerful tool in finance.

[00:07:54]Uh it [snorts] requires time and patience and believe me you understand compounding only when you see it in your own portfolio. Till then it's a concept which is ah I mean I heard of this and it may work may not work but it really hits you when you see in your own statement power of compounding it takes decades. There's no doubt about that. And then he talks of another brilliant concept which I spoke about early earlier is getting wealthy versus staying wealthy. This is beautiful because getting wealthy is easier. Uh though people may not believe it but getting wealthy is easier but having to grow that wealth [clears throat] and uh sitting tight during tough times uh that's the skill because after you get to say 5 7 crores after that even if you do nothing every 5 years if it doubles it's still good because if you got to that 5 crores at the age of 40 uh by the time you're 80 the money has grown to at least uh at least 100 crores simply because of compounding you you're not doing nothing you're not adding too much to Maybe you're adding a little bit because at 30 you don't really retire but you you are adding something to it but doesn't really matter. The power of compounding takes over and creates good wealth for your next generation if you don't withdraw too much. So getting rich you have to be optimistic. You have to be risk-taking etc. But to to stay rich you have to reduce risk. And how [snorts] do you reduce risk? You take money out of equity funds when it is doing very well and put it into multiasset fund. [snorts] If your luck is good, gold will do well and multiasset will make money for you. But putting money in a multiasset fund is not to improve your return. It is to reduce the risk. Uh some of our multiasset funds I have been in DSP fund which has given me 22% uh uh IRR and u uh big shout out to Aperna. You done a great job, better job than many other men in the same uh asset class. [snorts] uh but I'm just saying that uh you go to multi asset not to improve returns but to reduce risk but if it also improves returns that is just uh icing on the cake you never thought that kind of returns what will happen >> [snorts] >> uh you shifted from equity to multi asset to reduce risk and it it turned out to be that multiasset got you better returns than what equity did because equity did badly not because multi asset did well these things will happen once in a while but now to expect anything more than 8% in multiasset fund is just being excessively greedy. Even with 50% in equity when equity markets are not doing too well to get 8% return in the multi asset itself is going to be tough.

[00:10:25]So if you got 22% in the past uh revail in it, enjoy it. It's not going to happen again. Right? So uh again he talks about tales. You win a tiny number of events called the tales drive most results in investing and business.

[00:10:43]uh one one event you bought something you held on to it or you did some business deal uh so I went and did a equity deal in which I was expecting x amount of fees and I got 3x the fees these kind of things will happen will accelerate your your ability to get rich but to stay rich you need different skills right so again he talks of the man in the car paradox and where he says people don't admire you for the fancy asset that you're using They admire you.

[00:11:13]They think of themselves in that position. So if you're traveling in a nice new car [snorts] uh and um people are looking at you and they're not jealous or envious of you, they don't know you. They are just seeing how it will look if you are in that if they are in that car and imagining right when you go for a movie and you see a hero, you want to put yourself in his place uh or a hero and then you want to put yourself in her place [snorts] and feel wow this is how I would do and you know stuff like that. But you're just it's a fantasy world. But uh that's it. That's what people are looking for. Uh I also keep telling young people that uh how much you save the rate of savings is more important the rate than the rate of return that you're getting on your assets till at least you're 3540 and you've accumulated decent size of assets. [snorts] So when you're doing a 5,000 rupee SIP at the age of 22, you don't have to worry what is the IRRa.

[00:12:05]You have to worry what percentage of your money you are saving. Are you saving 10%, 20%, 30%, if you're living with your parents, are you saving 90%, that is the question that you are asking? Right? So you have to and the greater the saving rate, the greater the flexibility that you can take time off for 2 years and go and get yourself educated. Imagine a young chartered accountant who has got a 30 lakh rupee job or a 25 lakh rupee job straight out of campus uh and has to take two years off to do as by the time his salary has already gone to 40 lakhs or 35 lakhs and bonus and etc. And when he's taking two two years off he's he or she is talking of a 70 lakh opportunity cost right apart from the 2 cr if you if you're going abroad to 2.25 25 crores plus 70 lakhs of opportunity cross. It sounds like a 3 cr decision. You can take that only when you earned enough money to uh have enough base capital to apply for a loan and uh get a scholarship and stuff like that. So uh also uh you have to have a reasonable plan about what you want in life and what you will do to achieve it so that you can have more uh peaceful nights. That's also important.

[00:13:19][snorts] Some more additional powerful ideas that he talks about is uh be ready for room for error have margin of safety right so when you buy cheap like what my family was lucky to do uh chances are you you you have a big moat you can stay there for a long period of time having said that we got uh many MNC shares at those 1977879 prices I should also add that in 86 8586 there are shares which I picked up like carandom universal kuromandel international chol Mundlum I think Apollo hospital was a little later it was 9 rupees so having bought that I I'm sitting on that also or a len and two bro or stuff like that Len 2 was not an IPO uh stock which I could buy right so those are shares also which have sat for a long period of time that is skill [snorts] uh also we can't just copy others and see what they are doing to create wealth then he says there is nothing free uh the seduction of pessimism which means bad news sounds smarter. So somebody will come and say Modi is great at winning elections but he's screwed the economy economy is doing very badly. Just look around yourself see are people who are connected to you has their net worth gone up or down? Have the cars got bigger? Have the houses got bigger which means they're doing well. If all your friends are doing well the economy is doing well. Don't get too much into uh how much is the wealth distribution and things like that. bad bad wealth distribution creates wealth for a a disproportionately small number of people. It's a fact of life. Don't ignore it. [snorts] Uh then he also says stories and narratives. He says we fill gaps with convenient stories and offer overestimate skill while ignoring luck.

[00:14:59]This is very important and for this the best solution is to maintain a diary so that you write down what you're feeling about any share that you're buying. when I bought for 40s at 140 rupees um remember it was the old management and that management is a disaster so but then the new management came and so the share price is 1,000 rupees so these kind of things will happen so somewhere partial luck and [snorts] partially anticipating that somebody will take over and run the business very well was all I mean some luck some skill I don't know what it is [snorts] so the big takeaway uh is money is not about being the smartest investor in the room it is about surviving long enough for compounding to work and knowing Knowing when you have enough that's I think very important knowing when you have enough and after that saying okay I will do other things with money is he Morgan houses also talks of using money as a tool uh I think this is getting too long and you will get bored so I think maybe I should do another uh [snorts] uh uh book uh review saying what I learned from organo this is just a summary of his book so unless I buy the other book on spending I will not do that. Thank you. Bye.