Since finishing up my MBA, I have found a huge hole in my day-to-day routines. This time used to be filled up with studying for midterms and learning new concepts. Now, while the degree is done, the itch to read things and learn is still there. I’ve acquired a long list of books on finance that have been recommended to me in one fashion or another, and I recently finished the first. I wanted to share my thoughts this week on The Psychology of Money by Morgan Houser. I chose this to start my leisure reading because I love studying and learning about the behaviors that people exhibit about their finances. This book is packed with financial thoughts and concepts that Mr. Houser breaks down into understandable, easy to read ideas. While this is a finance book, I would advocate that this is a great leisure read title that will give anyone a great insight into the world of behavioral finance without the text coming across as dry or boring.
As individuals, how we think about money is varied and complex. There are those of us who stay very diligent and focused on every nuance the stock market and interest rates throw at us daily. And, there are those of us who learn about what the market has been doing once every 3-6 months when our investment meeting rolls around! Mr. Houser caters to both crowds in this book by providing a host of different concepts about how we think about money. He delves into common thought processes regarding your investments and delivers pragmatic, insightful examples of investing ideas that make sense and allow someone without a PH.D in finance to easily understand and apply these theories.
Mr. Houser includes a host of behavioral concepts in the book. Most of these concepts are related to simple pieces of financial wisdom such as how to save money, how to leave yourself a margin of error, and the effects of compounding over time. What sets this book apart for me is the storytelling method Mr. Houser uses to great effect to emphasize the points he makes in each chapter. In addition to the simple pieces, he also goes into detail about how people psychologically think about their money and offers some great wisdom on how to overcome those obstacles. One of the most powerful chapters for myself is the chapter on the concept of “enough.” Everyone has a different opinion about how much wealth would be “enough” for them, and in my experiences, that number tends to shift for people as they accrue wealth. Mr. Houser does a great job of explaining this behavior and using his unique writing style to discuss the pitfalls of taking on more risk to chase higher and higher levels of wealth, and includes cautionary tales of how that has gone badly.
There are so many finance books out in the market today, and it seems that most offer a slightly different spin on the same basic concepts. While it is true that a lot of financial wisdom is constant and the overall concepts tend to not change a lot, the area of behavioral finance tends to be an area with more change. The simple explanation is that we are humans, and it is difficult to predict with certainty our sentiment toward things from period to period. Behavioral finance is an area of financial study devoted to how psychological influences by individuals and crowds affect market outcomes. Mr. Houser’s book does a great job of taking some of these influences and explaining them in a text that is shorter than most books. My read time on this book was under four hours, which didn’t feel long enough by the time I had finished the book.
The Psychology of Money was a great book recommended to me by a personal friend and colleague, and I really enjoyed the several takeaways from this book. I use several excerpts from the book in helping clients have a better understanding of how behavior and mood impacts how they approach investing and their view on the markets overall. I would recommend this book to anyone interested in learning more about good approaches to saving, want to read about a top-down view of investing, or are newer to investing and want a light, easy-to-read book that provides a ton of wisdom for a short amount of read time.
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