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the good approaches towards money that The same concept also occurs in investing.
can be implemented even by the janitor As Housel describes, since 1980 the
(that we should emulate), and the bad ones Russell 3000 index has increased more
even by the likes of the Harvard-educated than 73-fold, which is a spectacular return.
executive (that we should avoid). However, if we look closer, 40% of the
companies in the index were effectively
failures, while the 7%of components
performed extremely well and were more
than enough to offset the flops. And there
is more. Within the most performing
companies in the market there are even
more tail events. In 2018, Amazon alone
drove 6% of the S&P 500 returns, while
Amazon’s growth itself was almost entirely
thanks to Amazon Prime and Amazon Web
And the first thing that we need to Services, while others such as Fire Phone
understand is that everyone is different. and travel agencies have failed.
We have different personalities, different This is also where Housel emphasized the
childhood backgrounds, different importance of “batting average”, that it is
education, different goals, and thus it is ok to have small losses here and there as
only natural that we have different risk long as the wins can more than compensate
tolerances and attitudes towards money, for the whole performance. This approach
saving and investment. For example, is valid for money and any other functions
baby boomers that grew up in the Great in life.
Depression era will have a different attitude Moreover, in this immensely informative
towards risk and reward compared with book in just 183 pages, there are many
millennials who live under a low inflation more lessons on the psychology of money
low-interest rate environment. that helps to frame and re-frame our
Another important point in the book mindsets, such as the relationship between
is that tails drive everything. There are luck and risk, the magic of compounding,
around 15 billion lives that were born the difference between fees and fines,
between the 19th and 20th century but how historical trends are not prophecies,
imagine 7% of them were never born, such how optimistic-pessimistic outlooks can
as Adolf Hitler, Joseph Stalin, Mao Zedong, influence our decision makings, and one
Gavrilo Princip, Thomas Edison, Bill Gates, important mindset that rarely discussed
and Martin Luther King. Or imagine the by any other commercial personal finance
last century without the small percentage of books: the importance of contentment.
occurrences such as the Great Depression,
World War 2, The Manhattan Project,
Vaccines, Antibiotics, September 11th, and
the fall of the Soviet Union. The point is, a
small percentage of people or events create
the most impacts in history.
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