The Psychology of Money (by Morgan Housel)

The link to this original article is: This is a highly recommended read in all business schools and has valuable lessons on money which I want all my blog followers too to read. Hope you enjoy this article, thank you.


Let me tell you the story of two investors, neither of whom knew each other, but whose paths crossed in an interesting way.

Grace Groner was orphaned at age 12. She never married. She never had kids. She never drove a car. She lived most of her life alone in a one-bedroom house and worked her whole career as a secretary. She was, by all accounts, a lovely lady. But she lived a humble and quiet life. That made the $7 million she left to charity after her death in 2010 at age 100 all the more confusing. People who knew her asked: Where did Grace get all that money?

But there was no secret. There was no inheritance. Grace took humble savings from a meager salary and enjoyed eighty years of hands-off compounding in the stock market. That was it.

Weeks after Grace died, an unrelated investing story hit the news.

Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, declared personal bankruptcy, fighting off foreclosure on two homes, one of which was nearly 20,000 square feet and had a $66,000 a month mortgage. Fuscone was the opposite of Grace Groner; educated at Harvard and University of Chicago, he became so successful in the investment industry that he retired in his 40s to “pursue personal and charitable interests.” But heavy borrowing and illiquid investments did him in. The same year Grace Goner left a veritable fortune to charity, Richard stood before a bankruptcy judge and declared: “I have been devastated by the financial crisis … The only source of liquidity is whatever my wife is able to sell in terms of personal furnishings.”

The purpose of these stories is not to say you should be like Grace and avoid being like Richard. It’s to point out that there is no other field where these stories are even possible.

In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections? There will never be a story of a Grace Groner performing heart surgery better than a Harvard-trained cardiologist. Or building a faster chip than Apple’s engineers. Unthinkable.

But these stories happen in investing.

That’s because investing is not the study of finance. It’s the study of how people behave with money. And behavior is hard to teach, even to really smart people. You can’t sum up behavior with formulas to memorize or spreadsheet models to follow. Behavior is inborn, varies by person, is hard to measure, changes over time, and people are prone to deny its existence, especially when describing themselves.

Grace and Richard show that managing money isn’t necessarily about what you know; it’s how you behave. But that’s not how finance is typically taught or discussed. The finance industry talks too much about what to do, and not enough about what happens in your head when you try to do it.

This report describes 20 flaws, biases, and causes of bad behavior I’ve seen pop up often when people deal with money.


Thank you.


How to practice discipline in daily life?


Discipline is not about making to-do lists, setting alarms and eating the big frog from tomorrow. Discipline starts small and is just about doing the same thing at the same time every day, even if it is one simple thing. Discipline actually starts by doing one thing at a particular time and then adding more and more things to do at a particular time of the day. Discipline is more about consistency than about changes in your schedule. Below are some of the key factors (physical, psychological, emotional and cognitive) that influence discipline in various ways. Again, this is a post out of my personal experience of trying to be disciplined and observing myself on how I felt during such experiences.

Our physical being influences our discipline

One of the major problems we face is: we procrastinate stuff that we don’t like to do because the task creates negative emotions in us. However, the best way out of this is to find the best time of the day when you are undisturbed and when you are usually not in a low mood or not going through emotions of the day to do the particular task. Typically, for most people this time is either early in the morning or late in the day. With enough self-observation, one can make out at what times of the day are you best suited for a certain type of task based on how your body and mind feel at that part of the day; the body should be fresh enough to do an unmotivated task without triggering a negative emotion. Usually, if the body has to come out of rest, there will be a huge negative emotion if the task is not motivating enough. But if the body has got adequate rest and has woken up automatically, then doing an unmotivated task when the body and mind are fresh is not so tough. Because, as the day progresses the mind goes through a lot of emotional chitter-chatter and, therefore, it takes more energy to overcome the emotional barrier of doing an unmotivated task.

Overcoming the emotional hurdle of being disciplined

PrioritizingTasks.pngThe left picture describes the prioritization that is to be followed by the disciplined mind. It is easy to think about the mentioned template (picture left) to prioritize tasks, but following the prioritization is an emotional hurdle and is the difficult part as always. It is not easy to execute in the order of priority, but it improves with practice. This also helps you to get maximum productivity because the most self-motivating task (which one will anyways do) is always at the last. You have to start practicing this and the acceptance by your mind to delay gratification of positive emotions task increases with practice (as the emotions start getting regulated with practice). As you keep doing more of a negative emotion task, the task can become less negative emotional over the time and therefore it becomes easier to be disciplined with time.

Every task requires an emotional energy barrier to cross to produce an action. A self-motivating task is one where the emotional energy needed automatically crosses the required threshold of the energy barrier for the task. A negative emotion task is one where the emotional energy produced by the self is not enough to cross the required energy barrier. Moreover, the energy required to imagine or think about doing a task is less as compared to the energy required to physically act on the task. This is why most procrastinators end up thinking a lot and not acting as much as they should. However, with enough understanding and management of one’s own body-mind, one’s daily routine and priority, procrastination can be curtailed and discipline can be brought back one day by day.

Positive Emotional Energy minus Negative Emotional Energy > Energy Barrier required for the task/ inherent to the person

Thinking and consciously working on how you feel or emote about something and changing the way you emote about it is probably the biggest challenge in life and probably summarizes life itself. After all, there is no point in having conscious cognition if all we have to do is what we feel or emote about a task. Therefore, acting out emotionally itself is not the best way to live life. But, your sub-conscious mind tricks you to make you feel that your decision is a thoughtful decision as the sub-conscious builds the argument from the emotional point of view.

Why emotions are inferior to cognition in terms of time?

Your subconscious mind always predicts what is the outcome and feeling of an action or thought event – whether it is a desirable or non-desirable – even before you act on it; it just happens right when you face that stimuli. If it is going to require additional effort or non-desirable action or result, the sub-conscious mind will automatically suppress you from doing so against your nature. However, the conscious mind should override this and take decisions with an understanding of time. The subconscious mind is correct, however, it doesn’t take into account the factor of time. Emotions are feedback at that moment and they don’t understand time on a longer scale. And if emotions don’t understand time then they are definitely inferior to cognition which understands time, because time is a reality for life. 

Thinking vs. Executing – control is the difference

The difference between thinking and executing is a gap in parameters. You will always know all the parameters involved in a task only in its execution and not in planning. Therefore, in sport, there is a difference in going out and actually hitting a cover drive in cricket or a goal in football and thinking of the parameters that are involved in hitting a cover drive or a goal. There is also the parameter of control – thinking and executing differs in control because thinking doesn’t require control but execution requires control of parameters or control of response in feedback. And this control is the feedback of every action on a second to second basis. This feedback actually changes how we execute vs planned. This feedback only comes into play only in execution and cannot be completely taken care in planning or thinking.

A lousy plan, well executed, is often successful. Success only starts when you start execution, else you are in a default state of failure because of entropy.

Thank you.







The Vicious Cycle of Self-esteem and Self-discipline

This is a snippet from an article in Psychology Today.

It may be true that we can do almost anything we set our mind to. But if our mind is our worst enemy, we simply may not be able to believe this otherwise inspiring (and motivating!) maxim. That is, whatever anxieties we may have about failing, as well as our poor sense of self-efficacy, may either keep us from starting a task or prevent us from completing it. And even if we do end up finishing it–because, say, it’s a job requirement and we absolutely must–our pattern of delay will still persist. Unresolved self-doubts (deeply programmed within us) aren’t automatically erased by an expedient action and will reaffirm themselves (through some sort of procrastination) the very next time we’re obliged to do something.

In my experience, people who lack self-discipline also lack fundamental self-esteem. And here the latter deficiency seems to feed directly into the former. That is, significant defects in our self-image undermine our confidence in our abilities, and this lack of self-confidence negatively affects the development of self-discipline–which of course is necessary to accomplish just those things that would enhance our self-esteem. Psychologically speaking, this has got to be one of the most vicious of vicious cycles