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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Getting wealthy vs. staying wealthy There are a million ways to get wealthy, and plenty of books on how to do so. But there’s only one way to stay wealthy: some combination of frugality and paranoia. And that’s a topic we don’t discuss enough. Let’s begin with a quick story about two investors, neither of whom knew the other, but whose paths crossed in an interesting way almost a century ago.
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
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.”
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.