Reasonable > Rational
Author Morgan Housel thinks you should try to be more/less reasonable than coldly rational.
More
Sometimes our investments work out or don't work out not because they lacked effort or research, but because of bad _____.
Luck
What's the best thing you can have in case a ROI is lower than expected or your investments aren't doing as well?
Margin of safety/Room for error (savings also works)
How might you build wealth?
Something like: Taking wise risks, letting your money compound over time, getting lucky or doing well investing in the markets
The best thing you can do to improve your returns and ride out market fluctuations is stay invested ______. (Hint: without pulling your money out or interfering)
Consistently
What do most investors think that they should try to be? (Hint: it's like a badge of honors to be completely ___ about your investments)
Rational/emotionless
It's more important to behave better in finance than be smarter, because these two forces operate independently of intellect or skill:
Luck and Risk
Say someone is expecting a 7% return on their investment, but they prepare for a 5% return just in case. What is this called?
Room for error/Safety margin
How would you maintain wealth?
It's important not to ____ other people's investments because we all have different financial goals, methods, and paths.
Mimic/copy/follow
Why does Housel emphasize being reasonable over being rational?
Something like: It's best to choose investment strategies you can stick with over the long term, even if it's not rationally optimal
Many investors like to attribute their own successes to their ____, and other peoples' successes to good ____. (Hint: Attribution bias/bias to one's own achievements)
1. Skills/Intelligence
2. Luck
The stock market is driven by _____, which are extreme events that are hard to predict.
Tails
What does it mean to be wealthy?
Be able to do what you want, when you want, for as long as you want/having financial freedom OR having money that works for you
Sometimes our investments do poorly simply because of ____.
Luck
Why is being reasonable more sustainable than being rational?
Something like: Because investors have emotions, and those emotions directly influence your investing
We can minimize the role of luck and risk in our investments by diversifying our portfolio and having room for:
error
Why should you save, according to Morgan Housel? (Hint: It's a trick question, but don't overthink it)
You don't need a reason
What is one of if not the most important thing to do when your investments are doing well, according to Morgan Housel?
Stay humble! (Also accept: beware the unexpected, always save)
The most powerful force to increase your ROI (Hint: not research or luck, think compound interest)
Time!
Say someone chooses to pay for a house completely up front for financial independence and peace of mind, rather than taking a mortgage. Mortgage interest rates are quite low, and this money could be invested instead. This would be a ______ decision.
Reasonable
Bill Gates had about a one in a million chance to end up at Lakeside School. With no Lakeside, there would be no Microsoft. However, his friend, _____, had a one in a million chance to die in a mountaineering accident, and got unlucky. FILL IN THE BLANK
Kent Evans
Why is history an unreliable way to predict future events in the market?
Things that haven't happened before happen all the time!
Should you keep your money invested, even if you've already built a lot of wealth?
Yes, because you can allow it to continue to grow, you have some safety if you experience a spending shock or an investment underperforms, and you are less likely to spend large amounts
You don't need to be super ____ to get wealthy, you just need to _____
smart, behave in the right way