Book Review: Morgan Housel: Psychology of Money(2020)

Psychology of Money is a book that seriously provokes its readers to think about their
outlook toward investment and money. It starts with explaining how the world impacts
people's behaviour and ultimately shapes the decision-making process. It gives various
examples of how people made a fortune out of the very ordinary investment process and
became broke with how they behaved. The second topic that it touches is luck and risk.
Though it is generally considered that returns precede risks, the author also touches upon the
factor that luck plays in the world of investment.
The most important learning from the book is the concept of compounding. Compounding is
a fascinating phenomenon in finance and kind of drives all investment decisions. One
example that stood out was that of Warren Buffet. Almost 90& of his total fortune came after
his 65th birthday. It indicates that compounding has gradually bloated the seemingly very
modest investment. Even though this concept is most discussed and almost known to
everyone, people fail to grasp the real meaning of it. In general, human mind is wired to think
in linear term. But compounding is exponential. Envisioning compounding does not come as
easy as simple interest.
Morgan Housel also discusses how becoming wealthy and staying healthy are two different
ball games altogether. Usually, people may make a very good investing decision but
consistently repeating it is very difficult and requires lot of careful consideration. The author
also touches on delicate topics like happiness and irrelevance of people’s tendency to impress
others by showing off wealth.
In general, this book gives some fabulous lessons on money and investment. This should be
handbook of all budding as well as matured investors. Some of the key learning for me are:
 Anyone can become wealthy. Formal education and intelligence are not irrelevant.
 Sometimes luck plays a more crucial role than a good decision.
 Financial success is a soft skill unlike engineering and medical.
 Finance does not have formal rules like most of the subjects. Almost all the time
market is driven by emotion.
 People need to have a goal and achieve it. Also, there should be a limit to financial
wants.
 Long term consistent gains are more important than short term big gains.
 The difference between wealthy and rich is that rich people tend to show off by
buying luxury item, whereas wealthy ones save and increase their wealth.
 Past data can help you take a decision but it can never predict what will happen in
future.
 Identifying your risk appetite and your limit is essential before one start investing.

Overall, this book gives a detailed view into the world of investment and explains the
nuances pretty well.

Score: ★★★★★

[PTO for the review of Diamonds in the Dust: Consistent Compounding for Extraordinary
Wealth Creation]
Book Review: Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth
Creation
Diamonds in the Dust is one of the finest books that details out the fundamentals of
investment in Indian equity market. Though there are many books that talks about stock
markets and stock valuation but none that focuses on a particular market which this book
covers: Indian equity market. It starts with highlighting the behaviour of common Indian
investor which invests in traditional assets class like real estate fixed deposits etc. They have
very little to no knowledge at all about the equity market and consider it gambling. Many of
these investors are unaware about the risks like accounting, revenue profit and liquidity.
Saurabh also gives insights into how to pick stocks in this book. It highlights the importance
of cash flow in deciding a particular stock and transactions that company is making. He
suggests its reader to stay away from companies which have large transaction to family-
owned entities. He also says that annual reports at times have incorrect information.
Unlike typical finance book, this book provides an easy read to anyone who is starting up in
the investment world. Author also shares its philosophy of investment which usually budding
investors try and copy from successful ones like Saurabh. Usually, ordinary investors find it
difficult to pick stocks. This book simplifies the process for them. The best thing about this
book is that Saurabh has shared details step for screening a stock.
Though this book is excellent in teaching investment and decision-making process I have my
critique for this book. At times it felt like the author has tried to advertise few stocks. I
understand that he is just trying to give examples but he could have chosen some fake
company or made-up data. Some of the concepts are a bit repetitive and a seasoned finance
professional may find it boring to continue reading the book. Overall, it is a good one time
read.

Score: ★★★