Tag: emotions

The Psychology of Money: Morgan Housel’s Finance Tips

Morgan Housel recently wrote The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. No matter how we think about it, managing our own money and trying to build wealth is a game of emotions. Here’s a summary of the main points:

Go out of your way to find humility when things are going right, and forgiveness/compassion when they go wrong. The journey of building wealth is based on risk and luck. Remind yourself that the journey of investing is filled with ups and downs and to be ready for that emotionally.

Less ego, more wealth. Building wealth is simply spending less than you earn. Richness is buying cars, houses and boats. Wealth is what you don’t see – it’s money saved/invested instead of spent. The hardest financial skill is to get the goalposts to stop moving – life isn’t any fun without any sense of “enough”.

Manage your money in a way that helps you sleep at night. If you’re finding that you can’t sleep at night because you’re risking too much investing, you need to rethink your strategy. You may know it’s the “right” strategy, but if you can’t manage it emotionally, you may need to accept a lower risk and lower return by holding a higher percentage of your net worth in cash, or choosing lower risk strategies.

If you want to do better as an investor, the single most powerful thing you can do is increase your time horizon. Time is the most powerful force for growing your wealth. Be patient, and be in it for the long game like Ronald Read and Warren Buffett. In other words, just shut up and wait!

Become okay with a lot of things going wrong. You can be wrong half the time and still make a fortune. Having money in the market means you have to accept that on some days you may lose money, even as much as 30% or more of what you have invested. But if you can use the barbell strategy and invest in some assets with huge upside potential, you can still afford to be wrong most of the time while building wealth.

Use money to gain control over your time. Money means freedom. Being able to do what you want, when you want, with who you want is one thing that having money can bring.

Be nicer and less flashy. You may think people will like and respect you more based on your possessions, but in reality being more compassionate and kind works better. Make sure that when you’re buying possessions it’s for the right reasons – spending money to show people how much money you have is the fastest way to have less money.

Save. Just save. You don’t need a specific reason to save. Saving for something like a car or a down-payment for a house is good, but save as a default strategy too. Who knows what expenses can crop up as a surprise, wouldn’t it make more sense to be financially ready when they crop up?

Define the cost of success and be ready to pay it. The cost of success in investing is the uncertainty, the doubt, and the fear of losing some of your money. But if you want to play the game you need to see those things as a fee for participating. If you’re not willing to pay it, you may be better off just holding everything in cash and settling for a 0% return.

Worship room for error. You never want to be in a position where you could lose all your money, or losses in the market affecting the lifestyle that you live. If you lose a little you can still recover. If you lose it all, you have no money left, and you’ve been ejected from the game with no bankroll to buy back in. Avoid ruin at all costs.

Avoid the extreme ends of financial decisions. The more extreme your financial decisions, the more likely you may regret them if your goals and desires change at a later date. Good investing is less about making good decisions than it is about consistently not screwing up. You can afford not to be the best investor in the world, but you can’t afford to be a bad one.

You should like risk because it pays off over time. But you should be afraid of too much risk that would ruin your chances of winning the overall game.

Define the game you’re playing. Remember that everyone has their own unique financial goals based on the lifestyle and life goals they have. You don’t even necessarily have to compare yourself to overall market returns either. Just choose a strategy that you’d be happy with, without looking at other people and what they’re doing.

Respect the mess. There’s no single right answer in building wealth. Just find out what works for you.

Want to read more on investing? Read about Benjamin Graham’s value investing philosophy.

Why Motivation Doesn’t Work

The issue with motivation is that it never lasts. Motivation comes from emotion, and emotion is temporary. It’s tough to always feel like doing what you’re supposed to be doing. Sometimes you just don’t feel like it.

When you only do things when you feel like it, behavior and results are erratic. When emotions or moods go down, productivity stops. And then it’s a mission of trying to get back the motivation that was lost. You begin to question yourself and you feel stuck. But it doesn’t have to be this way.

The solution: Do it anyway. Through taking action in spite of emotion, the job gets done. You grow, become empowered and in turn can become more motivated from taking the action you needed to. Self-trust and integrity grows, and you really begin to believe you can keep to your word, and self-image and self-esteem grows along with it.

The next time lack of motivation gets in the way of doing what you’re supposed to be doing, do it anyway.

The Subtle Art of Not Giving A Fuck: Mark Manson’s Refreshing Take on Life

The Subtle Art of Not Giving A Fuck is a book by Mark Manson, describing a counterintuitive approach to living a good life. Although counterintuitive, it actually makes a lot of sense. Here’s why:

Manson raises the idea that the self-help genre always fixates on what you lack. By dreaming of riches, the perfect intimate relationship, or a billion dollar business reinforces the fact that you don’t already have all those things. And giving too much of a fuck that you don’t already have those things is bad for your mental health.

Living a good life is giving a fuck about only things that are truly important, knowing that you’re going to die one day, choosing the values in life that mean the most to you, and living those values.

Manson then introduces the idea of the Feedback Loop From Hell. Because human beings have the ability to have thoughts about our thoughts, we can get into a right pickle when we compound our negative emotions. We are say sorry about saying sorry, feel sad about being sad, guilty about feeling guilty. We get angry at ourselves for getting angry, anxious about being anxious and the vicious circle gains momentum.

We need to understand that feeling negative emotions is okay, frequent and normal. But if we keep going round the vicious circle that is the Feedback Loop From Hell, it’s going to make it far worse. So how do you end the feedback loop? Simply: Stop giving a fuck that you feel bad. This short-circuits the loop and you can start again from a blank slate.

Once you accept the negative experience you are having, it in turn becomes a positive experience. And paradoxically, the desire for a positive experience becomes a negative experience. Knowing this, the plight of the world may just simply be that our expectations are too skewed to be happy.

Manson simply tells us: Don’t try. When you stop giving a fuck, everything seems to fall into place. If you’ve ever been in the Zone while doing a task, you’ll notice that you’re not really trying at all, you’re just doing it and the results are coming. When I work as a salesman, the more I try to get people to buy my product, the more they’re deterred from actually buying it.

The avoidance of suffering is a form of suffering. The avoidance of a struggle is a struggle. So our only option is to embrace the suffering and the struggle, and give less of a fuck about them. One of Manson’s most prominent ideas in The Subtle Art of Not Giving A Fuck is the entitlement culture in the world today. Mediocrity is the new standard of failure, because at least if you’re terrible at everything you can tell yourself that you’re special and deserve to be treated differently. Entitlement culture means that we flip-flop between feeling amazing and feeling terrible (but at least we’re getting the attention that we’re looking for).

In a recent Paddy Power advert on TV, football manager Jose Mourinho describes how special he is and how special Paddy Power’s jackpots are. He then gets rudely brought back to reality when a taxi driver interrupts him mid-speech. “That’s not special, someone wins that jackpot every single day!” That’s how we should view our problems. They’re not unique. You’re not the only person in the history of the universe to have experienced the problem you’re going through right now. The person sitting next to you might be going through the same thing. You just didn’t care to ask because you were too self-absorbed in your pseudo-specialness.

Most of the problems we have are not only common, they have simple solutions too. The more that we debate our choices in our minds, the more blind spots we accumulate, when in fact if the same problem was translated to a third person and we’re tasked with giving advice to them about it, we’d say something along the lines of: “Shut the fuck up and do it.”

Manson suggests that happiness comes from you solving your own problems. Of course, the problems never end, it’s just about choosing better problems all the time. Solving the problem of finding a job you like brings the new problems of how you’re going to fit in with your work colleagues, how to meet the deadline you’ve just been given and how you can make a positive impact in what you do.

Manson brings some hard-hitting truths in the course of the book. Words like: Your actions don’t matter that much in the grand scheme of things. The vast majority of your life will be boring and unnoteworthy and that’s okay. We don’t actually know what a negative or a positive experience is in relation to the total timeline of our lives. The worst thing to ever happen to you could end up being the best. Instead of looking to be right all the time, look for things that prove we are wrong.

Manson tells us that meditating on mortality is one of the best antidotes for life. Avoidance of what is painful and uncomfortable is the avoidance of being alive at all. He quotes Mark Twain: “The fear of death follows from the fear of life. A man who lives fully is prepared to die at any time.” You too are going to die and that’s because you too were fortunate to have lived. Now shut the fuck up and do it.

When Being Good Enough Is Better Than Being the Best

In Malcolm Gladwell’s book Outliers, he described the story of Lewis Terman – an American psychologist who tracked children with high IQ scores. He found that although many of them went on to great successes in their careers, there were some who underachieved relative to their perceived potential.

Gladwell argues that after a certain threshold of IQ, it makes very little difference in how applicable their genius really is. For instance, the US winners of the Nobel Prize tend to come from a variety of different universities, not just the Ivy League schools reserved for the upper echelons of genius students. Albert Einstein had a high IQ of 150, but there are people out there with IQs of around 200 that dropped out of university and now work in menial jobs.

Of course, as Daniel Goleman would attest to in his book Emotional Intelligence, emotional intelligence is just as important as IQ in determining career success. An extremely ‘smart’ individual would find it difficult to navigate the world if he had little social awareness or issues with emotions like anger or extreme sadness.

This leads to the question whether companies should follow “affirmative action” guidelines to hire a more diverse set of individuals for their firms, at the expense of hiring the “best-qualified” candidates. While it would be foolish to hire a lawyer with an IQ of 70 because they fit a racial quota, most people who apply to be a lawyer would have an IQ above around 120 anyway. After this threshold, the more important factors are those such as communication skills, strength of character and creative ideas. A member of another social class, religion, race, sexuality and gender are more likely to add to the pool of collective knowledge and ideas too. The concept of diverse thinking is further demonstrated in Rebel Ideas by Matthew Syed.

What Does It Mean to Be Emotionally Intelligent?

Emotional intelligence is a phrase we see loosely throw about in conversations, but what does it actually mean to be emotionally intelligent?

Yale psychologist, Peter Salovey, split emotional intelligence into five domains:

Knowing One’s Emotions

The more we understand our own emotions as they arise, the more self-aware we become and better able we are to describe how we are feeling. We are also better equipped to deal with whatever emotions crop up from moment to moment. An inability to recognize emotions in ourselves leaves us at their mercy. Being in tune with our emotion leads to more certainty in decision-making and we trust ourselves more.

Managing emotions

This builds on the self-awareness of emotion. When we recognize that we are irritable, sad, angry, or anxious, can we soothe ourselves or find a way to act towards a goal despite of these negative emotions? An inability to do this can lead to impulsive decisions or a constant battling of distress.

Motivating oneself

Success towards a goal is largely attributed to delayed gratification and impulsive control. The more we can manage our emotions and still do what we set out to do, the more chance we have of succeeding. Emotions can hijack the brain and without the willpower we can go astray. Being able to enter a ‘flow’ state is another skill emotionally intelligent people are adept at, so that time passes by without distraction.

Recognizing emotions in others

This is probably what most people think of when they hear the term ’emotional intelligence’. How empathic are we? Can we recognize when someone is starting to get irritated, or feeling sad or happy? The more that we understand how someone is feeling, the more we will understand what they need and want. This is crucial for career paths in sales, management, teaching, and caring professions.

Handling relationships

This all culminates in how we are able to handle our relationships effectively. Our quality of life is often attributed to the quality of our relationships, so the better that we can manage the emotions of ourselves and others in our important relationships, the more fulfilled we will be. Having a high emotional intelligence will enable us to become better intimate partners, better to work with, and better to spend time with.

Each individual varies in how well they rank in the five domains of emotional intelligence. Some people may be better at soothing someone else when they are upset, but when they are upset themselves they may find it difficult. Others may be self-aware but oblivious to the subtle cues that others give to them in a social setting.

Even so, what we should all recognize is that our emotional intelligence can be learned, even if some people seem more naturally adept than others. Our brains are remarkably plastic – they can be shaped and biologically influenced based on our input.

Personally, I found that I became much more attuned to other people’s emotions after working in sales because I was engaging in much more face-to-face communication, and it was important for me to get better at it.

Daniel Goleman puts forth in his book Emotional Intelligence that EQ is much more predictive in success than IQ. As a social species, it’s hard to disagree.