The Psychology of Money
Click here to buy the book.🚀 The Book in 3 Sentences
The Psychology of Money is a collection of short stories that explore the strange and surprising ways people think about money.
The book teaches that doing well with money isn’t necessarily about what you know—it’s about how you behave, and behavior is hard to teach.
By reading The Psychology of Money, you’ll learn timeless lessons on wealth, greed, and happiness that apply both inside and outside your portfolio.
🧠 Key Takeaways
When it comes to being financially successful, what matters most is your ability to manage a few essential behaviors—patience, discipline, consistency, and an understanding of how compounding works over time.
Even though there are definitely some universal rules when it comes to what you should or shouldn’t do with your money, so much of how we handle our finances comes down to things we had no control over—like when you were born, where you grew up, and what kind of family you were raised in.
Luck and risk are two sides of the same coin—and they play at least a small role in every outcome in life.
If stocks have been going up for a while, it’s easy to forget that they can go the other way just as fast. And when share prices feel like they’re hitting new lows every day, it’s easy to forget that the sun also rises. Either way, you can’t be too optimistic or too pessimistic for too long. You have to find a way to balance both at the same time without getting too caught up in whatever’s happening right now.
While there’s no cap on how large your portfolio can grow, you should define what “enough” looks like for you. It’s important to know when to start enjoying what you’ve built instead of constantly chasing more.
Investing—like business—isn’t about being the fastest out of the gate. It’s about being the “last man standing.”
The truth is, if your happiness and self-worth come from how others see you, you’ll never feel fully content. What matters most is how you feel about you. That’s the inner scorecard—and that’s where real contentment and fulfillment come from. Not the stuff you buy to impress strangers.
One of the most important variables in the wealth-building equation actually has nothing to do with money at all. It's learning to be satisfied—because the less stuff you want, the more freedom you can create.
To be successful in investing, you first have to endure periods of volatility, concern, fear, and uncertainty—and make it through to the other side—in order to eventually build wealth.
Progress in your portfolio happens too slowly to notice, but setbacks happen too quickly to ignore.
✍️ Memorable Quotes
“A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.”
This is basically the core idea of the entire book: you don’t need to be a genius to become financially successful.
What matters much more is your ability to manage a few essential behaviors—patience, discipline, consistency, and an understanding of how compounding works over time. If you can understand those principles and stick with them, you’ll end up in a much better financial position than someone who may be smarter but is emotionally reckless.
In the long run, it’s not who has the highest IQ—it’s about temperament.
“Everyone has their own unique experience with how the world works. And what you’ve experienced is more compelling than what you learn second-hand. So all of us—you, me, everyone—go through life anchored to a set of views about how money works that vary wildly from person to person. What seems crazy to you might make sense to me.”
Even though there are definitely some universal rules when it comes to what you should or shouldn’t do with your money, so much of how we handle our finances comes down to things we had no control over—like when you were born, where you grew up, and what kind of family you were raised in.
For example, someone who grew up the Great Depression is going to think about money completely differently than someone who grew up during the post-WWII boom. And someone raised in a wealthy household will have wildly different views about money than someone who grew up in a household where money was scarce.
It’s worth remembering that before jumping to judge someone’s financial choices—and I have to remind myself of this too. A decision might seem crazy on the surface, but once you understand the background and lived experience behind it, it might make a lot more sense.
“Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort.”
In other words, luck and risk are two sides of the same coin—and they play at least a small role in every outcome in life.
They have to, because the world is too complex, too chaotic, and too connected for your actions alone to fully determine how things unfold. At the end of the day, you’re one person in a game with seven billion others and infinite moving parts.
That means the unintended consequences of other people’s decisions—or random events you never saw coming—can end up mattering more than the choices you made.
This is especially true in investing. So much is out of your control when it comes to where a stock’s share price goes. If it shoots up, luck played at least a small part. If it drops hard, the same could be true.
Even if the odds of something bad happening were small, it was still possible—and sometimes, that’s just how the cards are dealt.
“The line between ‘inspiringly bold’ and ‘foolishly reckless’ can be a millimeter thick and only visible with hindsight.”
Looking at a particular outcome — like someone landing a crazy return on a hot, speculative stock — it’s easy to chalk it up to intelligence, confidence, and guts. They’re praised for having the courage to go for it and are revered for the result.
But with risky bets like that, things just as easily could’ve gone the other way. And if they had, we’d be talking about how that person took on way too much risk.
Same decision, opposite outcome—totally different story.
There’s a fine line between those two. Risk can be incredibly rewarding or completely devastating. Either way, you do have to be brave—and probably a little reckless—to go down that path.
When you win, you win big. But when you don’t, it can blow up in your face. That’s the tradeoff, and it’s not for everyone — definitely not for most investors.
“When things are going extremely well, realize it’s not as good as you think. You are not invincible, and if you acknowledge that luck brought you success then you have to believe in luck’s cousin, risk, which can turn your story around just as quickly.”
This is a great reminder of how powerful recency bias can be.
If stocks have been going up for a while, it’s easy to forget that they can go the other way just as fast. And when share prices feel like they’re hitting new lows every day, it’s easy to forget that the sun also rises.
Either way, you can’t be too optimistic or too pessimistic for too long. You have to find a way to balance both at the same time without getting too caught up in whatever’s happening right now. That’s especially true when you remember that a lot of the market’s short-term price action is driven by emotion, not actual business fundamentals.
Personally, I try not to get too worked up about it either way. As long as my dividends are still rolling in—and growing over time—I’m happy.
“The hardest financial skill is getting the goalpost to stop moving.”
Infinite games—which are those with no clear ending—are my favorite kind to play. Since there’s no finish line, there’s technically no winning. You just keep playing.
Because of that, success in these games comes from continuing to make progress. It’s not about “beating” anything—it’s about leveling up and consistently improving.
In my life, I play a handful of infinite games: running, weight lifting, building a YouTube channel, growing a newsletter—and of course, investing.
With investing, there’s no cap on how large your portfolio can grow. It can keep growing forever. And since you’re not limited by your physical ability in quite the same way as other activities, it’s a game you can play for the rest of your life.
On one hand, that’s a really exciting thought. I look forward to playing this game for the rest of my life. I think doing so will help keep my mind active and engaged well into old age (which is still at least a few years off—but approaching faster than I’d like to admit).
On the other hand, getting overly fixated on growing your portfolio just for the sake of a bigger number isn’t always the healthiest pursuit—especially once more money stops meaningfully improving your quality of life.
Eventually, if you play this investing game long enough, you’ll have “enough.” The problem, though, is that most people never define what that point actually is.
As you get older and your life becomes more financially demanding, you’ll probably need to adjust the goalpost a little—that’s hard to completely avoid.
Just try not to move it for the sole sake of moving it. If you do, you’ll never feel like you have enough, which means you’ll never feel content with what you have.
Speaking personally, “enough” has less to do with a specific portfolio size and more to do with the income it generates. I’ve always felt like once I’m bringing in around $2,000 a month in dividends—maybe $2,500 if I need to adjust the goalpost a bit—that’ll be the point where I start pulling from it. To me, that’s a number that lets me enjoy some of what I’ve built without completely stunting the growth of my portfolio.
Overall, you should define what “enough” looks like for you. It’s important to know when to start enjoying what you’ve built instead of constantly chasing more.
“Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.”
In investing, it’s kind of a tradeoff. You can chase returns that are fast and furious or those that come slow and steady.
At first glance, it might seem obvious that the goal should be to make the most money in the least amount of time—and in a perfect world, that would be ideal—but the market rarely plays by those rules.
In reality, the kinds of stocks that offer high-flying returns usually come with just as much potential downside. More often than not, they’re closer to a gamble than a tried-and-true strategy—and even if you get lucky once, it’s tough to replicate that luck over and over.
That’s why the slow and steady approach tends to win over the long term. Investing—like business—isn’t about being the fastest out of the gate. It’s about being the “last man standing.”
Your goal isn’t to live fast and burn out. It’s to still be sticking around when everyone else has fallen off.
The way to do that is by embracing the tradeoff: maybe your returns are a little lower in the short term, but they’re consistent and sustainable.
At the end of the day, it’s the classic tortoise vs. hare situation—and in investing, the tortoise almost always wins.
“People tend to want wealth to signal to others that they should be liked and admired. But in reality those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.”
Our want for showy objects—a flashy car, expensive watch, designer clothes—usually has less to do with appreciating those things for what they are, and more to do with signaling wealth.
We want to put that facade on display because we think it’ll make people respect us more. We assume they’ll hold us in higher regard if we’re wearing a Rolex or driving a Porsche instead of a Seiko and a Honda (I wear Seikos and drive a Honda, for the record).
But the truth is, people don’t really care about you. They’re too caught up in their own lives to think much about what you wear or what you drive.
It doesn’t actually affect how they think about you. If anything, it just makes them think more about themselves.
When you pull up in a Ferrari, they don’t admire you the way you want them to. Instead, they imagine what it would be like if they were behind the wheel. Most of the time, they don’t even notice who’s driving.
No matter how expensive your car is, or how nice your outfit looks, you’re still just another face in the crowd living in obscurity.
I know that sounds a little harsh, but it’s not meant to be demeaning. It’s actually freeing—because it means you don’t have to spend your life trying to impress people who probably aren’t even paying attention.
The truth is, if your happiness and self-worth come from how others see you, you’ll never feel fully content.
What matters most is how you feel about you. That’s the inner scorecard—and that’s where real contentment and fulfillment come from. Not the stuff you buy to impress strangers.
“Learning to be happy with less money creates a gap between what you have and what you want—similar to the gap you get from growing your paycheck, but easier and more in your control.”
The wealth-building equation is pretty straightforward. To build wealth, you have to invest. To invest, you need money. To have money, you need to save. To save, you have to spend less. And to spend less, you need to want less.
That last part is where most people get stuck—not because they can't earn more, but because they keep moving the goalpost for what “enough” looks like.
The truth is, wanting less isn’t about depriving yourself—it’s about finding contentment with what you already have. And when you arrive at that point, you create space between what you earn and what you spend. That space is what allows you to save and invest—and that is where wealth is built.
So ironically, one of the most important variables in the wealth-building equation has nothing to do with money at all. It's learning to be satisfied—because the less stuff you want, the more freedom you can create.
“The price of investing success is not immediately obvious. It’s not a price tag you can see, so when the bill comes due it doesn’t feel like a fee for getting something good. It feels like a fine for doing something wrong. And while people are generally fine with paying fees, fines are supposed to be avoided.”
To be successful in investing, you first have to experience hardship. There’s no way around it.
You have to endure periods of volatility, concern, fear, and uncertainty—and make it through to the other side—in order to eventually build wealth.
That’s the price of admission. It’s a fee you have no other option but to pay.
The problem is, it doesn’t feel like a fee when you’re in the middle of it. If it did, it might be easier to bear. Instead, it feels like a fine—like you did something wrong and are now being punished for it.
We tend to interpret these uncomfortable periods the exact opposite of how we should. Rather than viewing short-term losses, underperformance, or gut-wrenching volatility as part of the process, we take them as signs that we made a mistake.
But the truth is, this is the process. The bumps in the road don’t mean that things are broken—they’re proof that you’re on the path.
And that’s why one of the best rules you can follow as an investor is: If you’re going through hell, keep going.
“Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.”
Put simply: progress in your portfolio happens too slowly to notice, but setbacks happen too quickly to ignore. Why is it like this though?
It’s because your returns come from compounding—a quiet, gradual process that stems from your investments steadily growing their earnings and free cash flow over time.
On the other hand, big drops can happen relatively quickly, because they’re usually triggered by news—and the emotional reaction to that news—which can spread like wildfire.
That’s why building wealth is slow and unnoticeable, while losing it can feel fast and jarring.
Dear Shareholder is a curated collection of the most insightful passages from some of the greatest shareholder letters ever written.