Many of the ideas in the book are explored over on the Collaborative Fund blog where Morgan writes. A lot of the book are just elaborations of these ideas. Not that this is a bad thing - engaging with these ideas consecutively in a book is very different to individual blog posts.
The book also includes a postscript that explains the psychology of the current American consumer. Morgan has blogged about this phenomenon.
Notes
Believe in a prosperous future, with landmines along the way. Generally, the trend is up and to the left. Getting there is going to be more complicated.
Invest simply. There is little correlation between investment effort and investment returns. People ignore simple investment strategies for two reasons: because they think better returns come from harder work, or because they want to use their intelligence. In reality, tail events are the main drivers of market returns, even in indices.
Compounding is powerful, but slow. Charlie Munger has said “the first rule of compounding: never interrupt it unnecessarily.” Compounding is a powerful tool, but it is easy to become impatient, or afraid, or distracted, and interrupt the process. Investing with longer time horizons allows you to look past short-term setbacks (that occur quickly), and focus on incremental progress (which builds slowly).
The highest form of wealth is freedom. Morgan believes that the main point of wealth-building through investing is to earn freedom - freedom from worry, from being stuck in a boring career, or from needing to work at all. Reactance is the feeling of not wanting to do something fun because you have to. Freedom means no reactance.
Put resilience before returns. Leaving room for error (the difference between what could happen and what you need to have happened) gives you endurance. This can give you both endurance (to lengthen time horizons) and freedom (by limiting the effect of bad outcomes).
Understand your personal lens. Every investor is biased towards their own experience. Personal experience is much more compelling than second-hand experience. It’s important to remember that your life only makes up a tiny fraction of what’s happening in the world. Potential outcomes that you haven’t yet experienced outnumber those that you have.
Learn from others, but don’t copy. Many financial decisions result from watching other people and copying (or betting against) their actions. This includes learning from the past, but there is so much history that selection is inevitable and necessary. Be careful in how you select lessons from the past or from others - every investor is playing a different game.
Record-setting events have no precedent. You should try to account for unknown risks, i.e. outcomes you haven’t experience first- or second-hand. This is one of the hardest parts of investing because the world is constantly surprising.
Bad news travels faster than good news. Pessimism sells better than optimism because it seems smarter. It is backed up by negative news, which travels fast, while refutation from good news takes much longer to arrive.
Quotes
Patient Compounding
Compounding doesn’t rely on earning big returns. Merely good returns sustained uninterrupted for the longest period of time—especially in times of chaos and havoc—will always win.
Progress happens too slowly to notice, but setbacks happen too quickly to ignore.
Expectations always move slower than facts.
The idea that something can gain over the long run while being a basketcase in the short run is not intuitive, but it’s how a lot of things work in life.
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 in investing. It makes little things grow big and big mistakes fade away.
Anything that keeps you in the game has a quantifiable advantage.
Invest Simply
One of my deeply held investing beliefs is that there is little correlation between investment effort and investment results. The reason is because the world is driven by tails—a few variables account for the majority of returns.
Risk and luck are doppelgangers.
Invest for Freedom
The highest form of wealth is the ability to wake up every morning and say, “I can do whatever I want today.”
What is the return on cash in the bank that gives you the option of changing careers, or retiring early, or freedom from worry?
Doing something you love on a schedule you can’t control can feel the same as doing something you hate. There is a name for this feeling. Psychologists call it reactance.
In the real world, people do not want the mathematically optimal strategy. They want the strategy that maximizes for how well they sleep at night.
Resilience before returns
Worship room for error. A gap between what could happen in the future and what you need to happen in the future in order to do well is what gives you endurance
Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor.
Personal Lens
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.
Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.
The economists found that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation—especially experiences early in their adult life.
Learn from others
Many finance and investment decisions are rooted in watching what other people do and either copying them or betting against them.
And that idea—“What you’re doing seems crazy but I kind of understand why you’re doing it.”—uncovers the root of many of our financial decisions.
[History] cannot be interpreted without the aid of imagination and intuition. The sheer quantity of evidence is so overwhelming that selection is inevitable. Where there is selection there is art.
History is littered with good ideas taken too far, which are indistinguishable from bad ideas.
Bubbles form when the momentum of short-term returns attracts enough money that the makeup of investors shifts from mostly long term to mostly short term.
Record-setting events
[The Fukushima nuclear reactor] had been built to withstand the worst past historical earthquake, with the builders not imagining much worse—and not thinking that the worst past event had to be a surprise, as it had no precedent.
The most surprising thing about the world is that it is constantly surprising.
Faster Bad News
It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent. Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together.
Other Quotes
An underpinning of psychology is that people are poor forecasters of their future selves. Imagining a goal is easy and fun. Imagining a goal in the context of the realistic life stresses that grow with competitive pursuits is something entirely different.
No one—not a single person—said you should choose your work based on your desired future earning power.
In a world where intelligence is hyper-competitive and many previous technical skills have become automated, competitive advantages tilt toward nuanced and soft skills—like communication, empathy, and, perhaps most of all, flexibility.
Incomes among brothers are more correlated than height or weight. If you are rich and tall, your brother is more likely to also be rich than he is tall.
Modern capitalism is a pro at two things: generating wealth and generating envy.
When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.”