Please ensure Javascript is enabled for purposes of website accessibility

Things I'm Pretty Sure About

By Morgan Housel - Mar 30, 2016 at 3:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We're all in the same boat.

Here are a few more things I've learned writing about finance. 

Financial markets are the intersection of $150 trillion, politics, dopamine, creative accounting, bad education, hopes, dreams, and fight-or-flight responses -- all delicately balanced on the theory that people act rationally. Think of it this way and your expectations will fall into check.

The hardest thing when studying market history is that you know how the story ends, which makes it impossible to put yourself in people's shoes and imagine what they were thinking or feeling in the past.

Have a financial plan, but realize the most important part of that plan is planning on the plan not going as planned.

If we could go back seven years and tell everyone that the Dow is near 18,000, unemployment is 4.9% and gas is $1.90 a gallon, they would think we won the lottery and were drowning in prosperity. Instead, we're complaining about market volatility.

Pessimism always sounds smarter than optimism. That's because pessimism sounds like someone trying to help you, while optimism sounds like a sales pitch -- even if it's usually right.

The worst irony in finance is that people have no money when compounding is in their favor and lots of money when it's not.

Every company has three main stakeholders: Customers, employees, and shareholders. An executive recently told me: "It is exceptionally easy to solve for a single stakeholder, but very few businesses want to solve for all stakeholders or even two of them. That's where the hard work/deeper thinking is required."

Every generation is disappointed in their kids. This may be because things typically get better over time, and you become resentful as you see younger generations bypassing problems you yourself dealt with.

If investing were easy, everyone would be successful. And if everyone were successful, there would be no more opportunity to exploit. So it's never going to be easy, and a lot of people will always be unsuccessful.

The investing industry is a place where people are too busy trying to get rich to have any time to focus on what actually works.

We probably don't spend enough time being thankful for what an amazing time it is to be an individual investor. Everything from ETFs to content are free or nearly free, and high quality. It's incomparable to 20 years ago.

If investing were all about math, mathematicians would be rich. If it were all about history, historians would be rich. If it were all about economics, economists would be rich. In reality it's a mix of many disciplines, but some of the brightest people specialize in one topic and can't see the world through another lens.

Big risks will always be discounted; small risks will always be blown out of proportion. That's because not talking about a risk is what makes it risky, while having something on TV 24/7 means people are adjusting their expectations and finding solutions.

The biggest factor affecting market returns are changes in investor moods, which can probably never be predicted no matter how smart analysts become or how fast computers get.

Almost no one actually enjoys flaunting expensive stuff. What they enjoy is the respect and admiration that they assume flaunting expensive stuff will bring them. And they're often wrong about it. Humility may bring you more respect than vanity, but it's so hard to accept that. 

For more:

How the investing industry could change 

Read More Books And Fewer Articles; Read More History and Fewer Forecasts

The Anti-Reading List

Hard Truths For Investors to Wrap Their Heads Around

Is Today's Market More Volatile Than in the Past?

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.