MiB: Why You Should Save Like a Pessimist But Invest Like an Optimist

Should investors be optimists or pessimists?

According to Morgan Housel, the answer is both. In his new book, The Psychology of Money: Timeless lessons on wealth, greed, and happiness, he explains why your daily finances should be managed conservatively, even pessimistically: Don’t borrow too much, assume you can lose your job, prepare for the possibility of no salary for 6-12 months.

As an investor, you are betting on the ingenuity of the human mind and spirit. As an example, he points to the airplane – arguably, the most important invention of the 20th century. But after the Wright Brothers flew at Kitty Hawk and in their hometown in Dayton, Ohio, self-powered flight was mostly ignored. It took decades before anyone recognized the economic impact of air travel, military applications, shipping, etc. The same was true for most inventions including the automobile and the computer). He asks “What has been invented over the past decade that the investors today may be ignoring?”

Housel describes the early part of his career — a downhill ski racer in high school, he worked briefly in investment banking and private equity but neither excited him. A friend working at the Motley Fool invited him to try writing, and he found he really enjoyed it. He explains why he writes towards an idea and not for any specific audience. Housel uses narrative stories to illustrate financial themes while sneaking in an important lesson. His skills grew until he began winning recognition and awards for his writing. Today, his is a partner at Collaborative Funds.

A list of his favorite books are here; A transcript of our conversation is available here.

You can stream and download our full conversation, including the podcast extras on iTunesSpotifyOvercastGoogleBloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.


Be sure to check out our Masters in Business next week with Fidelity‘s Will Danoff, who manages the firm’s storied Contrafund, Over 30 years of running Contra, Danoff has outperformed the S&P 500 Index by 3.21 percentage points a year.


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