I don’t know about you but I am constantly reading. I am normally reading a few books at the same time and, with the weather being as hot as it is, I’ve been spending more time than normal in my reading chair. Currently I’m reading a book on Bayes Law, a second book is on Real Estate Syndications, and the third book is The Psychology of Money by Morgan Housel. It’s this third book that I’d like to highlight this month.
Over the years one of the things I learned is that saving money isn’t that difficult. Saving is all about maintaining a lifestyle that costs less than your earnings. With discipline and time, you will save money. The challenge is making good investment decisions once you have saved money. Chapter five outlines three financial survival characteristics of highly successful individuals. These characteristics apply not only to investing but also to business ownership.
Financially Unbreakable.
The goal is to become financially unbreakable. Most individuals place all their chips on one roll of the dice. All their income comes from one source. All their investments are in one place. If anything happens to either the income source or the investment, they have a serious financial issue. I know you’re saying that’s not you but how many people reading this newsletter have one job (one source of income) and invest all their money in the stock market (one place). The point of this first item is that being one-dimensional is highly risky. Life happens. The larger your diversity of income sources and the larger the diversity of your investment vehicles, the more unbreakable you will be.
You Plan, God Laughs.
The second point relates to planning. ‘Planning is important, but the most important part of every plan is to plan on the plan not going according to plan.’ Remember Mike Tyson quote, ‘Everyone has a plan until they get punched in the face.’ Well, things never go according to plan. For a plan to be useful, it must be able to survive the vagaries of reality. In other words, it must have a significant ‘margin of safety’. Margin of safety is different from being conservative. Conservative is avoiding risk. Margin of safety is raising the odds of success at a given level of risk by increasing your chances of survival. The magic is that the higher your margin of safety, the greater your chance for a favorable outcome. Margin of Safety drives risk reduction.
Barbelled Personality
A ‘barbelled personality’ is a personality that is both optimistic about the future but also paranoid about what can go wrong. Successful individuals believe the future is bright and that everything is moving upwards and to the right, while also understanding lots of things will go wrong and you need to be vigilant, prepared and even paranoid. Individuals who are solely optimistic tend to take foolhardy risks leading to loss. Individuals who are solely paranoid believe that everyone is out to get them and never take any risks. Neither path works. The only path to success is both optimism and paranoia.
Hopefully these three thoughts give you a little something to chew on as you sit out by the pool trying to stay cool this summer. Wishing you and yours the very best.
