Managing expectations is more important than money

Morgan Housel instead believes that the key to investing success is time. (Picture 123RF)

Author and speaker Morgan Housell says an investor who doesn’t manage their expectations can never be satisfied, no matter how much money they raise over their lifetime.

The American Investor is the author of the book The Psychology of Money: Some Timeless Lessons About Wealth, Greed, and Happinesswas a guest at CFA Montreal to discuss the psychological relationship to money.

Morgan Housel has been busy debunking some of the myths associated with investing and the stock markets. The first is that money brings happiness, and therefore it is necessary to accumulate as much wealth as possible from it.

“You will never be happy with your money if your expectations are growing faster than your wealth,” he says. Investors tend to focus their efforts on creating wealth, but none of them focus on managing their expectations. Hence they get the impression that they don’t have enough money at all. »

He cites as an example Bernie Madoff, who was the mastermind behind a Ponzi scheme that brought in about $65 billion. Morgan Housele recalls that the fraudster earned $30 million a year before starting his illegal machinations. “He wanted so much more that he didn’t even hesitate to bend over to defraud people,” he says.

It also mentions Stephen Hawkin, who spent most of his life in a wheelchair after being diagnosed with a terminal degenerative disease at the age of 21. However, the physicist claimed to be happy, despite his condition.

“His expectations were reduced to zero when he was 21 years old, confirms Morgan Housele. He said everything else was a bonus.”

Time is more than time

Another myth that Morgan Housell wants to eradicate is the success associated with timing. Rather, the author believes that the key element for successful investment is time.

He points to Warren Buffett, whose fortune has grown from $5,000 at age 14 to over $1 billion at age 89. Note that 99% of his holdings have accumulated after 50e His birthday, and 98% are after his 60se.

“If he retired at 60, no one would have heard of him, dropping Morgan Housele. But 99% of his success comes from being good for over 75 years. Everyone wonders how he did it. The most powerful lever is time. Nothing is more important than increasing the length of time that You will invest it.”

right to wrong

He also believes that investors should focus on long-term results rather than on each quarter. It is noted that many stock indices have performed excellently if we look at their historical data as a whole. However, they all have had less remarkable periods.

He explains that a person who invested in the S&P 500 from its early days in 1957 through 2017 would have earned 200 times his or her money. But since it is impossible to accurately predict difficult times, the investor can back out and miss opportunities.

“You can be wrong half the time and still be perfect,” Morgan Housell says. Being a good investor is about making fewer mistakes than making good moves. »

Risk Management

The author also provided his definition of investment risk. For him, risk is what is left when you think about everything.

“The biggest danger to the economy always comes from something no one talks about,” he says. Which means we are not prepared, and the damage is greater. »

The most recent example is COVID-19, but he also cites the events of September 11, 2001 and the attack on Pearl Harbor as things that have significantly disrupted the US economy.

“It’s better to have expectations than expectations, he is regressing. If you anticipate two recessions in every decade, you will be prepared for them.”

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