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| Writer | Morgan Housel |
| Category | Psychology |
| Language | English |
| Publisher | Harriman House |
| Publish Date | 2000 |
| Pages | 202 |
| File Size | 3 MB |
| File Type |
I spent my college years working as a valet at a nice hotel in Los Angeles. One frequent guest was a technology executive. He was a genius, having designed and patented a key component in Wi-Fi routers in his 20s. He had started and sold several companies. And he was wildly successful.
The Psychology of Money PDF – Morgan Housel
He also had a relationship with money I’d describe as a mix of insecurity and childish stupidity. He carried a stack of hundred-dollar bills several inches thick. And he showed it to everyone who wanted to see it and many who didn’t. He bragged openly and loudly about his wealth, often while drunk and always apropos of nothing.
One day, he handed one of my colleagues several thousand dollars of cash and said, “Go to the jewelry store down the street and get me a few $1,000 gold coins.” An hour later, gold coins in hand, the tech executive and his buddies gathered around a dock overlooking the Pacific Ocean. They then proceeded to throw the coins into the sea, skipping them like rocks, cackling as they argued whose went furthest.
Just for fun. Days later, he shattered a lamp in the hotel’s restaurant. A manager told him it was a $500 lamp and he’d have to replace it. “You want five hundred dollars?” the executive asked incredulously while pulling a brick of cash from his pocket and handing it to the manager.
The Psychology of Money PDF – Morgan Housel
“Here’s five thousand dollars. Now get out of my face. And don’t ever insult me like that again.” You may wonder how long this behavior could last, and the answer is “not long.” I learned years later that he went broke. The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave.
And behavior is hard to teach, even to really smart people. A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence. My favorite Wikipedia entry begins:
“Ronald James Read was an American philanthropist, investor, janitor, and gas station attendant.” Ronald Read was born in rural Vermont. He was the first person in his family to graduate high school, made all the more impressive by the fact that he hitchhiked to campus each day. For those who knew Ronald Read, there wasn’t much else worth mentioning.
The Psychology of Money PDF – Morgan Housel
His life was about as low-key as they come. Read fixed cars at a gas station for 25 years and swept floors at JCPenney for 17 years. He bought a two-bedroom house for $12,000 at age 38 and lived there for the rest of his life. He was widowed at age 50 and never remarried. A friend recalled that his main hobby was chopping firewood.
Read died in 2014, at the age of 92. Which is when the humble rural janitor made international headlines. 2,813,503 Americans died in 2014. Fewer than 4,000 of them had a net worth of over $8 million when they passed away. Ronald Read was one of them. In his will, the former janitor left $2 million to his stepkids and more than $6 million to his local hospital and library.
Those who knew Read were baffled. Where did he get all that money? It turned out there was no secret. There was no lottery win and no inheritance. Read saved what little he could and invested it in blue-chip stocks. Then he waited, for decades on end, as tiny savings compounded into more than $8 million. That’s it. From janitor to philanthropist.
The Psychology of Money PDF – Morgan Housel
A few months before Ronald Read died, another man named Richard was in the news. Richard Fuscone was everything Ronald Read was not. A Harvard-educated Merrill Lynch executive with an MBA, Fuscone had such a successful career in finance that he retired in his 40s to become a philanthropist. Former Merrill CEO David Komansky praised Fuscone’s “business savvy, leadership skills, sound judgment and personal integrity.”
1 Crain’s business magazine once included him in a “40 under 40” list of successful businesspeople. 2 But then—like the gold-coin-skipping tech executive— everything fell apart. In the mid-2000s, Fuscone borrowed heavily to expand an 18,000-square-foot home in Greenwich, Connecticut, that had 11 bathrooms, two elevators, two pools, seven garages, and cost more than $90,000 a month to maintain.
Then the 2008 financial crisis hit. The crisis hurt virtually everyone’s finances. It apparently turned Fuscone’s into dust. High debt and illiquid assets left him bankrupt. “I currently have no income,” he allegedly told a bankruptcy judge in 2008. First, his Palm Beach house was foreclosed. In 2014, it was the Greenwich mansion’s turn.
The Psychology of Money PDF – Morgan Housel
Five months before Ronald Read left his fortune to charity, Richard Fuscone’s home—where guests recalled the “thrill of dining and dancing atop a see-through covering on the home’s indoor swimming pool”—was sold in a foreclosure auction for 75% less than an insurance company figured it was worth.3 Ronald Read was patient; Richard Fuscone was greedy.
That’s all it took to eclipse the massive education and experience gap between the two. The lesson here is not to be more like Ronald and less like Richard—though that’s not bad advice. The fascinating thing about these stories is how unique they are to finance.
In what other industry does someone with no college degree, no training, no background, no formal experience, and no connections massively outperform someone with the best education, the best training, and the best connections? I struggle to think of any. It is impossible to think of a story about Ronald Read performing a heart transplant better than a Harvard-trained surgeon.
The Psychology of Money PDF – Morgan Housel
Or designing a skyscraper superior to the best-trained architects. There will never be a story of a janitor outperforming the world’s top nuclear engineers. But these stories do happen in investing. The fact that Ronald Read can coexist with Richard Fuscone has two explanations.
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The Psychology of Money PDF