By Leslie Albrecht
‘No one is going to read this book’: The publishers said ‘The Psychology of Money’ would never work. Now, Morgan Housel is on MarketWatch’s 50 list of the most influential people in the markets.
There are some interesting quirks about one of the best-selling personal finance books of the past five years. “The Psychology of Money” is about investing, but it doesn’t deal with asset allocation or other practical advice. Its author, Morgan Housel, had limited first-hand experience in finance when he wrote it and no background in psychology or financial counseling. Some readers have told him that they vehemently disagree with his personal investment strategies, which he outlines at the end of the book.
But what’s probably most surprising is that every American publisher passed on the book. Their loss. Since its publication in September 2020 by Harriman House, a British publisher employing 11 people, “The Psychology of Money” has sold more than 2.2 million copies worldwide and has consistently ranked among the related titles to Amazon’s Best Selling Money. The book has been published in 52 languages and its film rights have been optioned.
Housel’s book succeeds because it offers the kind of timeless financial advice your grandfather might have given you (think lessons like “Pay yourself first,” putting some of your paycheck into savings) in an accessible and non-judgmental way. Similar to how Housel appears in conversation, the book is authoritative without appearing arrogant. It helped reshape the way people think about personal finance and investing, landing Housel on MarketWatch’s 50 list of the most influential people in the markets.
“This is a finance book – but it’s not a finance textbook,” Housel told MarketWatch in an interview. “I just wanted to tell stories. And the stories have nothing to do with finance. There are stories in the book about World War II, and syphilis treatments, and ice ages and all that stuff. that have nothing to do with finance, but they tell a story about how people think and behave, and that’s the most important part of finance.”
Harriman House had low hopes for “The Psychology of Money” when they signed the deal with Housel, spokeswoman Lucy Vincent said. Based on Amazon pre-orders six months before release, the publisher printed 5,000 copies. Housel remembers thinking that selling 5,000 would be “awesome”. He and the publisher had conversations about donating unsold copies to schools. Of course, there was no need to give copies. The book was given away, however; companies such as Davis Advisors, Merrill Lynch, and GoBundance have ordered special corporate editions, sometimes accompanied by a new striker by the CEO, to be given as gifts to employees or customers.
Today, Vincent’s marketing and sales expectations for the book are much bolder. She now says “The Psychology of Money” will grace the shelves alongside venerable titles like Robert Kiyosaki’s “Rich Dad Poor Dad” (which has sold 32 million copies since 1997) and “Think and Grow Rich”, the 1937 book by Napoleon Hill that sold 15 million.
“It’s not out of reach to place ‘The Psychology of Money’ next to these books and it was published less than two years ago,” Vincent told Marketwatch.
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Learn about human nature by parking Lamborghinis
Housel’s path to the personal finance canon wasn’t exactly a forehand. The route included a stop in the parking lot of an upscale Los Angeles hotel, where Housel worked as a valet throughout college. Parking Ferraris and watching their owners taught him some of the money lessons he shares in “The Psychology of Money.” Namely, that money doesn’t necessarily buy you respect, and that “wealth is what you don’t see”. He discusses his valet parking experiences in the book in a chapter captioned, “Spending money to show people how much money you have is the fastest way to have less money.”
The book is a series of mini-essays, many of which draw on history, that explore how and why we form our beliefs about money and markets.
Housel says his goal was to give people a framework for how to think about money, not tell them what to do, he says.
“I really wanted to go out of my way in this personal finance book to not give personal financial advice at all,” Housel told MarketWatch. “I can’t think of one thing in the book that I would call personal finance advice. What I want to do is show people how they can be more introspective about themselves so they can find the good thing for them to do. That in my mind was a more realistic way to provide financial advice.”
Allow people to be “reasonable” with their money
Housel receives over 100 messages a day from readers. Many respond to what he considered a “throwaway point” in the book, that people shouldn’t aim to be rational with their money, they should aim to be reasonable.
“I think a lot of people have read it and it’s given them permission to justify some of the things they do with their money that they know are probably wrong, but want to do anyway” , Housel said. “I think it’s great, not pretending you’re a spreadsheet, acknowledging that you’re a very emotional person who maybe has a family to support, and that’s an emotional thing in self.”
This perspective is why Kelley Long, a Certified Financial Planner in Arizona, cites her dog-eared copy of the book when working with clients. “It gives people permission not to follow the exact path with money that our fathers said we should follow. It’s a modern take on why people don’t do what they know to be best for them financially,” Long said.
For clients who fear the risks of investing, she cites a section of the book where Housel reframes market volatility as a fee rather than a fine or punishment. “It helps people better understand how to take the emotional side of investing and just deal with it, instead of trying to navigate their way through it,” Long said.
When Housel hears negative comments about the book, it sometimes comes from readers in India (where it’s sold 350,000 Indian English editions), China or Brazil, who argue that the book is written right through the lens of a white American man. He responds to these criticisms by saying, “Yes, that’s who I am.” For him, the review is a “perfect example” of one of the main points of the book, which is that everyone sees the world – and money – through the prism of their own individual experience.
Another point that readers constantly dispute: Housel’s own investment strategies. Now 38 and a married father of two living in Seattle, Housel writes in the book that he once picked individual stocks, but now every stock he and his wife own is housed in an index fund at low cost.
“The number of people who wrote to me and said, ‘I loved the book until I got to this chapter and now I can’t take you seriously’ was unbelievable,” said Housel said. “So many people have read this and said, ‘If you’re investing in index funds, you clearly have no idea what you’re doing. It was so fascinating to me.”
For Housel, it’s another example of how each of us views money from our own perspective. “People always have this idea that if you handle money differently from them, they take it as an affront that you disagree with them,” Housel said.
First money lessons from parents who met in a ‘hippie community’
Housel’s no-nonsense approach to money has its roots in his childhood. His parents were “very poor” students when they were raising Housel and his two siblings, and his family lived very modestly.
Her parents met at a hippie commune in Tennessee, and her father didn’t go to college until he was 30. Housel’s father ended up becoming an ER doctor in his early 40s and his mother became an ER nurse. The family’s financial situation improved dramatically, but Housel’s parents continued to save money aggressively and live well below their means. Thanks in part to this no-frills financial strategy, Housel’s father was able to retire after about 20 years. Housel says witnessing this taught him another lesson he talks about in “The Psychology of Money,” which is that the best thing money can buy you is control over your time. .
Growing up in California near Lake Tahoe, Housel spent her high school years focusing primarily on ski racing, not academics. After remedial classes at a community college, he started at the University of Southern California at age 20 and graduated in 2008 with a degree in economics.
Housel thought he wanted to be an investment banker “because you could make a lot of money.” But a college internship embittered him after realizing ‘the reason you can make good money in investment banking is because it’s one of the most sadistic industries there is’ . Then comes a stint in private equity, a job he loves, but which ends in mid-2007 when the financial crisis begins to set in and his employer offers him to find another job.
“In desperation,” he said, he then applied for a position as a finance writer for The Motley Fool, a personal finance and investing website.
“No one will read this book”
In 2018, Housel wrote an article laying out the 20 most compelling ideas he had come across in his decade of writing about investing. It was called “The Psychology of Money”. Housel told MarketWatch that he “shamelessly stole” the title of a 1995 speech titled “The Psychology of Human Error” by Charlie Munger, the longtime investment partner of Warren Buffett, CEO of Berkshire Hathaway. Munger’s essay consisted of several short stories, each making a separate point, and Housel copied this format.
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