[남산 Ddalggakbari] Psychology Over Skill in Achieving Wealth

The Psychology of Money / Morgan Housel / Translated by Lee Ji-yeon / Influential / 19,800 KRW

To Succeed in Investing, Understand People's Psychology
Experience with Money by Generation, Income, and Values
Key Points That Determine Investment Decisions

Maintaining Wealth... Desire Should Not Exceed Satisfaction
It's More Important to Stay Rich Than to Become Rich

[Asia Economy Reporter Oh Ju-yeon] ‘Byeorakgeoji’ (sudden pauper). This self-deprecating expression, meaning those who have only engaged in ordinary economic activities suddenly become paupers due to soaring housing prices and stock prices, is spreading like a buzzword, and interest in financial investment is hotter than ever.

While ‘Byeorakbuja’ (sudden rich) ends with relative deprivation, ‘Byeorakgeoji’ is more cruel as it causes self-loathing about a life of hard work. Perhaps because of this, the field heating up bookstores from the New Year of the Year of the Ox is undoubtedly financial investment.

For a while, books related to ‘owning a home’ captured the attention of ‘Burin-i’ (real estate beginners). Then, as the KOSPI surpassed 3000 early in the year, signaling a bull market, books related to ‘Jurin-i’ (stock beginners) have been pouring out. One can read the desperate efforts of those trying to avoid becoming ‘Byeorakgeoji’, even if they cannot become ‘Byeorakbuja’.

‘The Psychology of Money’ by Morgan Housel, a journalist and columnist for the American daily The Wall Street Journal, ranked first in Amazon’s investment book category last year. In Korea, it gained high popularity, with the first print run of 10,000 copies sold out shortly after publication this year, mainly at the four major bookstores.

The stock market is showing strength due to abundant liquidity, expectations for economic normalization after the novel coronavirus disease (COVID-19), and increased corporate earnings. Various communities are buzzing with stories of making money through stocks. This makes my wallet look even more meager. However, if one rushes into the market late, swept up by the ‘Fear Of Missing Out (FOMO)’, it can be a misstep.

The subtitle of ‘The Psychology of Money’ is ‘Why You Haven’t Become Rich’. The book penetrates our psychology about money and explains how to make money and how to protect the money earned.

Ronald James Reed, who went from a laborer and gas station attendant to owning a net worth of 8 million dollars, and Richard Ferscon, who lived in a mansion with a monthly rent of 90,000 dollars in his 40s after graduating from Harvard University but eventually went bankrupt. The author compares their lives. He explains that investment is a field where a person without a college diploma, education, background, experience, or connections can achieve much better results than someone with the best education and connections. The key is understanding people’s psychology to succeed in investment.

"To understand why people struggle with debt, you should study the history of greed, anxiety, and optimism, not interest rates; to understand why investors sell assets at the bottom of a bear market, you should observe families, not learn future expected return calculations." The author quotes Voltaire (1694?1778), a French Enlightenment thinker, who said that history does not repeat itself, but people do, diagnosing that our behaviors related to money apply the same way.

Experience with money is also an important point in deciding investments. The author says people “sometimes do crazy things with money, but no one is crazy.” He analyzes that experience is relative, depending on generation, income, values, the economic situation at birth, the degree of luck, and so on. The high participation of the 2030 generation in the stock and cryptocurrency markets can be interpreted as their more active approach to risky assets compared to older generations.

"For those born in 1970, the S&P 500 index rose about tenfold during their teens and twenties, while for those born in 1950, the market was sluggish during their teens and twenties. These two groups, divided by birth year, live with completely different perspectives on the principles of the stock market." This explains how a money perspective considered absurd by one group can be perfectly rational to another.

Can wealth painstakingly built be properly maintained? The psychology of money also works here. According to the author, "The hardest thing is to set a goalpost where you can stop." It is a warning that if desire exceeds satisfaction, you will eventually pay the price. "Modern capitalism likes both creating wealth and creating envy. The only way to win in Las Vegas is to leave as soon as you enter."

‘Anyone can become rich, but not everyone can remain rich.’ In the end, the author may have wanted to convey this message at a time when asset values, whether real estate or stocks, are rising.

"More important than becoming rich is staying rich. It is about survival."