Saturday, August 08, 2020

Do You Know the Difference Between Being Rich and Being Wealthy?

To one man, money was a plaything. To another, it was a possibility. Guess which one came out ahead in the end?

By Jason Zweig of The WSJ. He discusses investing, consumption and the book “The Psychology of Money” by Morgan Housel (reminds me of the book Money and the Meaning of Life by philosopher Jacob Needleman).

Excerpts from the article:

"Money isn’t primarily a store of value. Money is a conduit of emotion and ego, carrying hopes and fears, dreams and heartbreak, confidence and surprise, envy and regret."

"Investing isn’t an IQ test; it’s a test of character."

One person "could defer gratification and had no need to spend big so other people wouldn’t think he was small. From such old-fashioned virtues great fortunes can be built." (reminds me of the concept of conspicuous consumption-see related post linked below).

"Analyzing two of the biggest stock-market winners of the past few decades, Mr. Housel says Netflix Inc. returned more than 35,000% between 2002 and 2018. Monster Beverage Corp. gained more than 300,000% from 1995 through 2018.

Yet, along the way, many investors quit; each stock spent at least 94% of the time trading below its previous all-time highs."

Investors "should regard it (volatility ) as a “fee,” the unavoidable cost of participation." "patience can make it bearable."

"Warren . . . accrued at least 95% of his wealth after age 65. (The chairman of Berkshire Hathaway Inc. will turn 90 at the end of this month.)

Had Mr. Buffett earned his world-beating returns for only 30 years rather than much longer, he would be worth 99.9% less"

"Housel . . . draws a critical distinction between being rich (having a high current income) and being wealthy (having the freedom to choose not to spend money).

Many rich people aren’t wealthy, Mr. Housel argues, because they feel the need to spend a lot of money to show others how rich they are. He defines the optimal savings level as “the gap between your ego and your income.” Wealth consists in caring less about what others think about you and more about using your money to control how you spend your time.

He writes: “The ability to do what you want, when you want, with who[m] you want, for as long as you want to, pays the highest dividend that exists in finance.”"

Related post

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)


Eny Nixon Noriega said...

Great article! ALWAYS enjoyed reading your articles Dr. Cy
Leota Noriega

Cyril Morong said...

Thanks. Hope you are doing okay and staying safe