Updated: May 4
One of the books I’ve recommended here on the show was written by a man named Morgan Housel.
He’s written a fantastic book called ‘The Psychology of Money.’ It’s an easy read and it’s what we might call behavioral finance. Now, before your eyes glaze over, this truly is a fascinating read. It dives into the decision making of incredibly talented investors throughout history. I want to share some insight I gained from the book.
Napoleon made a famous statement long ago. He said, “a genius is the man who can do the average thing when everyone else around him is losing his mind.” I love that. You know, I found the people that are best prepared when they come to us are those who have developed a mindset of steady, consistent, repeated good actions, avoiding those behaviors of impulsive decision making.
Morgan said in his book “Doing well with money has little to do with how smart you are.” It’s good to have brains, it’s good to have a bit of experience. But he said this, “it has a lot to do with how you behave.”
And what you find is many of the smartest people on Wall Street are outfoxed by the average man in the subdivision or out on the farm, who’s doing the right thing repeatedly. Here’s the idea: ordinary folk with no financial education can be wealthy if you have a handful of behavioral skills that have nothing to do with formal measures of intelligence.
Where do we pick up these skills? Many times, it’s our upbringing, right? We tend to do and repeat what we’ve seen our parents do, or our grandparents do. Many times, it’s explicit teaching.
I love gathering my children around the table and teaching them from God’s Word about how to live life, honor God and their life, how to invest and how to do all the things that are important to growing up in today’s crazy volatile world. Generally speaking, if you didn’t pick it up by example, then it needs to be taught.
That’s what we do for our clients constantly. Throughout the year, we gather as clients and talk about behavioral wealth in a fun context. We found that people would rather go out and have fun and then I sneak my teaching in while they’re eating. It always works out quite well I must say! However you do get the behavioral skills, they’re critical to making us successful in the realm of financial accumulation, wealth and financial independence.
Ordinary folk with no financial education can be wealthy if you have a handful of behavioral skills that have nothing to do with formal measures of intelligence.
Let me share a quick story about someone who nailed this topic, who had no formal financial education. Ronald James Reed was an American philanthropist, investor, janitor, and gas station attendant. He was born years ago in the rural area of Vermont and was the first in his family to graduate high school.
As a matter of fact, he hitchhiked each day to school. What a great example of taking advantage of the resources you do have. He fixed cars at a gas station for 25 years, swept the floors at JC Penney for the next 17 years as a janitor. He bought a two-bedroom house for $12,000 when he was 38 and lived there the rest of his life.
Sadly, he was widowed at the age of 50 and never remarried. His friends say that his favorite hobby was chopping firewood. Sounds like a fairly down-to-earth, simple, straightforward guy, right? And you may think well, how in the world could somebody like this have any financial significance?
In 2014, he died at 92. Fewer than 4,000 of Americans that died that year were worth over eight million. Guess who was in that group? You guessed it. Ronald James Reed, the American philanthropist, investor, janitor, and gas station attendant. It turns out, he left two million to his step kids, and more than six million to his local hospital, and library. People have studied his life but there was no secret, no major lottery win, no big inheritance, no tip. So how did this happen?
Ronald saved what little he could invest in blue chip stocks and waited for decades as it compounded. That’s certainly one way to invest and the main thing we can learn from him is patience—the choice to not make sudden, drastic changes that can lead to a crash. Rather, putting in place the principle of not trying to gain wealth quickly, but gather little by little and see it increase. We love to see that happen with our clients.
I grew up in a military family, so I understand a little bit about war and what’s going on overseas. One of the biggest things you see are the miscalculations on the part of Russia because it failed to plan properly. It didn’t plan for what could go wrong, and you can see the Russian army really struggle through that.
In the context of finance, we want you to be prepared for what could go wrong in the world. We’d love to chat with you and have you meet the team.
Just pick up the phone and call (720)-592-1040 or visit us online at lordandrichards.com