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The Laws of Wealth summary
Psychology and the secret to investing success
24 mins
Brief summary
'The Laws of Wealth' by Daniel Crosby offers a behavioral finance approach to understanding money, and how our emotions can impact investing. Crosby combines psychological research with practical advice, to help readers make smarter financial decisions.
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The Laws of Wealth
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Key idea 1 of 8
We overestimate our abilities in life, and when we invest.
From an early age, it’s drilled into us that we should think positively and have confidence in ourselves and our skills. But what if that confidence is actually holding us back?
In one revealing study, American high school students were asked about how they thought their math skills compared to those of the rest of the world. A vast majority assumed that they were some of the best internationally. The truth is that American students are average at math. This is an example of overconfidence bias. That is, people assume incorrectly that they perform in a manner that is superior to other people.
In a similar vein, organizational researchers Tom Peters and Robert Waterman conducted a study in which they asked employees to compare themselves to each other and rate themselves on such qualities as interpersonal skills and physique. One hundred percent of the respondents thought that they were better than average at interacting with other people. 94 percent believed that their athletic prowess outranked that of their peers!
Not everyone they interviewed could have been a master of diplomacy with a bodybuilder’s physique. Evidently, the respondents overestimated themselves.
But what can a little self-confidence hurt, even if it’s misplaced? Isn’t it better than being horribly insecure?
Well, when it comes to investing, having an inaccurate view of your abilities can hurt very much.
If you believe that you have exceptional abilities, you will likely credit any wins on the stock market to your unique talent. However, you’ll believe that any losses are circumstantial and out of your control. That is called a fundamental attribution error. It states that we’re unable to judge the effects of our actions accurately. This perspective keeps you from learning from your mistakes and growing as an investor.
You may think that the rules of the stock market don’t apply to you. That can lead you to disregard risk and make reckless decisions because you’re so confident in your instincts. You might also be less likely to seek outside help from a trusted advisor.
Being humble about your abilities and being able to identify and learn from your mistakes are key to becoming a good investor.
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What is The Laws of Wealth about?
The Laws of Wealth (2016) is an insightful guide to understanding how our irrational behavior can get in the way of making good investment decisions. Using insights from the field of behavioral psychology, Daniel Crosby identifies key human weaknesses that can sabotage our investments, such as overestimating our abilities and panicking in the face of risk. He then presents practical and effective strategies that we can adopt to become better investors.
The Laws of Wealth Review
The Laws of Wealth (2016) explores the psychological biases that hinder our financial decision-making and offers practical solutions for building wealth. Here's what makes this book worth reading:
- With its well-researched insights and examples, it helps readers understand their own financial behaviors and make better choices.
- The book provides a comprehensive framework for making smarter investment decisions and achieving financial security in the long run.
- Through its engaging narrative style and relatable stories, it presents complex concepts in an accessible and enjoyable way, keeping readers hooked from start to finish.
Best quote from The Laws of Wealth
Our brains are far more like beer goggles than supercomputers, which means that the intelligent investor must take precautions to ensure the emotion of the moment is not warping his sense of reality.
—Daniel Crosby
Who should read The Laws of Wealth?
- Investors wanting to learn how to spot their behavioral blind spots
- Psychology buffs interested in how emotions influence how people spend money
- Anyone who is weighing up the benefits of hiring a financial advisor
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The Laws of Wealth FAQs
What is the main message of The Laws of Wealth?
The main message of The Laws of Wealth is understanding and applying the principles of behavioral finance to achieve financial success.
How long does it take to read The Laws of Wealth?
The reading time for The Laws of Wealth varies, but it typically takes several hours. The Blinkist summary can be read in just 15 minutes.
Is The Laws of Wealth a good book? Is it worth reading?
The Laws of Wealth is worth reading because it offers valuable insights into how our behavior impacts our financial decisions, helping us make wiser choices.
Who is the author of The Laws of Wealth?
The author of The Laws of Wealth is Daniel Crosby.
What to read after The Laws of Wealth?
If you're wondering what to read next after The Laws of Wealth, here are some recommendations we suggest:
- The Behavioral Investor by Daniel Crosby
- The Power of Nunchi by Euny Hong
- Shift by Ethan Kross
- How to Speed Read People by Patrick King
- The 48 Laws of Power by Robert Greene
- The Geometry of Wealth by Brian Portnoy
- Market Mind Games by Denise Shull
- The Most Important Thing by Howard Marks
- Flip It by Michael Heppell
- Mindset by Carol Dweck