Get the key ideas from

The Laws of Wealth

Psychology and the secret to investing success

By Daniel Crosby
15-minute read
Audio available
The Laws of Wealth: Psychology and the secret to investing success by Daniel Crosby

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.

  • 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

Having completed his PhD in psychology at Brigham Young University,  Daniel Crosby moved into the world of finance and became an expert in understanding how people’s behavior and emotions affect their investing decisions. Previously, he coauthored the New York Times bestselling Personal Benchmark: Integrating Behavioral Finance and Investment Management. He is also the founder of investment management firm Nocturne Capital.  

Go Premium and get the best of Blinkist

Upgrade to Premium now and get unlimited access to the Blinkist library. Read or listen to key insights from the world’s best nonfiction.

Upgrade to Premium

What is Blinkist?

The Blinkist app gives you the key ideas from a bestselling nonfiction book in just 15 minutes. Available in bitesize text and audio, the app makes it easier than ever to find time to read.

Discover
3,000+ top
nonfiction titles

Get unlimited access to the most important ideas in business, investing, marketing, psychology, politics, and more. Stay ahead of the curve with recommended reading lists curated by experts.

Join Blinkist to get the key ideas from
Get the key ideas from
Get the key ideas from

The Laws of Wealth

Psychology and the secret to investing success

By Daniel Crosby
  • Read in 15 minutes
  • Audio & text available
  • Contains 9 key ideas
Upgrade to Premium Read or listen now
The Laws of Wealth: Psychology and the secret to investing success by Daniel Crosby
Synopsis

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.

Key idea 1 of 9

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. 

Upgrade to continue Read or listen now

Key ideas in this title

Upgrade to continue Read or listen now

No time to
read?

Pssst. Sign up to your secret to success: key ideas from top nonfiction in just 15 minutes.
Created with Sketch.