"You're not a spreadsheet. You're a person. A screwed up, emotional person."
This summer, we at Alfvén & Didrikson have chosen to summarise a book that we received from one of Kungsholmen's phenomenal entrepreneurs. The book is "The Psychology of Money", written by Morgan Housel. It's an absolute must-read for anyone in any way involved with investing and beneficial for all of us who wish to grasp the psychology behind capitalism.
What message do we wish to convey from Morgan's book?
Our individual unique experiences influence our behaviour, even though they represent an insignificant fraction of all the available information. For instance, someone born in the '60s experienced nearly 200% inflation during their first 30 years of life, while someone born in the '90s only experienced about 30%. This results in vastly different expectations when it comes to inflation.
There is immense power in persistent, exponential growth. The probability of making money in the American stock market in one day is about 50/50. It's 68% in a year, 88% over ten years, and (so far) 100% over 20 years. At A&D, our ambition has always been to make six out of ten decisions correctly and to have a lifetime perspective on our investments. Many of our companies have grown by over 30%, sometimes 100%, per year for many, many years.
Most businesses fail. The trick is to survive. If you continually do what you love, there is a high likelihood that you will find the will and capacity to survive. Survival, Morgan argues, should be the most important ingredient in all financial strategies. So, how should we survive? Well, 1. Maintain a liquidity buffer: Warren Buffett's philosophy is that by having a solid reserve of liquid assets, a company can prepare for unforeseen events and simultaneously have the capacity to act quickly on new business opportunities as they arise. 2. Keep a cool head when the storm begins. Napoleon is quoted as saying, "A genius is the man who can keep a cool head when all those around him are losing theirs." If we listen to Nietzsche, the trick to survival is finding our "why."
Things that have never happened before happen all the time. Read that again. Despite this, experts compete to narrate how they foresaw everything. That's an illusion. Let it go.
Seek what's reasonable instead of rational. This is the key takeaway for us and what we see as Morgan's best advice. We need to stop fooling ourselves into believing that people are rational or logical; it's something we can't demand of anyone. However, most of us wish to be reasonable. So, search for what feels reasonable, not for what is calculatedly rational.
Morgan's book contains a plethora of other valuable insights, even in his own summary.
As the summer holidays approach for many of us, we at Team Alfvén & Didrikson would like to wish you a fun, sensible, and profitable summertime with plenty of insights. May they be reasonable!
Sunny regards from your A&D team