Page 205 - Morgan Housel - The Psychology of Money_ Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

We do it because cash is the oxygen of independence, and—more
importantly—we never want to be forced to sell the stocks we own. We
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want the probability of facing a huge expense and needing to liquidate

stocks to cover it to be as close to zero as possible. Perhaps we just have a
lower risk tolerance than others.

But everything I’ve learned about personal finance tells me that everyone—
without exception—will eventually face a huge expense they did not expect
—and they don’t plan for these expenses specifically because they did not
expect them. The few people who know the details of our finances ask,
“What are you saving for? A house? A boat? A new car?” No, none of
those. I’m saving for a world where curveballs are more common than we

expect. Not being forced to sell stocks to cover an expense also means
we’re increasing the odds of letting the stocks we own compound for the
longest period of time. Charlie Munger put it well: “The first rule of
compounding is to never interrupt it unnecessarily.”

How my family thinks about investing

I started my career as a stock picker. At the time we only owned individual
stocks, mostly large companies like Berkshire Hathaway and Procter &
Gamble, mixed with smaller stocks I considered deep value investments.
Go back to my 20s and at any given point I held something like 25
individual stocks.

I don’t know how I did as a stock picker. Did I beat the market? I’m not

sure. Like most who try, I didn’t keep a good score. Either way, I’ve shifted
my views and now every stock we own is a low-cost index fund.

I don’t have anything against actively picking stocks, either on your own or
through giving your money to an active fund manager. I think some people
can outperform the market averages—it’s just very hard, and harder than
most people think.