Page 67 - Morgan Housel - The Psychology of Money_ Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

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Applying the survival mindset to the real world comes down to appreciating
three things.

1. More than I want big returns, I want to be financially unbreakable.

And if I’m unbreakable I actually think I’ll get the biggest returns,
because I’ll be able to stick around long enough for compounding to
work wonders.

No one wants to hold cash during a bull market. They want to own assets
that go up a lot. You look and feel conservative holding cash during a bull
market, because you become acutely aware of how much return you’re
giving up by not owning the good stuff. Say cash earns 1% and stocks return
10% a year. That 9% gap will gnaw at you every day.

But if that cash prevents you from having to sell your stocks during a bear
market, the actual return you earned on that cash is not 1% a year—it could
be many multiples of that, because preventing one desperate, ill-timed stock

sale can do more for your lifetime returns than picking dozens of big-time
winners.

Compounding doesn’t rely on earning big returns. Merely good returns
sustained uninterrupted for the longest period of time—especially in times of
chaos and havoc—will always win.

2. Planning is important, but the most important part of every plan is to
plan on the plan not going according to plan.

What’s the saying? You plan, God laughs. Financial and investment planning
are critical, because they let you know whether your current actions are
within the realm of reasonable. But few plans of any kind survive their first