Good fun read. Adam Smith artfully presents the financial market not merely as a market but as an intricate game
Question 1: What can you learn from the book about how human nature affects investing?
Adam Smith (George Goodman) makes clear that investing is not just about numbers and more about psychology.
Fear and Greed: The strongest emotions in markets. Rising prices trigger greed (“fear of missing out”), while falling prices trigger panic selling.
Identity & Ego: Investors often tie their self-worth to portfolio performance. When the market erases gains, it feels like a personal defeat, not just a financial one. This identity trap makes rational decision-making harder.
Crowd Psychology: Gustave Le Bon’s theories are woven throughout wherein individuals in crowds lose responsibility, become suggestible, and act impulsively. This explains bubbles and flash crashes. Pendulum overswings.
Performance Anxiety: Overtrading and the constant need to “stay in the game” create stress that undermines discipline. Anxiety erodes identity and serenity, leading to poor decisions.
Emotional Maturity: The best investors harness emotions rather than suppress them. As Smith notes, “You have to use your emotions in a useful way… operate without anxiety.”
Question 2:
Although The Money Game was written in the late 1960s, its insights feel remarkably current. the psychology, performance pressure, and crowd dynamics all these forces still remain alive today.
Bubbles repeat themselves: Just as investors once chased tulip bulbs or color-TV stocks, today we see similar manias in meme stocks, crypto, and AI hype cycles.
Short-termism dominates: Fund managers in Smith’s era were judged quarter by quarter, and the same pressure drives hedge funds and institutional investors now.
Technology accelerates herd behavior: Overtrading and compulsive “staying in the game” were problems then; now trading apps and social media amplify them.
I think the ordered sequence "Identity, Anxiety, Money" in that order was an important insight for me. So many decisions aren't driven by money or expected value, but by the clash between our identity and the current reality which in turn leads to anxiety and to suboptimal decisions.
Q1. Almost nothing in the investment decision making process has changed over time. The Game is played with a variety of biases influencing the decision making of the masses. Humans are involved and their emotions are the primary drivers of investment decisions. Fear and greed are two of the most influential emotions in making investment choices. Another large pressure on investors is following the crowd. Then there are are plenty of Game players in the field who are willing to take advantage of these emotions at the expense of the more uninformed and uneducated investor. To quote Charlie Munger " Show me the incentive and I'll show you the outcome." More rational decisions are those made by investors who can recognized the impact of their emotions. They have the ability to step back and look at a larger picture without emotions. Good investing isn't a function of being schooled or the complexity of the math involved, but rather to be able to large amounts of information and apply rational thinking. Perhaps even a bit of intuition. The end objective of investing is serenity, not excitement.
Q2. I found that almost everything is applicable to todays' market, with maybe the exception that the Game players now in the AI universe, leading to more short-term transactions. Another force found today is the focus on performance which has produced more reactionary trading. More work has been done since the 60's in the field of behavioral sciences which has shed light on the dynamics of emotions, but hasn't stemmed their influence. Just replace computers with AI and the results are probably not all that different.
Just as an aside, on page 76 they mention airlines. It was a surprise to see Braniff mentioned. I worked for them when it went bankrupt.
Humans make decisions that are not rationally motivated. We definitely are not computers! Our sometimes unexplainable behaviors maybe attempts to satisfy our nature's unique needs (belonging, value, identity, meaning) the best way we know how.
The book had many parables demonstrating this. For me, the most poignant story was about 'Harry' the millionaire who built his identity, meaning and worth in the "I'm a millionaire" button. He bought into the trap of thinking that he WAS a millionaire: Harry = millionaire. When his net worth fell to $0, he too became $0 in his mind because he bound up his identity and worth in those dollars. Lost dollars = lost Harry.
I'm applying this lesson about where I find identity in other aspects of life. It should only be built on what is durable! If investing exposes 'who we are', I should expect to find out where the source of my stability is. Watch my reactions from the outside and I will come to understand my motives. Why am I doing what I'm doing?
Some ways human nature could affecting investing decisions:
- Follow a crowd for safety, fear of standing out, or to satisfy the feeling of 'being a part of'. This could even be exhibited by joining the contrarian crowd: 'I am a part of the crowd that doesn't go along with the crowd'.
- Attach identity and value to results of our decisions and as a consequence deal with the roller coaster of success inflating and failure devastating. Refuse to take losses because we don't want to admit we made a mistake.
- Functioning in fear when we feel threatened with loss or playing it safe when we should be bold. FOMO causing late entry into overvalued assets.
- Greedy for more and overstepping and risking too much. Talking oneself into a 'thesis'.
Q2:
- We are still human and subject to the same motivations.
- Treat the market like a 'game'. The game has ups and downs and is more irrational than rational. There is a complex System and a They at play. The Little Man doesn't win when he tries to play like 'Them'.
- If you are going to play, find a way to play that works for you. Not every strategy works all the time and in every market season. Sometimes you have to sit out.
- The next big thing needs to be handled wisely; don’t jump on the speculative bandwagon without doing your own thinking.
- Instead of being purposive, outcome-fixated, anxious and reactive, be purposeful and act with clarity and stability. Know who we are and why we do what we do.
The other thing I found to be useful is to have a multi-dimensional identity. So not "I am a good investor" but "I am a good investor, and a good father, a good friend, a good husband"
Question 1: What can you learn from the book about how human nature affects investing?
This was a great read; I found it very entertaining. While the slightly arch style and casual sexism have dated poorly, it's still funny and dead on about human nature. In some ways I have learnt fewer new things from this one than most of the reading we have done, but it is full of reminders about how we need to guard against all the human pressures that can make us succumb to greed or fear and do precisely the wrong thing at the wrong moment.
Here are a few takeaways for me:
the importance of being clear about why you do this. This is the first and most important point he makes. Are you saving to a purpose? Are you letting your investments rule you rather than using them to improve your life, like the generations of IBM share owners who never sell? Why spend time on this when you can give your money to a competent manager, or a tracker fund and get perfectly satisfactory returns with very little effort. Or as he puts it, find a few money men that you can trust like Phil Fisher. Is your time really best spent endlessly reading RNS's? This is what the whole of the first section is about, and he spends 100 pages on it with good reason. Make sure you have a good reason for doing your own investments, and a clear eyed view as to what you are getting out of it. One thing that has stood out in our readings for me is just how hard the best investors work, day after day, year after year, and no time for holidays if the market does not allow it. Even if you have this level of discipline, is it really the best use of your time and talents, working like a monk in front of a screen to grow some numbers representing wealth that you can never spend? Are there not much better uses for your time? And if you don't have this level of talent or discipline you will probably do poorly, so why on earth spend any time on it at all? I'm going to say this plain: If you don't have a really, really good answer to this question of why, just stop doing your own investments right now, and go and do something less boring instead.
The importance of being aware of what your own strengths and weaknesses are compared to the marketplace. There is an old saying in poker that if you can't identify the rabbit after a few rounds, you are the rabbit and you are the one who will end up getting skinned. It's the same in the markets. This is covered in the "Why are the little people always wrong?" chapter. A sharper way of asking this is that when you are up against the whole world and investors as skilled as the ones we have read about, how on earth are you going to outperform? What edge do you have on all these professional, dedicated, plugged-in people? As with the previous point, you need to have a good answer to this!
The importance of independent thought. Your thoughts and ideas need to be your own, not someone else's. If you are acting on a tip, you are dancing to someone else's tune. Even if they are really good and not merely a cynical ploy to make a market to dump the tipster's trade, just blindly copying them without understanding the underlying thought processes is a recipe for disaster. There are plenty of mocking examples of this all through the book. If you want expansion on this theme, read "Reminiscences of a Stock Operator", written in 1923 by Edwin LeFevre. It's another very entertaining read and useful if you want to understand the mind of a speculator. He has a whole chapter on tips and why they are such a bad way to invest, and it was a tip that set him on one of his most famous and unsuccessful trades and led to one of the great aphorisms of traders round the world.
The importance of temperament. Warren Buffett has a brilliant investing temperament. He never lets greed or regret make him rush into a bull market, or fear of being wrong frighten him out of a position, even though the world's eyes are on him every moment, ready to criticise. You need to wait and wait for years doing nothing, then just when it feels hardest, jump in and buy big and decisively. This is extremely hard to cultivate. "Odd-Lot Robert" is the apotheosis of all these faults, and he ends up with a typical beginning investor result. While we may not be that naive, if we are honest, many of us act more like him than we might be comfortable admitting. I know I do.
Question 2: What insights about the time period described in the book are applicable to today’s market, and in what way?
In some ways, this period in the late sixties resembled today. High multiples, high growth, optimism about technology and roaring stock markets. And the obvious fear is that it was followed by the 70s, a legendarily poor time in so many ways, especially for investors.
It's noticeable that "Adam Smith's" calls about the future were pretty good – especially that the gold standard would likely not last forever and that when it did go, gold would be a good bet. And indeed it did not last long at all, and gold went from $35 per ounce to $1,000 per ounce over 10 years.
However, be warned, the investors we have looked at have had a pretty pessimistic, and mostly wrong, outlook. Warren Buffett has the best approach: just be certain that you can't predict the future and don't try. Buy well, and if the stock market goes up, you will benefit, and if it goes down, you get a chance to buy even better. Win-win, unless you are a disinvestor.
Also, while history rhymes, it rarely repeats. Conditions now are very different from those of 1966. Even if human nature has not changed, markets have. The world is much wealthier than then, and if I had to sum it up in a single word, I would say that it is much more resilient. The oil shock of 1973 destroyed markets and caused large real damage to economies. Now when the oil price spikes, US fracking companies take advantage and sell more, and the price moderates quickly. Solar and wind are real alternatives, and the gas supply is much more flexible because of LPG shipping. When Russia switched off the gas to the west in 2022, the price spiked in a similar way, but it came back down again quite quickly as LPG was diverted to Europe in response to high prices, and the economic damage was much less severe. None of these options were available in 1973. Everywhere you look, there are more ways of doing things, more technology to deploy, more knowledge more widely disseminated by the internet and AI, and more capital looking for a good home. All of this means that the global economy can absorb shocks that would have crippled it in the past.
This is not to say that there will be no more booms, busts or panics, or that investors will not behave in the many foolish ways outlined in this book. But the next one will almost certainly arrive unexpectedly and look different and will catch the majority of investors completely by surprise.
Good fun read. Adam Smith artfully presents the financial market not merely as a market but as an intricate game
Question 1: What can you learn from the book about how human nature affects investing?
Adam Smith (George Goodman) makes clear that investing is not just about numbers and more about psychology.
Fear and Greed: The strongest emotions in markets. Rising prices trigger greed (“fear of missing out”), while falling prices trigger panic selling.
Identity & Ego: Investors often tie their self-worth to portfolio performance. When the market erases gains, it feels like a personal defeat, not just a financial one. This identity trap makes rational decision-making harder.
Crowd Psychology: Gustave Le Bon’s theories are woven throughout wherein individuals in crowds lose responsibility, become suggestible, and act impulsively. This explains bubbles and flash crashes. Pendulum overswings.
Performance Anxiety: Overtrading and the constant need to “stay in the game” create stress that undermines discipline. Anxiety erodes identity and serenity, leading to poor decisions.
Emotional Maturity: The best investors harness emotions rather than suppress them. As Smith notes, “You have to use your emotions in a useful way… operate without anxiety.”
Question 2:
Although The Money Game was written in the late 1960s, its insights feel remarkably current. the psychology, performance pressure, and crowd dynamics all these forces still remain alive today.
Bubbles repeat themselves: Just as investors once chased tulip bulbs or color-TV stocks, today we see similar manias in meme stocks, crypto, and AI hype cycles.
Short-termism dominates: Fund managers in Smith’s era were judged quarter by quarter, and the same pressure drives hedge funds and institutional investors now.
Technology accelerates herd behavior: Overtrading and compulsive “staying in the game” were problems then; now trading apps and social media amplify them.
I think the ordered sequence "Identity, Anxiety, Money" in that order was an important insight for me. So many decisions aren't driven by money or expected value, but by the clash between our identity and the current reality which in turn leads to anxiety and to suboptimal decisions.
Q1. Almost nothing in the investment decision making process has changed over time. The Game is played with a variety of biases influencing the decision making of the masses. Humans are involved and their emotions are the primary drivers of investment decisions. Fear and greed are two of the most influential emotions in making investment choices. Another large pressure on investors is following the crowd. Then there are are plenty of Game players in the field who are willing to take advantage of these emotions at the expense of the more uninformed and uneducated investor. To quote Charlie Munger " Show me the incentive and I'll show you the outcome." More rational decisions are those made by investors who can recognized the impact of their emotions. They have the ability to step back and look at a larger picture without emotions. Good investing isn't a function of being schooled or the complexity of the math involved, but rather to be able to large amounts of information and apply rational thinking. Perhaps even a bit of intuition. The end objective of investing is serenity, not excitement.
Q2. I found that almost everything is applicable to todays' market, with maybe the exception that the Game players now in the AI universe, leading to more short-term transactions. Another force found today is the focus on performance which has produced more reactionary trading. More work has been done since the 60's in the field of behavioral sciences which has shed light on the dynamics of emotions, but hasn't stemmed their influence. Just replace computers with AI and the results are probably not all that different.
Just as an aside, on page 76 they mention airlines. It was a surprise to see Braniff mentioned. I worked for them when it went bankrupt.
Definitely a lot of echos of the late-'60s market in today's environment for me
Q1:
Humans make decisions that are not rationally motivated. We definitely are not computers! Our sometimes unexplainable behaviors maybe attempts to satisfy our nature's unique needs (belonging, value, identity, meaning) the best way we know how.
The book had many parables demonstrating this. For me, the most poignant story was about 'Harry' the millionaire who built his identity, meaning and worth in the "I'm a millionaire" button. He bought into the trap of thinking that he WAS a millionaire: Harry = millionaire. When his net worth fell to $0, he too became $0 in his mind because he bound up his identity and worth in those dollars. Lost dollars = lost Harry.
I'm applying this lesson about where I find identity in other aspects of life. It should only be built on what is durable! If investing exposes 'who we are', I should expect to find out where the source of my stability is. Watch my reactions from the outside and I will come to understand my motives. Why am I doing what I'm doing?
Some ways human nature could affecting investing decisions:
- Follow a crowd for safety, fear of standing out, or to satisfy the feeling of 'being a part of'. This could even be exhibited by joining the contrarian crowd: 'I am a part of the crowd that doesn't go along with the crowd'.
- Attach identity and value to results of our decisions and as a consequence deal with the roller coaster of success inflating and failure devastating. Refuse to take losses because we don't want to admit we made a mistake.
- Functioning in fear when we feel threatened with loss or playing it safe when we should be bold. FOMO causing late entry into overvalued assets.
- Greedy for more and overstepping and risking too much. Talking oneself into a 'thesis'.
Q2:
- We are still human and subject to the same motivations.
- Treat the market like a 'game'. The game has ups and downs and is more irrational than rational. There is a complex System and a They at play. The Little Man doesn't win when he tries to play like 'Them'.
- If you are going to play, find a way to play that works for you. Not every strategy works all the time and in every market season. Sometimes you have to sit out.
- The next big thing needs to be handled wisely; don’t jump on the speculative bandwagon without doing your own thinking.
- Instead of being purposive, outcome-fixated, anxious and reactive, be purposeful and act with clarity and stability. Know who we are and why we do what we do.
The other thing I found to be useful is to have a multi-dimensional identity. So not "I am a good investor" but "I am a good investor, and a good father, a good friend, a good husband"
Question 1: What can you learn from the book about how human nature affects investing?
This was a great read; I found it very entertaining. While the slightly arch style and casual sexism have dated poorly, it's still funny and dead on about human nature. In some ways I have learnt fewer new things from this one than most of the reading we have done, but it is full of reminders about how we need to guard against all the human pressures that can make us succumb to greed or fear and do precisely the wrong thing at the wrong moment.
Here are a few takeaways for me:
the importance of being clear about why you do this. This is the first and most important point he makes. Are you saving to a purpose? Are you letting your investments rule you rather than using them to improve your life, like the generations of IBM share owners who never sell? Why spend time on this when you can give your money to a competent manager, or a tracker fund and get perfectly satisfactory returns with very little effort. Or as he puts it, find a few money men that you can trust like Phil Fisher. Is your time really best spent endlessly reading RNS's? This is what the whole of the first section is about, and he spends 100 pages on it with good reason. Make sure you have a good reason for doing your own investments, and a clear eyed view as to what you are getting out of it. One thing that has stood out in our readings for me is just how hard the best investors work, day after day, year after year, and no time for holidays if the market does not allow it. Even if you have this level of discipline, is it really the best use of your time and talents, working like a monk in front of a screen to grow some numbers representing wealth that you can never spend? Are there not much better uses for your time? And if you don't have this level of talent or discipline you will probably do poorly, so why on earth spend any time on it at all? I'm going to say this plain: If you don't have a really, really good answer to this question of why, just stop doing your own investments right now, and go and do something less boring instead.
The importance of being aware of what your own strengths and weaknesses are compared to the marketplace. There is an old saying in poker that if you can't identify the rabbit after a few rounds, you are the rabbit and you are the one who will end up getting skinned. It's the same in the markets. This is covered in the "Why are the little people always wrong?" chapter. A sharper way of asking this is that when you are up against the whole world and investors as skilled as the ones we have read about, how on earth are you going to outperform? What edge do you have on all these professional, dedicated, plugged-in people? As with the previous point, you need to have a good answer to this!
The importance of independent thought. Your thoughts and ideas need to be your own, not someone else's. If you are acting on a tip, you are dancing to someone else's tune. Even if they are really good and not merely a cynical ploy to make a market to dump the tipster's trade, just blindly copying them without understanding the underlying thought processes is a recipe for disaster. There are plenty of mocking examples of this all through the book. If you want expansion on this theme, read "Reminiscences of a Stock Operator", written in 1923 by Edwin LeFevre. It's another very entertaining read and useful if you want to understand the mind of a speculator. He has a whole chapter on tips and why they are such a bad way to invest, and it was a tip that set him on one of his most famous and unsuccessful trades and led to one of the great aphorisms of traders round the world.
The importance of temperament. Warren Buffett has a brilliant investing temperament. He never lets greed or regret make him rush into a bull market, or fear of being wrong frighten him out of a position, even though the world's eyes are on him every moment, ready to criticise. You need to wait and wait for years doing nothing, then just when it feels hardest, jump in and buy big and decisively. This is extremely hard to cultivate. "Odd-Lot Robert" is the apotheosis of all these faults, and he ends up with a typical beginning investor result. While we may not be that naive, if we are honest, many of us act more like him than we might be comfortable admitting. I know I do.
Question 2: What insights about the time period described in the book are applicable to today’s market, and in what way?
In some ways, this period in the late sixties resembled today. High multiples, high growth, optimism about technology and roaring stock markets. And the obvious fear is that it was followed by the 70s, a legendarily poor time in so many ways, especially for investors.
It's noticeable that "Adam Smith's" calls about the future were pretty good – especially that the gold standard would likely not last forever and that when it did go, gold would be a good bet. And indeed it did not last long at all, and gold went from $35 per ounce to $1,000 per ounce over 10 years.
However, be warned, the investors we have looked at have had a pretty pessimistic, and mostly wrong, outlook. Warren Buffett has the best approach: just be certain that you can't predict the future and don't try. Buy well, and if the stock market goes up, you will benefit, and if it goes down, you get a chance to buy even better. Win-win, unless you are a disinvestor.
Also, while history rhymes, it rarely repeats. Conditions now are very different from those of 1966. Even if human nature has not changed, markets have. The world is much wealthier than then, and if I had to sum it up in a single word, I would say that it is much more resilient. The oil shock of 1973 destroyed markets and caused large real damage to economies. Now when the oil price spikes, US fracking companies take advantage and sell more, and the price moderates quickly. Solar and wind are real alternatives, and the gas supply is much more flexible because of LPG shipping. When Russia switched off the gas to the west in 2022, the price spiked in a similar way, but it came back down again quite quickly as LPG was diverted to Europe in response to high prices, and the economic damage was much less severe. None of these options were available in 1973. Everywhere you look, there are more ways of doing things, more technology to deploy, more knowledge more widely disseminated by the internet and AI, and more capital looking for a good home. All of this means that the global economy can absorb shocks that would have crippled it in the past.
This is not to say that there will be no more booms, busts or panics, or that investors will not behave in the many foolish ways outlined in this book. But the next one will almost certainly arrive unexpectedly and look different and will catch the majority of investors completely by surprise.
Human nature is definitely one of the few constants in markets, and it's the common thread that causes a lot of the other phenomena