Written by Joe Griffin and Greg Black
In the world of finance, logic often takes a backseat to emotion.
In The Psychology of Money, Morgan Housel writes, “We believe what we want to believe.” This is a simple idea, but one with massive implications. We don’t just misread the facts. We often never see them clearly in the first place. All of us!
If you have never studied (even briefly) heuristics, the term and concept are extremely fascinating! We all create mental models and narratives that match our experiences, fears, and desires. This is particularly evident in how we plan, save, and invest.
Housel doesn’t just point out our biases. He equips us with a practical framework to navigate them: “Save like a pessimist, invest like an optimist.” This approach is not just a theory, but a tangible tool we can use to make better financial decisions. It should be the framework we lean on in making decisions about money.
These two tenets in Morgan Housel’s bestselling book have left an indelible mark on our financial outlook. Together, these ideas offer something rare in finance: emotional clarity paired with long-term strategy. This goes together with Tencap’s investment methodology. We are not blindly optimistic! No, we pair our optimism in financial markets with data! Lots of data! This not only creates a long-term strategy, but it also creates an evidence-based long-term strategy that we can confidently build around. The recipe creates a responsible way to manage money! The recipe of prudent pessimism, responsible optimism, and academic investing is a highly successful way to approach building and managing a financial plan. Eliminate any one of those three, and our opinion is that there is a deficit in the planning.
One of the most quietly powerful chapters in Morgan’s book centers on this cognitive trap many of us fall into of believing what we want to believe. At first glance, that might sound obvious. But in practice, this mental shortcut leads to some of our most stubborn blind spots, especially regarding money, business decisions, and long-term planning.
Housel’s observations couldn’t be more spot on. Humans are prone to connecting dots that support the narrative they want to believe, often in direct conflict with facts, data, or probability. Yes, we all do this. We want to do something (or not do something), so we gather all of the data to support why we should or should not do it.
People often form opinions based on bias, assumptions, and emotionally charged events, rather than facts and data. We see it every day. That’s why more thoughtful, evidence-based decision-making needs to be encouraged.
Emotions vs. Evidence
Think about it: when markets are up, optimism reigns. When they’re down, suddenly everyone becomes a doomsday forecaster. What changed? Only sentiment or prices, not the fundamentals!
You might think you’re a genius if you made money during a bull run. You might swear off risk if you lost money in a crash forever. Neither is grounded in objective truth. Both are emotional responses masquerading as strategy or “facts.”
The Danger of Echo Chambers
In a world driven by algorithms, it’s easier than ever to surround ourselves with voices that validate our existing beliefs. This phenomenon, known as “echo chambers,” can be particularly detrimental in the realm of finance. Financial news outlets often lean into emotion-driven narratives, which drive clicks and engagement. But here’s the cost: we stop challenging our assumptions. Confirmation bias creeps in. Before long, we start making money decisions based not on evidence but on the headlines we want to believe.
This isn’t just a personal finance issue. It affects founders, CEOs, and even policymakers. The collapse of over-leveraged companies often stems from leadership buying into their own hype, ignoring contrary data, and silencing dissenting voices.
A Call for Mindful Decision-Making
So, how do we counteract this psychological reflex?
We can start by slowing down. The faster the decision, the more likely it’s emotion-driven. Catch yourself! Build time into your process for objective review. Also, seek disconfirming evidence and information. If you’re bullish on a strategy, actively look for reasons it might fail and test your assumptions. This practice can empower us to make more informed decisions!
We should surround ourselves with contrarians for healthy disagreements that protect us from blind spots. This way, we can anchor big decisions in facts and data, not just emotions.
Believing what we want to believe is deeply human. However, when it comes to money, it can be costly. Housel reminds us that humility and self-awareness are both virtues and competitive advantages.
Save Like a Pessimist, Invest Like an Optimist
Let’s go deeper with Housel’s thought-provoking frameworks: “Save like a pessimist, invest like an optimist.” This paradoxical advice sounds contradictory initially, but it’s one of the smartest ways to build financial durability and a blueprint for economic resilience. It’s a mindset that has real implications for short-term security and long-term growth, and it just might change how you think about risk altogether.
Saving like a pessimist means planning around the concept that unexpected things will happen. Not maybe — will. Emergency expenses. Market fluctuation. Health scares. Income changes. These are not outliers. They’re part of life. Pessimism gets a bad rap. But in the context of saving, it’s not about doom-and-gloom thinking — it’s about building a margin of safety.
Build a cash buffer, protect your short-term needs, and don’t rely on perfect conditions to stay afloat.
Then, you shift mental gears.
Investing like an optimist means believing that progress wins in the long run despite setbacks. History displays that long-term, markets trend upward, innovation compounds, businesses grow, and the world moves forward despite all evidence to the contrary.
Further, stay committed to your strategy, even when headlines scream panic. It means believing that while downturns are certain, recovery is just as likely; it means focusing on time in the market, not timing the market.
Why You Need Both
The beauty of this two-sided mindset is that it guards against your own psychology.
- The pessimist in you builds resilience and keeps you responsible and prepared.
- The optimist in you creates upside; it allows compound returns to work with your efforts.
- And the self-aware version of you, the one that recognizes your biases, stays grounded in reality, facts, and evidence.
This isn’t just theory. It’s a durable framework for approaching money, business, and life itself. The biggest financial risk isn’t necessarily market volatility, inflation, or even a recession. Our opinion is that the biggest risk is believing the wrong story and inhaling. Our commitment can be summed up in one word… results. If you are open to coaching, we are prepared to coach and lead your financial planning directly toward… results.
Final Takeaway
If there’s one lesson from The Psychology of Money worth revisiting repeatedly, it’s this: Good decision-making isn’t about being perfect. It’s about being prepared and staying sane.
So yes, believe in the future. But don’t assume it will arrive on schedule. Save like a pessimist. Invest like an optimist. And always question the stories you’re telling yourself about money!
