The Day the Richest Trader Lost Everything 3/6

The Psychology of Money, Part 3: Getting Wealthy vs. Staying Wealthy

Imagine you want to take a relaxing bath. You turn on the faucet, but the drain plug is missing. How long will it take to fill the tub?

The answer is forever. It will never fill. You can turn up the pressure, add a second hose, even call the fire department. But no matter how much water you pour in, it will all flow out. The problem isn’t the water supply; it’s the drain.

This is how most of us approach our finances. We are obsessed with increasing our income—finding a more powerful faucet—while ignoring the gaping hole at the bottom of our financial tub. We wonder why we can’t get ahead, even as our income rises over the years. We earn more, but we never seem to have more.

Many books teach you how to make money. Very few teach you how to keep it.

In this third part of our deep dive into Morgan Housel’s The Psychology of Money, we explore the critical difference between getting wealthy and staying wealthy. One requires taking risks and thinking big. The other requires humility and the one skill most ambitious people lack: knowing when you have enough.

The Rise and Fall of a Market Genius

On Black Monday in 1929, as the stock market imploded and titans of industry were losing everything, one man was having the best day of his life. His name was Jesse Livermore, and he was one of the wealthiest men in America.

Livermore had anticipated the crash. He bet against the market, a move so audacious and brilliant that on a single day, he made the equivalent of $3 billion in today’s money. While others were facing ruin, he became fabulously rich.

Around the same time, another millionaire named Abraham Germansky, a successful real estate mogul, vanished. He had poured his entire fortune into the soaring stock market of the 1920s, only to lose it all in the crash. He was last seen wandering the streets of Wall Street, and was never heard from again.

The same event that made one man a king destroyed another.

But the story doesn’t end there. Just four years later, in 1933, Jesse Livermore—the man who made $3 billion in a day—also lost everything. He had continued making massive, highly leveraged bets, and eventually, his luck ran out. Broke and defeated, he took his own life.

Both Livermore and Germansky were masters at getting rich. They were terrible at staying rich. Why?

The Unbeatable Enemy: The Goalpost That Always Moves

Housel identifies the single greatest destroyer of wealth: the inability to say “enough.” It’s the hunger for more that drives people to risk everything they have for something they don’t need.

The author Kurt Vonnegut was once at a party hosted by a billionaire hedge fund manager. His friend, Joseph Heller, pointed out that their host had made more money in a single day than Heller had earned from his bestselling novel, Catch-22, in its entire history.

Heller’s reply was a masterclass in financial wisdom: “Yes, but I have something he will never have. Enough.”

This need for more isn’t just a problem for billionaires. It’s a human problem. We see it in the story of Rajat Gupta, a man who rose from poverty to a net worth of $100 million. As a board member at Goldman Sachs, he learned that Warren Buffett was about to make a secret $5 billion investment to save a bank during the 2008 crisis.

Instead of being content with his $100 million fortune, Gupta used this inside information to make a quick $17 million. It was an easy trade, but it was also illegal. He was caught, convicted of insider trading, and lost his reputation, his freedom, and his fortune.

As Buffett himself commented, Gupta risked what he had and needed for something he didn’t have and didn’t need. This is the definition of foolishness.

For most of us, this trap doesn’t manifest as insider trading. It shows up in our daily spending.

• We have a perfectly good shirt, but we buy another one.

• We have a working phone, but we upgrade to the latest model.

• We can afford a simple vacation, but we go into debt for a lavish one.

We don’t know how to stop. We have no “enough.” We lack a drain plug for our financial bathtub.

The Poison of Social Comparison