The Laws of Wealth audiobook cover - Psychology and the secret to investing success

The Laws of Wealth

Psychology and the secret to investing success

Daniel Crosby

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Categories:
Money & InvestmentsPsychology

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The Laws of Wealth
Behavioral Risk+
Information & Market Panic+
Investment Strategy+
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Quiz — Test Your Understanding

Question 1 of 8
According to the book, how does the 'fundamental attribution error' manifest in overconfident investors?
  • A. They attribute their investment successes to their own unique talent and blame losses on external circumstances.
  • B. They assume other investors are making irrational choices while they are making purely logical ones.
  • C. They heavily rely on the advice of financial experts rather than trusting their own research.
  • D. They believe that the stock market is entirely driven by random chance rather than skill.
Question 2 of 8
What did Jennifer Lerner’s experiment involving a sad movie and selling pens demonstrate about investor behavior?
  • A. Sadness makes investors more empathetic and better at negotiating deals.
  • B. Emotional detachment, such as watching a boring video, leads to shrewder and more profitable decision-making.
  • C. Experiencing negative emotions makes sellers significantly overprice their assets out of fear.
  • D. Positive emotions like excitement are necessary to take the risks required for high returns.
Question 3 of 8
The book suggests that one of the most critical values a financial advisor provides is acting as a:
  • A. Stock picker who can reliably identify glamour stocks before they peak.
  • B. Behavioral coach who helps clients manage emotional decisions and stick to their plans.
  • C. Legal expert who can identify fraudulent companies before they collapse.
  • D. Market timer who can accurately predict when the next crash will occur.
Question 4 of 8
Why is it ironic that investors often feel the most scared after a market correction?
  • A. Because a post-correction market actually reflects a more accurate valuation and is generally safer.
  • B. Because corrections only affect glamour stocks, leaving value stocks completely untouched.
  • C. Because the media usually ignores market corrections, leaving investors to panic in isolation.
  • D. Because market corrections historically only happen once every decade.
Question 5 of 8
Since humans are statistically terrible at detecting lies, what is the best way to determine if a company's leadership is trustworthy?
  • A. Analyze their body language during press conferences using expert techniques.
  • B. Look at how executives are investing their own money in the company's stock.
  • C. Read the company's annual mission statement and quarterly projections.
  • D. Hire a law enforcement professional to interview the board of directors.
Question 6 of 8
The fMRI study involving wine tasting illustrates a psychological bias that can lead investors to make which of the following mistakes?
  • A. Assuming that a highly-priced 'glamour stock' is inherently more valuable than a cheaper 'value stock.'
  • B. Believing that foreign investments are always more profitable than domestic ones.
  • C. Selling off all their assets at the first sign of a market correction.
  • D. Refusing to invest in industries they do not personally understand or consume.
Question 7 of 8
What do the tulip mania of the 1600s and the dot-com bubble of the late 1990s have in common?
  • A. Both were driven by a lack of available capital in the global economy.
  • B. Both showed that traditional, boring companies will eventually go bankrupt.
  • C. Both demonstrate how investor excitement over novel and exotic markets prevents rational assessment.
  • D. Both were situations where insider trading was the primary cause of the market crash.
Question 8 of 8
According to the text, how should an investor determine 'how much money is enough'?
  • A. By saving exactly ten times their annual income before retiring.
  • B. By comparing their wealth and assets to their peers and neighbors.
  • C. By consulting the historical average returns of the S&P 500.
  • D. By looking inward and establishing a personal benchmark based on their own unique values and needs.

The Laws of Wealth — Full Chapter Overview

The Laws of Wealth Summary & Overview

The Laws of Wealth (2016) is an insightful guide to understanding how our irrational behavior can get in the way of making good investment decisions. Using insights from the field of behavioral psychology, Daniel Crosby identifies key human weaknesses that can sabotage our investments, such as overestimating our abilities and panicking in the face of risk. He then presents practical and effective strategies that we can adopt to become better investors.

Who Should Listen to The Laws of Wealth?

  • Investors wanting to learn how to spot their behavioral blind spots
  • Psychology buffs interested in how emotions influence how people spend money
  • Anyone who is weighing up the benefits of hiring a financial advisor

About the Author: Daniel Crosby

Having completed his PhD in psychology at Brigham Young University,  Daniel Crosby moved into the world of finance and became an expert in understanding how people’s behavior and emotions affect their investing decisions. Previously, he coauthored the New York Times bestselling Personal Benchmark: Integrating Behavioral Finance and Investment Management. He is also the founder of investment management firm Nocturne Capital.  

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