In an episode of The Motley Fool radio show, host Chris Hill talked to The Collaborative Fund’s Morgan Housel about the psychology of investing and how humans behave when it comes to money. Here are some highlights:

·      Housel referred to a 9000-word piece he posted on Twitter calledThe Psychology of Money, in which he asserted that “investing is not the study of finance, it’s the study of how people behave with money.” The most important concept in the piece, he said, was that “there is no amount of intelligence that can’t be undone by poor emotions or poor behavior.”

·      Investor behavior, Housel noted, includes how people relate to greed and fear; their ability to take a long-term view; and how they will react to market ups and downs.

·      Excitement versus boredom: Housel argued that the purpose of investing is “not to minimize boredom, but to maximize returns.” Still, he noted, there’s a “sports” element to investing that offers entertainment to certain types of people, but “can get dangerous.”

·      Investing results, he noted, are driven by “tails.” That is, in any given year, most stock market gains are driven by only a handful of stocks. In large indexes, such disparate performance is hidden from view, but Housel said it’s a fact of investing life.

·      Housel described the current mood among investment professionals as “nervous optimism” and added that “anyone who understands business cycles and economic cycles knows that we are a long way from the bottom.”

·      According to Housel, the primary job of a financial advisor is to hold a client’s hand through the market’s inevitable ups and downs. It’s less about being a “genius investor,” he said.

·      When asked how he endures market fluctuations, Housel said that he keeps a lot more cash in his portfolio than is probably necessary, adding, “I’m trying to maximize sleeping well at night.”