Why Some People Get Rich and Others Don't

I’m sure you’ve had this experience where you see someone who is a dummy who has lots of money. Or you know someone who is a genius who is scratching by at $60,000 a year.

I have thousands of stories. Maybe more. I’ll give you one—there was a derivatives sales trader at Lehman, a rotund fellow with a greasy lunch counter mustache, who allegedly took the Series 7 seven times, failing each time, and eventually applied for a waiver because of a real or imagined learning disability. He was also addicted to painkillers. But when it came to trading options, the guy could really swing the lumber. Especially on the day that the new LEAPs got listed—his genius clients would come in with a few thousand contracts and pick us off on a mispriced vol surface. He made millions of dollars of commissions in the process. I have no idea where is he is today—possibly dead—but at the time, he was very, very rich.

Richer than me. I got a 96 on the Series 7, had a business degree, and a fancy math education in university. Lunch counter guy probably wouldn’t know vega convexity if it punched him in the nose. But he was getting paid, and I wasn’t. And it’s not that I wasn’t doing well at my job.

So like I said, I spend a lot of time thinking about this. I know rich dumb people and smart poor people, and the one thing that most rich people have in common is that they care about money. As in, they want to make a lot of it. The first step in making money is to want to make money. I wrote about this in No Worries, and it actually is true. If you don’t want to make money, you probably aren’t going to get any money. Right? I mean, on rare occasions, you might fall ass-backwards into money, winning $200,000 on a scratch-off, but that is the exception rather than the rule. If you want money, you have to go out and get it. And some people are better at that than others.

There is a Hebrew word that means “to have a nose for money,” and I think I know what it is, but there is no chance I can spell it, so I won’t include it here. Some people have it. And some people care very deeply about making money, like me. I am always looking for ways to sell more subscriptions, to take on new business ventures, to invest in hedge funds or startups, to trade futures. It doesn’t always work, but I am never complacent. There are not too many rich people who are complacent. Sure, they might get complacent eventually, but that is usually the point at which they stop making money. They have enough. And there is nothing wrong with that—I know many people who made their $40 million and retired to play golf. Maybe if I got to $40 million, I would do the same thing, except for the golf. “Enough” is a different amount for different people. For Jack Bogle, $20 million was enough. The guy had perhaps the number one financial innovation of the 20^th century, outside of perhaps the 30-year fixed rate residential mortgage, and he could have been a billionaire many times over. He had enough, and he wrote a book called Enough, and he said that everyone else should have enough, too. He had a real aversion to accumulating wealth, like it was immoral, or something. Well, screw that guy. I don’t feel that way at all. And no, Jack Bogle didn’t like me, either.

There is an element of rapacity to shareholder capitalism, I’ll admit. Elon Musk wants bigger and bigger pay packages, at the expense of current shareholders. He needs the money! He wants to go to Mars! You might wonder why a billionaire needs all that money, well, in some cases, they do. I have a hard time coming up with ways to spend a billion dollars, but maybe I do not have a big enough imagination. I don’t like yachts—I get seasick. I suspect I would also get sick in space, and there are only so many houses you can buy. But there are things I still want, even after building my dream house—I still want the pied a terre in Miami, and maybe I will get there someday. I have a friend who once said to me that the most powerful thing in the world is liquid net worth. Not houses, not hard assets, but cash and marketable securities that you can turn into cash, because cash is a big pile of options. Houses are great, but better than houses is a bunch of cash and stocks and bonds. That is a mistake that a lot of people make—they get rich, and then they put it into a bunch of illiquid stuff, and they lose optionality.

All of this is a roundabout way of saying that you should be greedy. That word. But the word “greed” implies a zero-sum view of the world—I have more and you have less. If you create something or produce something, and you make money incidental to that, then you’ve done something admirable. People usually draw the line at money managers, saying that they are socially useless. They don’t produce anything, they say—they simply move money from one pile to the next. Well, that is actually an important social function these days, especially since fewer and fewer people are evaluating securities, owing to all the indexing. The indexers are the ones who are immoral, free-riding off the efforts of others to keep the market efficient. Also, as you know, the asset management business is not so easy—people fail all the time. Try it for yourself and find out.

Every once in a while, you run into these people who go into business and fail because they simply don’t charge enough. Why don’t they charge enough? Well, the reasons are complex, but at the core of it, they just don’t feel as if they’re worth it. It’s a self-esteem issue more than anything. Philosophy has a lot to say about this, too—you should charge as much as you possibly can, as much as the market will bear, and not a penny less. There is a field of study devoted to this, and it’s called microeconomics. If you charge too much, you won’t have any business. If you charge too little, you are leaving money on the table. If you charge too little out of some hangup you have about making too much money, then I don’t know what to tell you. I was friends with a home design guy (someone who is a step down from an architect) who was charging $50 an hour. He was complaining that his phone was ringing off the hook, that he had so much business that he could not keep up. I told him that he should charge $100 an hour. He actually sorta took my advice and raised his price to $75/an hour—problem solved. He had more money, and he didn’t have his hair on fire. What was keeping him from charging more? It was purely an issue of self-esteem. And that’s the thing about capitalism—doing business is a positive statement that you are worth it.

I’ll say that some people are not really cut out for business, and those people should stay in academia or government. Go into work at nine, navigate the bureaucracy, take a long lunch, head home at 2:30, life is good. It’s a nice life, but what you have done is traded away your upside for safety and security. And the people I hang around with—the people who care about money—would not trade away their upside for anything. I heard a story about a lottery winner in New Jersey who won $20 million. He started a business and turned it into $200 million. A lot of people were sour grapes about that, and said that he was simply lucky, and yes, he was lucky, but he had an idea, and he previously didn’t have the capital to deploy, and suddenly he did, and as it turns out, he was pretty good at business. And the amazing thing was that $20 million wasn’t enough—he had the same amount that Jack Bogle had, and freerolled it into an enormous fortune. I think it’s been long enough since Bogle passed to dump on him, but it’s hard to come up with someone who has done more damage to the world with their poisonous ideology, and the damage has been done in such a way that it can never be unwound. The good news is that they will never make another Jack Bogle. You see these memes on Facebook about Edison and Tesla, and how Edison was such a bastard because he tried to monetize all of his inventions, while Nikola Tesla was just a starry-eyed idealist who gave his ideas away from free. You know where I fall on that debate.

So do you want to make money, or not? If you do, just understand that it’s a lifetime of struggle. But it’s worth it, and even if you don’t have much in the way of material needs, you can always give it away if you want. And that’s the really fun part.