This appears to completely ignore the fact that money gives you power, privilege and opportunity - and that can be used to make more money. It's not impossible to get rich from nothing, but you start with a huge disadvantage.
I think if you studied it, you'd find that most people who start out with a lot of money, end up with less, not more. The smart poor are hungrier and more willing to take risks.
And that's what really hit home for me: when he made the comment that risk counted more than hard work. I work for a company whose stock was severely depressed last spring. I know our fundamentals are good, we're a leader in a growing, relatively recession-resistant industry and that the stock would probably bounce back in a year. So I considered buying a $10k block of it when it dropped below half normal price, but chickened out when I realized that I couldn't afford to lose $10k or so if I was wrong. What happened? Exactly what I guessed: the stock is now back to to its high 60's-low 70's level and I would have made an easy $10,000 had I made the investment a year ago.
Reminds me how bourgeois I've become :-( Losing my stomach for risk!!
For a plan of having a predictable and financially safe year it was the right thing. For a plan of taking advantage of every interesting opportunity the right thing might have been "I can't risk $10k but I can risk $300. $500 if I trade packed lunches for x weeks with my future self in case of loss".
I could almost argue that if you can afford the loss then you're not using the same definition of risk.
I think if you studied it, you'd find that most people who start out with a lot of money, end up with less, not more
I don't have any hard proof to cite right now, but I have a gut (Steven Colbert like) feeling the history of capitalism proves you wrong.
When you have enough money to live off it while it still grows even with only hyper conservative investment, I think most of the time you die with more money then you started with.
If I remember correctly, the stats show that the rich get richer as a quintile of income, not as individuals.
That means that the top 20 percent or so is getting way richer as time goes on, but not necessarily that individuals stay in that top 20 percent. In the states at least, they move around from bracket to bracket quite a bit. You might be in the top few for 20 years, then be at the bottom. Or start at the bottom and move into the middle. As stats, the rich get richer, but as people, everybody seems to have the chance to change their lot in life. (or life changes it for them, depending on how you view it)
I can make exactly the opposite argument: the poor can't afford to take risks, so the smart poor don't.
It's one thing to be poor and desperate enough to take risks to survive, but when you have enough to survive reasonably comfortably, you need another buffer before you can take risks that can really pay off.
Someone with 10K to spare - I mean really to spare - in your situation would have made that money. If you were even tighter for money, I don't think you would have been less risk averse - on the contrary, you'd be even tighter with it.
My ability to accept risk these days depends more on the downside than the upside. This was radically different 10 years ago. At that time I would have seen the opportunity to make an easy $10k and gone for it. If I lost the money, well I could always make more. These days I have a hefty mortgage and a family to support. Losing the 10k won't put us on the street, but it takes a big bite out of our safety net. It wasn't worth the risk, especially with the economy tanking.
In retrospect, my comment was poorly phrased since I had myself in mind as the "smart poor." Upon reflection I can see that it wasn't the lack of money that made me so willing to take risks without much of a buffer, it was the lack of responsibilities.
That tends to happen as you age. Values and priorities shift drastically as you get older and, presumably, take on more responsibilities (children, wife, etc.). This is played out pretty heavily in politics. Young people tend to be more liberal and grow more conservative as time goes on with the possibility of again moving back towards the liberal side of things at the end when responsibilities start to dissipate (children grow up, social security kicks in, etc.).
I think the key is to take risks when you have the ability to (i.e. when you're young). It doesn't mean you can't grow rich later in life, but I have a feeling that the longer you put off taking on the "big" responsibility, the higher the probability you will be to succeed in a financial sense. If your idea of "successful" is to have a spouse and offspring, by all means, pursue that as early as possible. If it's to be financially well off, you'd be better off pursuing that instead of a family.
the poor can't afford to take risks, so the smart poor don't
What about those who start a business from scratch? The outcome for many are debt, but the smart or lucky end up being profitable, some even rich — I would call that risk taking, and lots of “poor” people take this risk.
I don't see any inconsistency between what you've said and the idea that having more money makes it easier to get more money.
If you start with $10M then, sure, you may well end up with less than that, especially if you aggressively try to turn it into much more. On the other hand, you're also much much more likely to turn it into $100M in ten years or so than someone who starts with $1M -- who, in turn, is much much more likely to be able to turn that into $100M than someone who starts with $100k.
If you're claiming that someone who starts with $10M is likely to end up with less than someone who starts with $1M then, sorry, I don't believe you. (But feel free to convince me otherwise.)
The article is about which matters more: smarts, wealth, hard work, or risk-taking.
Thought experiment: given a dumb person with $10M (say, Britney Spears) and a smart person with $1M (say, Warren Buffett), who is more likely to turn that into $100M within a generation?
I would bet money on the smart person. It's really easy to lose a lot of money if you make the wrong decisions.
And Buffett thinks he could do very well with a small sum:
> "If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that. "
When I said "start with money" I meant that literally. That most people who inherit or are given large quantities of cash will tend to fritter it away since it doesn't have the value to them as it would to someone who worked hard to acquire it.
The track record of lottery winners tends to bear this out.
But lottery winners are not the right example. Those who inherit wealth will be far different than lottery winners, not least because their parents tend to instill values and practices that help produce wealth. They also have greater access to schools and universities, etc etc.
In the USA, in particular, wealth is very very heritable. I'll try to dig up some studies, though I have work to do today...
This makes me remember a passage I read in Nexus by Mark Buchanan (good book, read it!), where someone did an experiment to try to find the root of "the rich get richer". They construct a simulation of an economy, seed the participants in it with a random amount of money, and let it run for "a long time".
They end up with a distrubution of wealth that is very similar to what we see in the real world. The moral of the story: random chance will create the structure we're seeing in real life; being rich isn't proof that you're "better" than everyone else (supply your own definition of good), it's just as or more likely that you happened to be at the right place at the right time.
The summary is that for both adopted children and non-adopted children, the higher the father's income, the higher the resulting test scores. Hence, money makes you smarter.
No it doesn't. He said that the expression, 'the rich are getting richer,' is a generalization (which it is) but that it is 'true enough.' Money is a tool with which you can aquire more wealth, but all the tools in the world are worthless if you don't have the knowhow to use them.
The bar is pretty low for "enough knowhow" in this case, however. Basically:
1) I have $10M.
2) I don't know a dang thing about investing.
3) I better find someone who does (e.g., Vanguard), and let them manage my money for me while I keep an eye on them to make sure they behave responsibly.
-----------
OT joke that amused me: Stock call? Is that when you stand on the porch and yell for the cows?
