Why You Are Wealthy?
“Like all of life’s rich emotional experiences, the full flavor of losing important money cannot be conveyed by literature. You cannot convey to an inexperienced girl what it is truly like to be a wife and mother. There are certain things that cannot be adequately explained to a virgin by words and pictures.”
– Fred Schwed Jr.
(Author of “Where Are the Customers’ Yachts?” First published in 1940)
If you are reading this there is a very good chance you are wealthier than 90% of the Canadian population. Have you ever paused to think why this may be the case? Of course there could be any number of reasons that quickly come to mind such as living below your means and saving the difference, the long term compounding of returns in your portfolio or owning high quality companies etc. However Morgan Housel, a partner at Collaborative Fund and one of the most astute financial writers blogging today, has some ideas on the subject which you probably have not thought of.
One, you are wealthy because you are a pleasant sociopath. As Housel writes, “I’m convinced that nearly every rich person has the characteristics of a sociopath. Not in a cruel, soulless way. But sociopaths can discharge emotional events that cause normal people to worry and panic. Great investors can do that, too. They can watch stocks fall 50% and shrug their shoulders or see 10 million people lose their jobs and remain unshakably calm.” Napolean’s definition of a military genius was ‘The man who can do the average thing when all those around him are going crazy’. Perhaps you are wealthy because you are the same – you can remain normal when all those around you are losing their heads.”
Two, you are wealthy because you do things differently. Again Morgan Housel writes, “The funniest thing about rich people is how little their income has to do with their wealth. Mike Tyson earned $300 million during his career and went broke. An orphaned, unmarried administrative assistant died with millions in the bank.”
Three, you care about time periods most can’t comprehend. Think about it this way, there are four ways to invest:
Long term (varying degrees of success)
Short term (successful due to luck)
Short term (successful due to manipulation/fraud)
Reflecting on the above options one comes to the inevitable conclusion that the only logical way to invest is over the long term. But here’s the thing … it’s totally unnatural! As human beings it has been encoded into our DNA to go for the immediate gains and avoid imminent threats.
Carl Richards, the artist of the above sketch, notes that we have the same emotional connection to ourselves 30 years in the future as we do to a complete stranger. The bottom line is that nearly all sizeable accumulations of wealth can be traced to a single variable, a long term outlook.
Four, you are wealthy because you don’t give a damn what other people think of you! Finally, Morgan Housel points out, “The price of being rich is really simple: You must live below your means. But living below your means is hard. Most people want to be rich to impress other people. They do this by spending money, which is the surest way to have less of it. Rich people avoid this trap. A lot of them are after control over their time, which comes from having a wide gap between what they can afford to buy and what they actually buy.” Or, as the poet William Shenstone once wrote, “A miser grows rich by seeming poor. An extravagant man grows poor by seeming rich”.