What's your Rich Path?
Netflix has a series called 'How to Get Rich,' hosted by Ramit Sethi, a well-known personal finance expert. Ramit previously had a book with an even more audacious title: 'I Will Teach You How to be Rich.'
Bombast aside, his advice is sound for the general public: avoid debt, avoid unnecessary financial obligations, prioritize spending on things that bring happiness, save on unnecessary expenses, and invest in index funds.
The key message of the series revolved around Ramit's query to the participants: "What's your Rich Life?" It goes beyond the stereotypical images of sipping cocktails in the Bahamas, driving luxury cars, and residing in mansions. The definition of a rich life varies from person to person. For some, it may be as straightforward as "I don't want to have financial worries."
It is much more sensible to chart your own path instead of blindly imitating others or succumbing to mimetic desires for what someone else possesses. Ultimately, it is your life, and you have the power to determine what you truly want.
If people have varying goals for attaining wealth, their paths to riches can also diverge. Interestingly, this was discussed during the Berkshire Hathaway AGM - Warren Buffett and Charlie Munger found themselves defending why their approach to wealth accumulation differs from that of Elon Musk.
During the AGM, Munger commented,
"[Musk] wouldn’t have achieved what he has in life if he hadn’t tried his unreasonably extreme objectives. He likes taking on the impossible job and doing it. Warren and I look for the easy job that we can identify."
Both Buffett and Musk are among the wealthiest individuals yet their paths to accumulating wealth have diverged significantly.
Buffett's philosophy for wealth building centers around the power of compounding, which relies on having ample time. Starting his investment journey at the age of 11 and continuing to invest at the age of 92, he has been able to accumulate wealth over a remarkable span of 81 years and counting. This less obvious factor highlights the importance of long-term dedication that few investors possess.
Buffett's approach can be characterized as "getting rich slow" through patient and consistent investing. It took him 45 years of investing to reach the billionaire status, achieving it at the age of 56.
Munger pointed out that Warren and he have focused on identifying stocks that are clearly advantageous rather than grappling with more challenging ones dealing with innovation. They have found it easier to determine which businesses will remain unchanged rather than those affected by constant changes.
Consequently, Berkshire's portfolio predominantly comprises what some might consider "boomer" stocks—perceived as traditional and unexciting.
In contrast, Musk is recognized as an innovator who consistently advocates for change, whether it involves electric cars or space exploration. He exhibits impatience with conventional methods and actively seeks improved approaches.
Unlike most individuals who would consider retirement after selling a successful business, Musk took a different path. Following the acquisition of PayPal by eBay, he redirected his proceeds towards ventures like SpaceX, Tesla, and SolarCity, actively engaging in these companies. In essence, he embraced even greater risks after attaining his initial windfall.
At the time, many people may have considered Musk's decisions to be irrational. However, his subsequent successes have solidified his credibility.
It is crucial to acknowledge that our recognition of Musk's achievements is primarily due to his status as a successful figure. We are often unaware of the multitude of individuals and businesses that failed in the fields of electric vehicles, space exploration, payment systems, and social media. This phenomenon exemplifies survivorship bias in its purest form.
It is probable that the majority of those who embark on ventures involving high risk will experience failure, while only a few will achieve success. This aligns with Munger's perspective that their approach involves avoiding unnecessary risks rather than being enticed by them.
Peter Thiel, in his book "Zero to One," made a similar observation to Munger regarding the extreme behavior exhibited by startup founders.
"startup CEOs can be cash poor but millionaires on paper. They may oscillate between sullen jerkiness and appealing charisma. Almost all successful entrepreneurs are simultaneously insiders and outsiders. And when they do succeed, they attract both fame and infamy. When you plot them out, founders’ traits appear to follow an inverse normal distribution:"
Understanding whether our personality aligns more with Buffett's or Musk's approach can indeed be valuable in determining the kind of role we should pursue.
To put it in Ramit's words, "What is your Rich Path?" Are we inclined towards a more Buffett-like path, focusing on patient investing, compounding wealth over time, and making calculated decisions? Or do we resonate with Musk's approach of constant innovation, taking risks, and challenging the status quo? By identifying our rich path—whether it leans towards Buffett or Musk—we can align our goals and strategies accordingly, increasing the likelihood of achieving success in our chosen endeavors.
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