Why people get rich and how to obtain wealth

The purpose of this post is to give an answer to the question how to get rich. I want to give you two metaphors that will give you another perspective on how to obtain wealth other than the recycled clichés of be frugal, invest wisely or use your subconscious mind to achieve riches. These all may be true but they are not radical enough in their explanation to give you a clear understanding of how to get rich. It it is my thesis that people take the wrong approach to how to earn and accumulate money. If you understand the process, your efforts will be applied more efficiently.

Economic assumption of perfect information and profits

Economics assumes perfect information. This is one assumption that is somewhat wrong in classical economics. The fact that information is imperfect explains why people give rich and other do not.

Metaphor 1 to explain the relationship between wealth and information

I live in Krakow, Poland and there were people living here for over 50,000 years. Every year I hear about some valuable find. For example, a store of gold or jewels hidden in building walls from WWII.  Or something of value buried from fleeing citizens, or some ancient priceless artifact discovered from the bronze age. In this city we are living on 50,000 years of buried treasures. The problem is we have imperfect information and do not know where this treasure is.

Imagine that you find a map of your city, that was created with special technology that identifies anything old or of monetary value. It would create a treasure map of all things of value yet undiscovered or buried in your city. That is other people’s lost or hidden objects or things of historical value.  If you had this information you would be rich.

What does this have to do with why you are not rich? Everything. I believe most people do not know how to get rich because they do not have the information how.This seems to be common sense but it is not. If people understood this point they would spend their time pursing specific information on how to obtain wealth rather than working so hard for someone esle or blaming their intelligence or environment.

Quest for information

The reason you or anyone is not rich comes down to you do not have perfect information. Let us assume that you have an average level of intelligence and circumstance. There is nothing that separates you from the super rich other than information.

Think about this. If you in your current situation knew that the price of some stock option in the future you would be rich.

So now imagine instead of a treasure map, you had perfect information in the stock market or about the next Facebook or idea that could be brought to market or the next currency to make a radical swing. The effect would be the same. The idea is you would be incredible wealthy very fast. You would be a millionaire by year-end.

So the problem again is the market does not give anyone perfect information. This is why some people are rich and others are poor. Some obtained the information and others did not. In a sense you have to be a monetary detective of information, but not just any knowledge, it has to be specific.

What about intelligence and money?

There was a study by a Harvard professor I believe that compared millionaire and IQ. The result was  the average millionaire had an IQ around the norm. I have meet many rich people with mediocre intelligence. Maybe super smart people focus on other things besides money. I think intelligence is a component of finding information fast but not the only. Being smart does not mean riches. What does lead to riches is information, the right information.

Being smart can help you gather this information quicker. In fact intelligence can almost be defined by how fast you can achieve an objective, that is why they have time IQ tests. However, chess genius Gary Kasparov points out many players of lesser classic IQ, learn the game through determination. He asked can this not be defined as a form of intelligence if it gets you do you goal?

What about your circumstance and money?

I live in Eastern Europe where people have and had nothing and some people get rich on their own. They just figure out how.

So my point is if you are poor, it is not your circumstance of life or the fact you do not have intelligence. It is that you have not stumbled upon or though your own creativity discovered how to get rich.

The most efficient way to riches

Lets start with how not to get rich. Here are two ways not to get rich.

  • Peddlers of riches –  There are many systems on the web that claim it will lead you to riches. These are an extension of the self help books of the 1980s on money. People sell these systems, but the reality is few of the people who are owners of this knowledge are really rich. They rather are making a modest income selling their system. The advice in these books are all too general and get your fired up but not enough specific information to be in the upper 1% of income earners. Or they claim to have a secrete system of investing, but really like the Wade Cooks of the world, do not hold water when put to statistical testing. Or the people who really did make money rarely reveal their exact system. Reading countless books like these might be a start but you need specific information. You can not stop with just books that inspire you.  Or you can not simply a turn-key system. You need to take step two and compare and contrast what people are doing and what has been successful.
  • Working for corporate America – If you are a Chrysler – GM man from the 1970s maybe this is a way to have a nice life. But for most people working having a day job is only to pay the bills. However being a careerist it is not a very efficient way to accumulate wealth and it gets boring after a while, but it pays the bills. So I am not knocking having a job at all. It is just that to become the only way to accumulate capital in a capitalistic economy is to be an own of a process.

My personal philosophy to get rich

I believe in take no prisoners. I believe if you want to achieve your dreams in your life start studying how. Money is not the answer to life. I am a person of faith, and therefore, money, honor, what people think of me,   health, a long life or a short life, it means nothing. We are here for a greater purpose. So my point is not to say money is important, it is not. It is simply if you want to have some here is how to obtain it:

  • I have outline an understanding of the way the world works in my post why the rich have money. I actually based this on my study of European history and my personal experiences growing up around moneyed folks.  If you want to be successful this is a good place to start. Understand on a high level what is going on.
  • Once you have your chosen line of success, study it like a science or at least like a chess player and with the passion of an obsessed chess player.

Metaphor 2 approach your pursuit of money like a chess player

This is how chess players do it. They study strategies that work, obsessively, based on probabilities and lines, then take calculated risks. Most modern chess programs which masters work from calculate lines of probability.
Gary Kasparov the chess great said something to the effect if you want to be a champion you need to be a strategists. Brilliant tactics razzle and dazzle but strategy is what makes champions. Therefore focus on a general strategies that have worked, either it be trading stocks or investing in real estate or selling intellectual goods or services. Whatever you like. Develop a quest for specific knowledge that will lead you to your goal.

Develop a good strategy in the area you want to pursue your income (hopefully an area you really are interested in). The strategy should be based on facts. If you want top get rich in from the stock market for example, see what works for others.  I like to invest largely based on quantitative  investing methods because these are not a fade. These are methods that have a long-term history and back testing for success. They are empirical.  This is one example. It it is not a system that I am selling or recommending. I am just point people in the direction that quantitative methods of investing have achieved results better than any general book about achieving wealth. Make your strategy your study, based on the leverage of other people’s knowledge.

Example of a rich strategist plumber

My landlord on Beacon Hill in Boston was a plumber who owned over 100 units on the district with is one of the most expensive real estate areas in the USA. People who live there are known as the Brahmans of Boston, he was a plumber who followed a system. He did not know all the tricks of real estate, he said he simply knew the market was cyclical and every down turn he picked up some units. He did this for 40 years and he is beyond wealthy. It was his strategy that made him rich. It was a system he leaned from someone else.

What am I doing to achieve wealth and what are the take aways?

  • Leverage your time by studying others people’s systems on how to make money. This will help you over come the fundamental problem of imperfect information efficiently discussed in the beginning of the post. If you study other people’s systems, it will help you to start constructing a map for uncovering hidden treasure that are at your arms reach.
  • I think selling intellectual goods or services as they have the highest margins. This is a hint to eventually replace your day job, but it takes time. This is actually talked about in my other posts.
  • Study the science of making money hard and relentlessly in specific strategic terms, like a chess player studies his game.  Gary Kasparov wrote a book ‘How life imitates chess’. It is a good book to give you some inspiration along these lines if needed.

Me personally what am I doing? I am writing software and creating other intellectual goods and also investing semi systematically.  I am not super rich, but I do not have a day job. I unplugged from the matrix about seven years ago and doing fine.