Forbes recently published its annual Forbes 400 rankings of the wealthiest people in the world. This list is a classic – a list of the estimated wealth of some of the richest and most powerful people in the world.
We always hear the same familiar names in the 400 rankings – Carlos Slim, Bill Gates, Warren Buffett. Those names are almost always the perennially ranked top three people in wealth.
Carlos Slim owns massive telecom businesses in Mexico and Latin America; Bill Gates has a large slice of Microsoft, and Warren Buffett’s investment performance at the helm of Berkshire Hathaway makes him a god of the financial markets.
Bring on the Boring!
The financial press likes to stick to recent newcomers like Mark Zuckerberg of Facebook or John Paulson of Paulson & Co. hedge funds, two people who accumulated billion-dollar net worth statements in a matter of a few years.
But when you start looking through how the wealthiest people in the world got rich, the paths are varied. In general, there are two common denominators:
- Time – Not surprisingly, it takes time to build up a billion dollar net worth. Most on the list are well over the age of 50, with many people on the list at 70-80 years old and decades of good investment and business decisions.
- Boring businesses – Technology companies and hedge funds may allow for quick leap frogging up and down the list of the 400 wealthiest individuals, but it is the boring business that keeps people on the list. In the top 100 are Waltons of Walmart, the Koch’s of Koch Industries (Industrials), and countless mining, oil and real estate tycoons.
Walmart couldn’t get a headline unless it were to fight off a new attempt at a union or be party to a new lawsuit. Mining companies stay off the radar, unless some journalist needs a quote for a Cash4Gold article. Oil companies hit headlines only when oil prices hit new highs, or oil spills threaten the industry.
These are all boring businesses that put people to sleep – yet they are the greatest sources of billionaires. Boring makes billions – never forget it!
It’s all Finance!
From top to bottom, the common denominator in wealth is finance. Microsoft, Facebook, and Oracle are outliers. These are real businesses that require a real product and real business concerns. But by and large, the greatest source of wealth is found in finance.
Oil production is all finance – companies buy existing wells with interest rates lower than the expected yield of an oil rig. The many real estate moguls made billions by leveraging their real estate holdings with cash less costly than the yields from tenants. Miners clean up by purchasing mines with inexpensive cash to reap the rewards of mining over the very long haul.
You don’t have to convince people to rent apartments. You don’t have to convince people to buy your oil instead of a competitor’s. And it doesn’t take much push or shove to sell gold or silver removed from mining operations. These are all commodity goods, for crying out loud. No one cares if gold came from a Barrick Gold mine or Goldcorp’s production. Few people care which real estate mogul cashes their rent checks.
Don’t Work too Hard for Wealth
You need not be a master coder to become a billionaire, or a marketing genius like Steve Jobs to become a wealthy entrepreneur. These make great stories, but not great billionaires. Having a basic understanding of finance, and an interest in a business to which you can apply that knowledge is really all you need.
Finance is not the same as Wall Street. Finance is not all high frequency trading and courting new investors for your latest hedge fund. Finance is the ability to grow assets at an exponential rate, period. Those that employ the power of exponential growth and intelligent financial decisions in boring, mostly uncompetitive businesses like mining, oil, real estate, and other scalable industries dominate the list of the wealthiest billionaires.
And these people sleep well at night because finance is simple. I know a guy who owns several hundred oil wells in the Midwest. He never worries about a new competitor opening up shop down the street, or a “new great product†that is going to destroy his business. He’s going to sell oil until the day he dies, and he’ll never have to roll out some goofy ad campaign to sell his product or prove his product is better than the competition. He doesn’t need to know a single thing about traditional business! His business is all finance – oil is just one step removed from cash.
Give me two people, one who understands corporate and institutional finance and makes only $50,000 per year and another person who makes $1 million annually as an elite surgeon with no understanding of finance. I’ll show you who is more likely to be the billionaire – and it isn’t the surgeon. In the grand scheme of things, the power to compound returns at a 20% annual clip will always beat a safer, substantially larger annual cash flow growing at a much smaller annual rate.
Bottom line: You need to be a business genius to make a Facebook, or a Microsoft, or even a L’Oreal, and keep it on top of the competition. But you need not be a genius to understand that borrowing at 4% and investing at 8% will make you rich. The difference between me, you, and the Forbes 400 list is action. We come across all kinds of opportunities to borrow at 4% and generate 8%. But the difference is that the Forbes 400 members were smart enough to say “hell yes!” to the opportunity in front of them.
{ 9 comments… read them below or add one }
Recognizing an opportunity takes much more than the average person realizes. We see opportunities, but we do not have the skills, capital or knowledge to take advantage of them. Some may not recognize the opportunity if it fell on them. The difference between the average person and the person who takes advantage of these opportunities is know how and access to capital.
I used to think that. But it seems that a lot of the things I read in the personal finance blogosphere and elsewhere seems to have an absolutely huge bias against taking a big shot at something. There are far more people willing to invest hundreds of hours to convince themselves NOT to do something than spend half as much time actually doing it.
I just think it’s interesting that it seems most billionaires are centered around the same long-term, wealth-building opportunities as “average” people (oil companies paying dividends, for example) they’re just leveraged.
Leveraged is the keyword here. So many blogs concentrate on getting rid of debt, but that’s not for the wealthy. If you want to be wealthy, you need to take on debt and leverage it. Getting rid of debt is good for regular people, but you won’t become wealthy that way.
Let me first mention, no offense to anyone reading this and is a PF blogger about debt.
I got so tired of reading other blogs that’s all they talked about. The debt snowball, 15 ways to cut down your debt, how to cut your expenses, blah… blah blah.
My point in creating my blog was about investing and growth. Debt (consumer debt specifically) isn’t about getting wealthy and financial independance.
Now I realize not everyone has the vantage point of not starting in the hole with a negative net worth. My point is most they need to look past the debt, and how to push it to the next level. Getting out of debt isn’t complex. Investing, which many don’t know much isn’t complex either but few fully understand it.
In addition from my discussion with many other fellow bloggers they don’t make much money at their blog either. So they competing in a very large space (ie debt reduction PF blogosphere), there isn’t much money in targeting others who are also trying to figure out how to get out of debt. That’s because they also have no money.
JT,
Again let me state no offense to others in debt and writing about it. I find it honorable they are writing about their experience and documenting the process. Unlike many others who are in debt, they are actively trying to do something about their situation.
Though being a great writer doesn’t mean you’ll have a successful blog that generates any income. If anything, far from it. Otherwise every great writer would be a millionaire for all the stuff they write. Writing is just part of the strategy with a blog.
With anyone who makes statements like you’ve said, I look are they qualified to make that assessment. Meaning do they have results to back up that claim? If they are writing with absolutely no experience in business and making those statements, why should I listen to their opinion?
Like assholes everyone’s got an opinion. What matters is do they have some sort of actual experience to back their claim up? Or are they just talking out of fear? Too many bloggers are writing out of their mom’s basement.
Heh, I wrote this post at my mom’s house.
Anyway, the point you make is an important one – one of qualifications to make the claim. This is particularly interesting to me, since it seems that even among the “debt blogging” category, there are some very educated people. Err, at least there are a lot of finance graduates who apparently don’t have much confidence in their education in finance by supporting the anti-debt view.
Referencing your other comment, I don’t think investing is all that complex, either. I think most people can and should understand it, as anyone with an IQ of 80 or more probably can. Maybe it’s intimidating, but I think if you can follow sports and understand how batting averages, etc. work, you can probably understand investing.
Investing certainly does not have to be complex. Take Warren Buffett for example. He does not own a computer on his desk or use a Bloomberg terminal. In my opinion understanding business and accounting (which is basic match) are the most important skills.
Even buying a CD is investing (granted you’ll get poor returns).
The Koch brothers are good examples of boring but heavy-duty billionaires most people had never heard of… that is, until recent years, when their vocal support of free markets got them some heavy scrutiny and media attention. They’re in humdrum businesses like fertilizer, oil and gas pipelines, refining and processing, ranching, materials, and commodity trading. Interesting that the Forbes list only counts their personal wealth. Throw in the (unknown) market value of their various enterprises, and they could well top the richest list.
Boring business’s are boring because they have no innovation and creativity! All successfull business’s grow by developing new creative methods and products. Even the business’s mentioned. All of them would love to have a new exciting product or method. And this includes the stockholders. Any business satisfied being a boring business will soon lose market value to a business that isnt boring !! Nowdays all it takes is an exciting product to kill a boring business. Look at MySpace, BlackBerry,Sony to name a few.