I ran across an article purporting to give principles necessary for success. I don’t buy it. Popular culture is full of “how to be successful” advice that’s pure bunk. It’s mostly made up by salespeople, based on disproven sports mythology. “Work harder” is great advice if you’re trying to win an Olympic medal, but not if you’re trying to earn a lot of money.
I know many phenomenally successful people who violate the vast majority of these rules. I know many people who follow all these rules and have for decades, and aren’t much more successful than they were when they started.
But these rules make us feel good. We want to feel in control. So this list comforts us. When we succeed, it gives us a list of reasons why we deserve success. When we fail, it gives us an explanation. Better to believe “Bill Gates is successful and I’m not because he got up earlier” than it is to believe “I’m not successful because I just was born into the wrong circumstances and nothing I could do would have made a difference.”
What Really Makes (Financial) Success
Conspicuously missing from the list is what Andrew Carnegie called the most powerful business force in the world: compound interest.
To abstract that a bit, in my own experience, rent-seeking activities are vastly superior to hard work in getting ahead. It’s bizarre that we reward this so highly, since it’s the hard work that creates the value for which rent is being extracted. Indeed, Adam Smith considered rent-seeking to be the morally lowest form of economic activity.
And yet, most of my retirement savings comes from owning stock and letting it compound. The money I’ve made from actually doing work is only a small share of my IRA. It’s the investing income over time (the rent-seeking activities) that have been the most important.
Warren Buffett, the 3rd richest man in the world, made money solely through owning assets, not through doing work.
Bill Gates, the richest man, actually made his money through rent-seeking. We just never tell that side of the story. The reason Steve Jobs—who arguably put three entire industries on the map—didn’t die with a net worth of 10x Bill Gates is because Gates kept his stock and Jobs sold his. It was the rent-seeking decision to keep stock that made Bill rich, not the hard work he and his 20,000 employees did to make that stock valuable.