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Week 14: Millionaire habits


By Sam Instone - April 08, 2021

I’ve read many articles regarding the mega wealthy this week…

How they’ve built their wealth, lost their wealth, given it away and even doubled their net worth in a year.

Here’s what I’ve read…

Along with a few learnings we can all take away with us this weekend.

Let’s start off with a story of goodwill…

I read about Jeff Bezos’s ex-wife, MacKenzie Scott, who donated $6 billion last year to support 500 non-profits across the United States. She probably donated more money in a single year than any living person ever before. But then something weird happened. She ended the year much, much richer.

The same happened to other billionaire philanthropists - her ex-husband Jeff Bezos, Facebook chief Mark Zuckerberg and Twitter founder Jack Dorsey (whose net worth more than doubled over the past year). In addition, the 500 wealthiest people in the world saw their net worth increase by almost one-third in 2020, the greatest increase in the eight-year history of the Bloomberg Billionaires Index.

How does that make you feel? There’s an interesting debate here looking at this from different angles.

A story dominating recent news is that of Bill Hwang and his private investment firm, Archegos Capital Management, which brought about a multibillion-dollar fiasco that involved secretive, dangerously leveraged market bets that unwound in a blink. It’s a tale as old as Wall Street itself, where the right combination of greed, suspicious lending and lax regulations generated massive profits - only to crumble in an instant when conditions changed. Bankers reckon Archegos' net capital (essentially Hwang's wealth) reached $10 billion+ and evaporated in mere days. It may be one of the single greatest losses of personal wealth in history.

A New York Post article exposes the spending habits of Goldman Sach’s chief David Solomon. He uses a corporate jet to travel to his mansion in the Bahamas, indulges in hobbies that include pricey wines, kitesurfing and DJing at nightclubs - all the while demanding that his people get back to the office as the COVID pandemic subsides. His employees are not too impressed.

Of course, not all millionaires are as care-free with their money. The National Study of Millionaires in the USA takes a deep dive into the backgrounds, demographics, family and relationships, careers, money and purchasing habits of millionaires. The study breaks apart one millionaire myth at a time and shares the truth behind their wealth. It found:

  1. Most millionaires don’t even come close to the stereotypes given them.
  2. With hard work, smart money decisions, and time, anyone can become a millionaire.

One of my favourite financial bloggers, Ben Carlson, highlighted something similar about millionaires. He refers to the book, The Millionaire Next Door, and some of the surprising stats in there:

    • 63% of the millionaires surveyed purchased or leased new cars but 37% bought used.
    • 46% of these millionaires had either the current year or last year’s model but 54% drove a car that was 2 years old or older.
    • More than 25% of millionaires surveyed drove a car that was at least 4 years old.

While saving money on a car won’t make you a millionaire by itself, it’s the mindset of cutting back on certain areas that can help make regular people wealthy over the long haul.

Net-worth is the fancy car you don’t drive.

On that note, the much-loved Warren Buffett is not only known for incredible wealth but also his frugal habits. He still lives in the house he bought in the 1950s and drives an equally modest car. He also eats the same McDonald's breakfast every morning, wears suits made in China and doesn’t own a smartphone. (Not that I would advocate having McDonalds for breakfast every day, but I do appreciate his love of pocket-friendly meals).

While there’s no right or wrong way to spend or show your hard-earned money - make sure your wealth has purpose. Barry Ritholtz wrote a great post on this after touching on the Bill Hwang saga. In it, he says the fall of Archegos Capital Management is a good opportunity to reflect on the philosophical purposes of money. To those fortunate enough to have accumulated a great fortune, towards what purpose is that capital aimed? Failing to consider this can result in dissatisfaction, unhappiness and losses.

Without a purpose, money is merely an entry in an accounting ledger. But wealth tied to a useful purpose has magical powers.

And to cheer up poor Bill, I’ve some encouraging news. This week I was asked by the website www.onegoldennugget.com for a word of wisdom. The vignette I gave was an amalgam of billionaire hedge fund manager, Ray Dalio’s ‘Fundamental Theorem’ and the wisdom of my friend Mick Todd from 2B Limitless:

Pain + Reflection + Positive Action = Progress

Whether it's mistakes at work, the loss of a loved one, physical challenges, poor historic decisions to do with your career, health, relationships, wealth or, in Bill’s case, the loss of $10 billion – who doesn’t want progress?

 

A question for you:

What does a wealthy life really mean to you? What relationships, what achievements, what decisions and what numbers matter?

 

This week's meditations

"Maintain a margin of safety - even when it’s going well.
 Rich people go bankrupt chasing even more wealth.
 Fit people get injured chasing personal records.
 Productive people become ineffective taking on too many projects.
 Don’t let your ambition ruin your position."
-
James Clear


"Time is your friend; impulse is your enemy."
Jack Bogle

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Have a great weekend and enjoy the ‘light’ reading! 

 

Theodore Schleifer on 'Why we can't stop talking about billionaires'

The New York Times article 'He Built a $10 Billion Investment Firm. It Fell Apart in Days.'

Charles Gasparino in the New York Post 'Forget griping staffers, investors love Goldman Sachs’ David Solomon'

Ramsey Solutions' 'The National Study of Millionaires'

Ben Carlson on 'How Much Money Do You Need to Make to Buy a New Car?'

Business Insider's 'Warren Buffett is the world's sixth-richest man. Here's how the notoriously frugal billionaire spends his $84.6 billion fortune.'

Barry Ritholtz discussing 'Purposeless Capital'

Ray Dalio's 'Fundamental Theorem'

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