Seek wealth, not money
Wealth is assets that earn while you sleep: robots cranking out things, computer program serving customers, money that is reinvested into other assets and businesses. The purpose of wealth is freedom. You don’t have to do anything you don’t want anymore. You can get up or sleep whenever you want, live anywhere you want, pursue anything you want.
Money is how we transfer wealth, not wealth itself. It’s social credits, meaning that if you create value for society, you get paid by credits, which is money in the case. In other word, money is a medium of exchange.
Make abundance for the world
Wealth isn’t about taking money or something from somebody else but creating abundance. Make something lots of people want.
Everybody can be wealthy. Everybody can be retired. Everybody can be successful. It is merely a question of education and desire. You have to want it. If you don’t want it, that’s fine. Then you opt out of the game.
For example, the thing that makes Bitcoin interesting is not that it’s the best technology but it has the most diehard fan out there. As long as there are believers, like a movement or a religion, it’s a currency. If the world decide that Bitcoin is better than US dollars, it would switch to Bitcoin. It’s a consensus belief.
Making money isn’t about luck
There are 4 kinds of luck:
- Blind luck: you get lucky because something completely out of your control happens.
- Luck from hustling: luck that comes through persistence, hard work, hustle.
- Luck from preparation: if you are very skilled in a field, you will notice when a lucky break happens in that field.
- Luck from your unique character: you build a unique character, a unique brand, a unique mindset, where then luck finds you.
The first 3 kinds are clear. The 4th one, it’s about becoming the kind of person that makes money. You create your own luck, build your character so opportunity finds you.
If you’re a trusted, reliable, high-integrity, long-term thinking deal maker, then when other people want to do deals but they don’t know how to do them in a trustworthy manner with strangers, they will literally approach you and give you a cut of the deal or offer you a unique deal just because of the integrity and reputation that you have built up. Warren Buffett, he gets offered deals, and he gets to buy companies, and he gets to buy warrants, and bailout banks and do things that other people can’t do because of his reputation.
You won’t get rich renting out your time
In most salaried job, even at one that’s paying a lot per hour like a doctor, you’re still getting paid by the hours. When you’re sleeping, retired, or on vacation, you’re not earning. That means:
- Your inputs are very closely tied to your outputs.
- You not creating that much original for society.
- You’re essentially replaceable by robots or AI because you’re doing a set role.
You want a job, or a career, or a profession where your inputs don’t match your outputs, where you can put 1 hour of work that can produce 100x output. For example, a great engineer can create bitcoin and that is billions of dollars worth of value. Another way of saying is to look for things that are leveraged. Using the same example, a computer is a tool that software engineers use to get leverage. A lumberjack that uses robots for help can be more efficient than someone using their bare hands.
So everybody who really makes money at some point owns a piece of a product, or a business, or some kind of IP. That can be through stock options, so you can be working at a tech company. That’s a fine way to start. But usually the real wealth is created by starting your own companies, or by even investors. They’re in an investment firm, and they’re buying equity. These are much more the routes to wealth. It doesn’t come through the hours.
Live below your means
When you become a bit more wealthy, you don’t want to upgrade your lifestyle too fast. Ideally you want to make your money in discrete lumps, separated over long periods of time so that your lifestyle does not have a chance to adapt quickly.
Give society what it wants, but doesn’t know how to get at scale
Almost everything that you own used to be technology at one point in time and made someone rich. Oil was a technology that made Rockefeller rich. Cars were technology that made Ford rich. Once technology works, or becomes mainstream, it’s no longer technology. That said, you want to figure out what thing or technology per say, you can provide for society that it doesn’t know how to get yet. Then you have to figure out how to scale it to millions, billions of them so that everyone can have one. In other words, you’re bringing the high end to the mass market. First you create it because you want it and know how to build it. Once you’ve built it for yourself, figure out how to get it to other in a profitable way.
The internet allows you to scale any niche obsession
You can find your audience on the internet, on any niche, build a business, create a product, and build wealth as long as you’re the best at it to scale out. The more authentic you are, the less competition you’re gonna have. No one can compete with you on being you.
The space of careers has been so broadened. E-sports players, you know, people making millions of dollars playing Fortnite. People creating videos, and uploading them. YouTube broadcasters. Bloggers, podcasters. Joe Rogan, I read, true or false, I don’t know, but I read that he’s gonna make about $100 million a year on his podcast. And he’s had 2 billion downloads.
All returns in life come from compound interest in long-term games
What industries should you work in? What kind of job should you should have? Who do you might want to work with? Pick one where you can play long-term games with long-term people because they’re good with compound interest and with trust. In a long-term game, everyone is making each other rich while in a short-term one, they are making themselves rich.
Not just wealth but all returns in life, whether in wealth, relationships, or knowledge, come from compound interest. A good hack is to find the thing that feel like playing to you (but work to other) that you can do long term. For example, you can find a healthy food that you enjoy and eat them regularly. You can find an good exercise routine that you can do every day or every other day so that it becomes a part of your life. Hacking on some code that you enjoy is more productive than playing video games. That said, finding the things that make the long term feel effortless to you is the key to winning.
Pick business partners with high intelligence, energy and integrity
You can’t compromise on any of these 3:
- They need to be smart (at different things), or they’ll go in the wrong direction.
- They need to be high-energy/motivated because the world is full of smart, lazy people. That motivation, however, has to come intrinsically.
- They need to be high-integrity or they’ll cheat you.
Be a rational optimist
Being rational is when you know all the pitfalls, upsides, downsides. Being optimistic is when you look up to every possibility, know your capabilities get things done and you have a strong action bias. Before deciding if an idea is viable or not, do it first, test it out.
Arm yourself with specific knowledge
Specific knowledge can’t be trained. If you can be trained for it, then someone else can be trained for it too. If you’re replaceable, you get paid by minimum wage because there are lots of other who can do the same thing as you.
Specific knowledge is found by pursuing your innate talents, genuine curiosity, and passion. It’s not by going to school for whatever is the hottest job or going into whatever field investors say is the hottest.
My whole value system was built around scientists and I wanted to be a great scientist. But when I actually look back at what I was uniquely good at and what I ended up spending my time doing, it was more around making money, tinkering with technology, and selling people on things. Explaining things, talking to people. So, I have some sales skills, which is a form specific knowledge that I have. I have some analytical skills around how to make money. And I have this ability to absorb data, obsess about it, and break it down and that is a specific skill that I have. I also just love tinkering with technology. And all of this stuff feels like play to me, but it looks like work to others.
Specific knowledge can be taught through apprenticeships. The classic example is that Warren Buffett went to Benjamin Graham and offered to work for him for free.
Specific knowledge is often highly creative or technical. Scott Adams is a good example of this where he is really good at making predictions through persuasive arguments and videos.
And that is specific knowledge that he has built up over the years because he got obsessed with hypnosis when he was young, he learned how to communicate through cartooning, he embraced Periscope early, so he’s been practicing lots of conversation, he’s read all the books on the topic, he’s employed it in his everyday life.
A pragmatic approach to build up specific knowledge is to become top 5 at three or more things. It’s important that you also pick things where you are a natural, that you enjoy and makes you unique.
Learn to sell, learn to build
Building the product can include design, development, manufacturing, operating and so on. Selling it can include marketing, communicating, raising money and so on. Generally, the Silicon Valley startup model tends to work best where you have two founders, one is world class at selling, and the other is world class at building. It’s the magic combination.
Start out with a building mentality and learn selling later because it’s harder otherwise. Sales skills could mean in different than traditional domain. For example, you are an engineer. You might not good at hand-to-hand sales but you’re a good communicator that can leverage it for your sales. You might not good at writing but you’re good at recruiting or fundraising.
Read what you love until you love to read
The foundation of learning is reading. No smart person who doesn’t read and read all the time.
To read more, develop a love for reading. To do that, read books that you love. Just read the things that interest you until reading becomes a habit.
It is important to read foundational books, the original one in a given field that are very scientific in their nature. Build up a solid foundation so that you don’t fear anything. You can just take any book in the library, read and understand it.
For example, instead of reading a business book, pick up Adam Smith’s The Wealth of Nations. Instead of reading a book on biology or evolution that’s written today, I would pick up Darwin’s Origin of the Species. Instead of reading a book on biotech right now that may be very advanced, I would just pick up The Eighth Day of Creation by Watson and Crick. Instead of reading advanced books on what cosmology and what Neil Degrasse Tyson and Stephen Hawking have been saying, you can pick up Richard Feynman’s Six Easy Pieces and start with basic physics.
Also learn computer programming.
I would say that the five most important skills are of course, reading, writing, arithmetic, and then as you’re adding in, persuasion, which is talking. And then finally, I would add computer programming just because it’s an applied form of arithmetic that just gets you so much leverage for free in any domain that you operate in. If you’re good with computers, if you’re good at basic mathematics, if you’re good at writing, if you’re good at speaking, and if you like reading, you’re set for life.
There’s no actual skill called ‘business’
A lot of what goes on in business schools, and there is some very intelligent stuff taught in business schools – I don’t mean to detract from them completely – some of the things taught in business school are just anecdotes. They call them “case studies.” But they’re just anecdotes, and they’re trying to help you pattern match by throwing lots of data points at you, but the reality is, you will never understand them fully until you’re actually in that position yourself.
You can’t learn about running a business by watching others do it or studying/reading about others doing it. You can only learn by operating your own business, even opening your own lemonade stand or a retail store. However, you have to be careful about how you do it. If you start a business where you’re doing the same thing everyday, you’re not learning that much. Instead of putting in thousands of hours doing the same thing, you want to put in thousands of iterations to experiment, validate, test your idea. Of course doing something new is painful and you could lose money, be stressed out but you have to get very comfortable with frequent small failures. When you win, you’ll win big. On average, you’ll make more.
Nassim Taleb talks about this also. He made his fortune, his wealth by being a trader who basically relied upon black swans. Nassim Taleb made money by losing little bits of money every day and then once in a blue moon he would make a lot of money when the unthinkable happened for other people.
You need accountability to get leverage
To get rich, you need to get leverage, which can come from labor (somebody works for you), capital (somebody gives you money), or code or media. To get these things, you need to build up credibility by building these under your own name. Having accountability allows you to take credit when things go well but also take risk of failure, humiliation. You’re taking greater downside risk for greater upside. That is not bad in reality because even if you fail in public, you actually gain a lot of power. Look at people like Kanye, Oprah, Elon. They sometime fail big but they’re are still very wealthy and powerful because their name are such powerful brandings.
Plus, you’re less replaceable if you have high accountability.
Labor and capital are old leverage
Labor is the oldest form, which is people working for you, though it’s the worst one for two reasons. One, managing people requires tremendous leadership skills. Two, it’s incredibly competed over as people fight really hard to win. That said, you want to stay out of this or use it as little as possible.
Capital is more modern, which is people moving large amounts of money around. It’s the dominant one that people have used to get extremely wealthy in the last century. It’s powerful. It can be converted to labor as well as other things. It scales well. The hard thing is obtain it. If you have specific knowledge and high accountability in a domain, people are going to give you capital as a form of leverage so you can go get more capital.
Product and media are new leverage
The most important form of leverage is the idea of products that have no marginal cost of replication. You can multiply your efforts without having to involve labor or capital. It was invented in the last 100 years, starting with printing press, accelerating with broadcast media, and now blowing up with Internet and coding.
Product and media leverage are permissionless in a sense that you don’t need anyone’s permission to use them like you need people to follow for labor leverage or give you money for capital leverage. You can code, write books, record videos, podcasts, tweet and so on. The possibilities are endless.
The new generation’s fortunes are all made through code or media. Joe Rogan making 50 to a 100 million bucks a year from his podcast. You’re going to have a PewDiePie. I don’t know how much money he’s rolling in, but he’s bigger than the news. The Fortnite players. Of course Jeff Bezos and Mark Zuckerberg and Larry Page and Sergey Brin and Bill Gates and Steve Jobs. That is all code-based leverage.
Now the beauty is when you combine these 3: take the minimum but highest output labor, add in capital, add in lots of code and media to get it out there. This is why tech startups excel, use massive leverage and make huge return.
There are already way more robots than there are humans
The robot army is already here. The robot revolution has already happened. We’re about halfway through it. We’re just adding in much more of the hardware component these days as we get more comfortable with the idea of autonomous vehicles and autonomous airplanes and autonomous ships and maybe autonomous trucks. There’re delivery bots and Boston Dynamics robots and all that.
Coding is a great superpower because you can speak their language and tell them what to do.
Product leverage is a positive-sum game
It’s the nature of code and media output that the same product is accessible by everybody. It tends to be at the center, at the sweet spot, the middle class, rather than being targeted at the upper class. With other products, let’s say a Lamborghini, that’s not true.
An ideal business model has network effects, low marginal costs and scale economies
Scale economies: the more you produce, the cheaper it gets. Making a product #100 is cheaper than making product #99. This builds up an automatic barrier to entry against competition and getting commoditized.
Zero marginal cost of reproduction: producing more is free. When somebody listens to a podcast, it doesn’t cost the producer anything for the next person to show up. It takes a while to get going because you make very little money per user but it adds up overtime.
Network effects: value grows as the square of the customers. Each new user adds value to the existing users. If a network of size 10 has a value of a 100, one of size 100 would have a value of 10,000. It’s not 10 squared but 100 squared. For example, Facebook won the network effects where all your friends and family are there. English is the most common language because the largest community of people on the Internet speaks English.
Example: from laborer to entrepreneur
Let’s look at real estate business. You start at the bottom as a day laborer. You fix people’s houses and get paid by the hour. Your skills can be trained so you’re replaceable. You don’t have any leverage from the tool you’re using. You don’t have much accountability.
Step up, you’re a contractor. You’re now taking responsibility and risk because if a project fails, you eat the losses. You have labor leverage because you have a bunch of people working for you. You get paid $100K for the job where $70K goes into the actual costs and $30K goes into your pocket.
Step up, you’re a property developer. You look for beaten down properties that have potential, buy with your own money or raise it, fix the places, sell them 2x the original price. You take on more accountability and risk. You have more specific knowledge because you know which neighborhoods are worth buying in. You also have capital leverage because you put money there.
Step up, you’re an famous architect or developer where by just having your name on a property increases its value.
Step up, you’re a massive developer. You’re going to build entire communities. You don’t want to manage people but do it more through capital. You’re starting a real estate investment trust. At this stage, you must have specific knowledge about not just about investing in real estate and building real estate but the financial markets, and the capital markets, and how real estate trusts operate.
Step up, you build a real estate tech company. You now have specific knowledge in technology and in real estate. It’s high risk, high accountability, with maximum leverage from code and media. You might end up with a Zillow kind of company and billions of dollars in value.
As you layer in more and more kinds of knowledge that can only be gained on the job and aren’t common knowledge, and you layer in more and more accountability and risk-taking, and you layer in more and more great people working on it and more and more capital on it, and more and more code and media on it, you keep expanding the scope of the opportunity all the way from the day-laborer, who might just literally be scrappling on the ground with their hands, all the way up to somebody who started a real estate tech company and then took it public.
Judgment is the most important skill
Warren Buffett is so wealthy now because of his judgment. Even if you were to take away all of Warren’s money, tomorrow, investors would come out of the woodwork and hand him a $100 billion because they know his judgment is so good, and they would give him a big chunk of that $100 billion to invest.
Judgment is knowing the long-term consequences of your actions. It’s very hard to build up where you need to combine both intellect and experience. Intellect without any experience is useless because you have no skin in the game, no real experience, no real accountability, you’re just throwing darts. That said, you need to iterate fast and smart, take 10,000 tries at something.
Another hard part to judgement is not the learning itself but the unlearning. Adding to what you know is easy but unlearning your opinons is hard. It’s the beginner mind that every great person has. You have to be willing to hit reset and start from scratch.
Judgment comes from clear thinking. Clear thinking comes from having time to reflect and to pursue your genuine intellectual curiosity. Some of the greatest investors think most of the time. They read and study everything, including a lot of philosophy. That make them more stoic, less emotional so they can make better decisions and have better judgment.
Set an aspirational hourly rate and stick to it
You can spend your life however you want. But if you want to get rich, it has to be your top priority. It has to come before anything else, which means you can’t penny-pinch. This is what people don’t understand. You can penny-pinch your way to basic sustenance. You can keep expenses low and maybe retire early. That’s perfectly valid. But we’re here to talk about wealth creation. If you’re going to create wealth, it has to be your number-one, overwhelming priority.
No one is going to value you more than you value you. Your rate should seem and feel absurdly high. Start treating yourself that way. Factor your time into every decision. Let’s say you value your time at $5,000 an hour. If you spend an hour driving across town to get something, you’re effectively throwing away $5,000. Are you going to do that?
Work as hard as you can
If getting wealthy is your goal, you’re going to have to work as hard as you can. However, before doing that, make sure you pick the right area to work in and the right people to work with because these 2 matters more than how hard you work.
When you’re building a business, or a career, first figure out: “What should I be doing? Where is a market emerging? What’s a product I can build that I’m excited to work on, where I have specific knowledge?”
No one works 80 hours a week with mental clarity. The way they tend to work most effectively is to work as hard as they can while they feel inspired to work and take long breaks. When they have inspiration, they act on it immediately, as quickly as they can and with their full attention. Also, be patience with results because they’re dealing with complex systems and a lot of people.
“We get these questions a lot from the enterprising young. It’s a very intelligent question: You look at some old guy who’s rich and you ask, ‘How can I become like you, except faster?’ Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts… Slug it out one inch at a time, day by day, at the end of the day - if you live long enough - most people get what they deserve.” - Charlie Munger
Ruthlessly decline meetings. Only meet when it’s absolutely necessary, with strict agenda, when you have something important and valuable to discuss. When you think that you’re not networking enough to “make it”, you’re wrong. When you have hope for that lucky break, you’re replying on the first 2 kinds of luck mentioned above. You want to focus on the 3th and 4th kinds because they’re better. You spend time developing a reputation, unique point of view so they are able to spot opportunities that others can’t.
Keep redefining what you do until you’re the best at what you do
You want to be number one at whatever you do. You can get paid for just being you. No one can compete with you on being you.
The best founders listen to everyone but make up their own mind
What make a person successful might not apply to you. You can’t take their exact circumstance and map it onto yours. You listen to advices but you also examine them, make up your own mind and your own point of view.
When you’re wealthy, you’ll realize it wasn’t what you were seeking in the first place
Money will solve all your money problems, but it doesn’t get you everywhere. Even if you have all the money in the world, you can’t have a fit body, a calm mind, and good relationships if you don’t work on them. You’ll realize that they can bring a lot of peace and happiness than any amount of money ever will.
After all, your life is short. You should enjoy yourself.