Not A Fan Of Socially Responsible Funds

A version of this post ran in the San Antonio Express News.

I want to be wealthier. I also want to be a good person.

A friend – someone who also wants these two things – recently asked if I could recommend a good, reasonable-cost, ‘socially responsible’ mutual fund.

My answer: Nope. I can’t.

Greatest of All Time (and I will not argue this)
Greatest of All Time (and I will not argue this)

Now, I know this makes me a 42-year old Grumpy Cat of the investment world. Also, while I’m not a fan of socially responsible mutual funds, I respect people who disagree with me on this topic.

Unlike some topics – (Greatest Of All Time status in their respective categories go to Tom Brady, The Wire, and Rihanna, and I will not argue this) – I’m not hopelessly dogmatic about socially responsible investing.

However, I’d like to make the case against socially responsible mutual funds because of:

  1. Costs
  2. Endlessly arguable selection criteria
  3. Lower returns
  4. There’s a better way to be wealthier and a good person.

I’ll take these one at a time.

Costs

Most socially responsible mutual funds – not all, but most – charge above-average management fees when compared to other actively managed mutual funds. This makes sense partly because of the additional layer of ‘screening’ or selection that a socially responsible manager theoretically does.

This also makes sense because an investor in socially responsible funds has already agreed – silently, implicitly – to the idea that she’ll buy a premium product at higher costs because it suits her values.

My analogy here is to the buyer of an organic or farmer’s market tomato: The buyer agrees to pay $4.50 for a tomato, because those big, red, tasteless $0.75 things are an abomination. In the case of tomatoes, I get it.

In the case of mutual funds – as an ardent index fund believer – it’s really hard for me to endorse 1.25% fees rather than the 0.25% fees of an equity index fund.

Selection Criteria

Fine, call me Grumpy Cat, but I just don’t know how to get precisely the values I want when I buy public company stocks.

grumpy_cat_investor
I know this whole post makes me a Grumpy Cat

Socially responsible filters vary widely by fund, but many apply both an ‘eliminate the negative’ and ‘accentuate the positive’ filter to their stock selection.

Can you avoid the ‘negative’ companies in industries you oppose? Like…

Oil and gas drillers and refiners? (Exxon)

Saturated fat pushers? (McDonalds)

Gun manufacturers? (Smith & Wesson)[1]

High-fructose corn syrup dealers?  (Coca Cola)

Tobacco companies? (Philip Morris)

Beer producers? (Anheuser-Busch)

Weapons manufacturers (Lockheed Martin)

Subprime mortgage CDO structurers? (Goldman Sachs)

Casinos? (Las Vegas Sands)

Union-busting retailers (Wal-mart) or offshoring manufacturers (Apple) that don’t care to pay workers a living wage?

Incidentally, those companies above represent some of the most successful stocks of all time.

Those are the easy ones to eliminate, I suppose, but where do I draw the line? Am I ok with plastic bag manufacturers? Styrofoam cup producers? Battery makers? Animal-testing pharmaceutical companies? When I looked at the portfolios of social responsible mutual funds, many of the companies above filled their portfolios. It all depends on what one deems ‘socially responsible,’ which can vary widely from fund to fund, and individual to individual.

If I kept applying filters like this, I’m afraid my universe of acceptable companies shrinks almost to zero.

On the other hand, would it be possible to only invest in ‘positive’ companies?

Companies engaged in sustainable energy manufacturing? Sustainable agriculture? Microcredit lenders?

The list of public companies truly engaged in only, pure, ‘positive’ activity, untainted by greed and potential harm is pretty slim. Unless you are willing to be fooled by green-washing.[2]

Overall, though, what’s my problem? My big problem is that mutual fund investing would be an extremely blunt, imprecise expression of my values. Do I really trust that the mutual fund managers can engage in ‘positive’ investing while eliminating the ‘negative’? According to me?

No, I really don’t.

Of course I could invest in individual companies, but that would violate other investment rules of mine, regarding individual stock picking.

Lower returns

In addition, am I willing to receive a lower return on my money by filtering out all of the companies in certain industries? Especially some of the spectacularly profitable ones listed above?

Implicitly, I think most socially responsible investors would say they are willing to receive a lower return on their money as a result of their selection criteria.

For the most part, I’m unwilling to do that.

Is there a better way?

My own preference is to try to make the most money I can through ordinary – in my case, index – investing. I own none of those companies I named above directly but I’m pretty sure they’re all tucked away in my retirement account through a broad market index I own.

With more money in my account – admittedly made from investments in companies engaged in the broadest range of moral, immoral, and amoral activities – I’ve got more money available for expressing my personal values.

When I give money philanthropically, I much more precisely express my values with a philanthropic contribution. I’m not willing to give up money – through fees and underperformance – that would leave me with less to contribute philanthropically.

At least, that’s what I tell myself, when I want to be both wealthier and feel like a good person.

Starbucks_Greenwashing

Starbucks, you are a greenwashing drug dealer. (And I love you!)

 

[1] I recommend this New York Times’ article on socially responsible investing, highlighting the profitability of gun-manufacturing stock Smith & Wesson and the ‘greed v. values’ dilemma this creates for people opposed to investing in gun makers.

[2] Oh, what’s green-washing? When a rapacious capitalistic conglomerate posts pictures of happy Guatemalan coffee pickers smiling in their huipiles, so that I go ahead and buy their product every morning at the drive-through partly because I’m a hopeless addict and partly because I’m mistakenly comforted in the belief that I’m buying a “fair-trade” product safely on the side of the angels – that’s me being green-washed. And also, hopelessly addicted. Damn you Starbucks! But I digress.

 

 

Please see related posts:

Book Review of A Random Walk Down Wall Street by Burton Malkiel

The Simplest Way to Invest by Lars Kroijer

More on Actively managed vs Index funds

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Fired Up By Cuba Policy Change

A version of this post appeared in the San Antonio Express News.

I'm fired up by the new US policy
I’m fired up by the new US policy

I’m totally fired up that the Obama administration relaxed travel, trade, and diplomatic restrictions on Cuba last week.

Removing the US embargo will not raise up Cuban people’s lives as much as we hope without the Cuban regime, for its part, embracing more of a market system.

For over 50 years, the Castros took every public speaking opportunity to point their fingers North and blame all of their country’s ills on the US.

By lifting the US embargo, we at least remove the Cuban regime’s primary excuse for the past fifty years of horrific economic conditions of the Cuban people under the Castros.

It’s not the embargo, it’s their suppression of a market economy.

cuba

Markets vs. Cuban Socialism

I’ll be the first to declare that our markets-based system has tremendous failures.

Markets are unjust.

Markets – without a safety net – heartlessly leave children, the unemployed, and the elderly in poverty.

Unregulated markets commonly lead to the terrible treatment of consumers and the environment.

But to paraphrase Winston Churchill’s famous quip about Democracy, I would say free markets are the worst form of economy, except for all those other forms that have been tried from time to time.

winston_churchill
Churchill had something pithy and brilliant to say about everything

One thing that made me a card-carrying Adam Smithian Wealth of Nations-thumping pro-markets guy was visiting Cuba under the Castros.

My wife and I visited twice in the 2000s. We’ve visited many resource-limited countries. But nothing compares to Cuba.

In Cuba, everything is illegal

In the absence of any legitimate way for ordinary Cubans to earn enough to get food to eat, corruption envelops every day life.

Everyday. corruption.

Not for anything special, or anything nice. Just to get enough calories in the body.

For us as tourists, simply securing a room in a private home for a few nights in Havana involved a cat-and-mouse game to fool the local police.

“Ok, I’ll arrange it all for you,” the man offered at our café, his eyes scanning for signs of government authorities.

“Follow me down this road. About two minutes after I go, walk to the end of the block, turn right, and I will meet you inside the third doorway. Make sure you do not follow me too closely, as the police are watching.“

One day in Cuba and you will become a card-carrying Capitalist
Just spend one day in Cuba and you will become a card-carrying Capitalist

This was all standard procedure for renting a room. The homeowners – like thousands in Havana – desperately needed to earn dollars to buy bare necessities. The room cost us about $5 per night.

To further support that family we bought a home-cooked meal from them for another $2. I knew it was the best our host could do, and her eyes asked for a kind of understanding of their difficult situation as she laid the pigs-knuckles plate plaintively in front of us, murmuring “No es mucho pero esta hecho con mucho cariño” – “It’s not much but it is made with a lot of love.”

We wanted to cry.

Later, we slipped into an illegal restaurant –known as a paladar – run out of another private home that was desperate to earn dollars, despite them running the risk of breaking the law and being arrested.

Incidentally, you do not want to be arrested and go to a Cuban prison, as described in Reinaldo Arenas’ memoir Before Night Falls.

The Cuban health care system

On our second visit, my wife lived for six weeks working and researching in a Cuban hospital.

She arrived in Cuba ready to admire their health care system – free, universal, and reportedly successful. Long story, short: You do not want to get sick in Cuba.

The doctors are excellently trained, they have outstanding vaccination rates and access to prenatal care, but the facilities and access to medicines are awful.

When a woman who worked for her hospital needed specific antibiotics for a persistent infection, could she access the vaunted Cuban health care system?

Absolutely not! Appropriate antibiotics were unavailable to her, except through corruption. She ended up paying precious (and illegally obtained) dollars to the limousine driver of a Communist Party member, who had access to scarce antibiotics that ordinary Cubans do not.

With markets for nearly everything outlawed, everybody must cheat merely to gather life necessities.

Spying on everyone because everything is outlawed

Cubans are not allowed to move within the island to seek employment, without permission from authorities – which permission cannot be obtained without corrupt connections.

But hunger is a powerful motivator. People stay at friends’ houses illegally in Havana, for example, hopeful to earn dollars. They have to sneak in and out house, however, fearful all along that neighbors would report them.

The official Cuban Party propaganda since the 1960s has maintained that US sanctions primarily caused the degradation of the Cuban economy.

With US sanctions lifted, that lie at least will be exposed.

 

 

 

 

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Book Review: The Turtle of Oman

A version of this review ran in The Rivard Report

An unexpected gift
On the Wednesday morning before a Thanksgiving weekend in Big Bend National Park, the poet and novelist Naomi Shihab Nye dropped off a signed copy of The Turtle of Oman, her recently published novel, for my daughters.

Touched by this unexpected gift, I packed the book for our trip with the rest of our camping gear.
Would my kids like this?

My nine year-old wants magic in her literature.
She has reread the seven Harry Potters so many times the binding glue has cracked on most of them and whole chapter-chunks of the books’ spines split away.

To satisfy her appetite for magic, we’ve read The Hobbit to her, and we’re halfway through Susan Cooper’s The Dark Is Rising series.

But I did not know how she would take to the slower magic of a boy’s relationship with his grandfather, and the growing heartache of saying goodbye to home.

Oman
Reading about Oman in Big Bend National Park
I began reading The Turtle of Oman out loud to my four year-old and nine year-old while driving through the mountains-of-the-moon landscape of Big Bend. We drove and then hiked past water, mountains, and desert.

Aref Al-Amri, an Omani boy, procrastinates before a move from the capital city Muscat in Oman, to Ann Arbor, Michigan, through list-making and serendipitous adventures with his grandfather Sidi.

Although we don’t learn Aref’s precise age, in my mind Aref is the same age as my nine year-old.

Aref plays with Legos, competes in a youth soccer league, and studies in two languages, English and Arabic.

muscat_oman
Old City Muscat, Oman

I was struck at just how familiar Aref’s boyhood world would be to American children like my daughters. The familiarity stems not just from the Legos and the soccer, but also from his struggle with saying goodbye to a place he loves.
Nye captures and helps us meditate on the boy’s emotional journey.

Mountains, deserts, stones
The further we drove, and the more I read, the more familiar Oman began to seem. I paused between chapters to gaze out of our car window.

hajar_mountains
I swear the Hajar mountains look just like Big Bend

We learn that Omanis revere the Hajar (or “Stone”) Mountains from Muscat. Have you seen pictures of these mountains? I swear I saw them in Big Bend.

As Aref and Sidi travel by Jeep into the shifting sands of the Omani desert for an overnight adventure, we sped through parched desert ourselves.

Sidi and Aref watch Bedouin camel caravans on the edge of the sandy horizon, just as we scanned the distant mesas from our campsite for imaginary Comanches, hidden just over the cliff border with Mexico.

Nye’s poetic eye lingers on a stone discovered by Sidi with three circular lines like map-route tracings. On our hike in Tuff Canyon, my four year-old stooped to grasp and inspect volcanic rocks, pockmarked and rust-colored.

Peregrine falcons
During dinner at Chisos Basin lodge in the middle of Big Bend, we learned that the peregrine falcon is the fastest animal on the planet, reaching maximum speeds of 220 miles per hour. Peregrine falcons kill prey instantly upon impact. Importantly, a few pairs of peregrine falcons nest in Big Bend near the Rio Grande River.

peregrine_falcon
Peregrine falcon

In the novel’s most thrilling scene, a falcon trainer in the desert fits Aref with the leather armband needed to launch into the air and receive back a trained peregrine falcon. Sidi holds his breath as the predator turns precise aerial acrobatics at shocking speed. When the falcon lands cleanly on Aref’s arm, Sidi breathes again.

Breathing
Later, Sidi urges Aref to breathe for another reason.

“Sidi kept sniffing and urging Aref to smell the air and breathe deeply. ‘That way, your body will carry the desert back to the city,’ he said. Aref gulped and held his breath.
When they turned around and started walking back to the NIGHT OF A THOUSAND STARS desert camp, Aref stared at the whole picture before them – small tents, purple pom-pom doorways, brown stucco bathroom, painted green stools, metal tables, and one tired sleeping falcon. Everything glistened, an oasis in the sun. He ran circles around Sidi, saying ‘I love this place! I think it might be my favorite place!
‘You will be like my falcon,’ said Sidi. ‘You will fly away and come back. Just as he did. That was beautiful.’ “

The stars at night
At night at Big Bend, snug in our sleeping bags, crowded into our tent, my girls asked me to read aloud more chapters about the Omani boy, Aref.

At least once every night out in Big Bend, I left our tent to breathe deeply, look up at the bedazzled black, to silently recite Emerson:

“If the stars should appear one night in a thousand years, how would men believe and adore, and preserve for many generations the remembrance of the city of God which had been shown!”

When Aref and Sidi leave their desert encampment, Sidi shows his playful side again:

“As they were passing under the arched NIGHT OF A THOUSAND STARS sign at the camp gateway, Aref said, ‘So, Sidi, did you see a thousand stars last night?’
‘Ah, now you remember to ask! No, I only saw nine hundred and ninety-nine. So we will have to keep our eyes open for that last one. What about you?’
Aref just laughed.”

big_bend_at_night
Big Bend Stars

Not the coming-to-America story we expected
This crescent-moon of a novel waxes nostalgic as Aref’s departure approaches. We expect a typical novel’s narrative arc. We expect to learn about the cultural adventures of an Omani boy arriving in Ann Arbor, Michigan. Instead, two-thirds of the way through the novel, we realized the now-full moon has begun to wane again. In fact, he won’t arrive in Ann Arbor before the novel ends.

Aref is our window into understanding Oman, not America. An Omani boy learning about Michigan is not part of Nye’s plan. The Turtle does not conform.

Naomi Shihab Nye’s reason for that

Aref’s story offers something rarer, something different. Could American children connect with the magic of a childhood in Oman?

I thought about Nye’s plan because of a short story of Nye’s which I recently read when it went viral on Facebook, called “A-4.”

In “A-4,” Nye comforts a Palestinian woman in distress at the Albuquerque airport over a missed airline connection. She finds the woman in full Palestinian traditional garb, crumpled on the floor crying.

The ‘other’ becomes familiar
We’ve watched the news enough to react to a wailing Palestinian woman with some anxiety.

As Nye gently writes in “A-4,” she hesitated before getting involved because, “Well – one pauses these days.”

But in “A-4,” crying turns to laughter, handholding, and hours of shared happiness in the airline terminal. Nye offered a few words in Arabic, and received a gift of a powdered sugar-dusted cookies. Nye marvels at the experience, the common humanity.

The other passengers at the gate soon dropped their normal defenses as well, allowing the shared cookies’ powdered sugar – a kind of peace dust – to coat their laps.

“A-4” hits people somewhere between recognition – we’ve had this surprise connection to strangers when our defenses suddenly drop – and longing – we wish this could happen more often.

I think Nye shares a wish for our children with The Turtle of Oman that she states most clearly in “A-4:”

“…I looked around that gate of late and weary ones and I thought, This
is the world I want to live in. The shared world. Not a single person in that
gate – once the crying of confusion stopped – seemed apprehensive about
any other person. They took the cookies. I wanted to hug all those other
women, too.
This can still happen anywhere. Not everything is lost.”

Could we find our common humanity if we immersed ourselves in another culture? And if not all of us, could our children?
What if we watched a peregrine falcon in flight over the desert, together?

My nine year-old finished the final third of the book on her own during the drive home from Big Bend, too wrapped up in the story to wait for me to read it to her.
The slow magic of this book, with its vivid colors and poet’s eye for detail, worked on her.

Turtle of oman

Please see related post:

Book Review of Going Going by Naomi Shihab Nye

Please see related post All Bankers Anonymous book reviews in one place.

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Book Review: The Mystery Of The Invisible Hand

Looking for a last minute book to purchase this holiday season for the bright business or economics student in your life? Perhaps the student in your life appreciates mixing economic theory with murder, as in The Mystery of the Invisible Hand by Marshall Jevons.

Marshall Jevons is the pseudonym of economics professors Kenneth Elzinga of the University of Virginia and the late Trinity University economics professor William Breit.

Professor Breit was a beloved figure on campus at Trinity in San Antonio, TX before he passed away in 2011, remaining connected to students and his department in the years following his retirement.

Elzinga and Breit created the fictional murder-solving Harvard economist Henry Spearman.

Spearman – who wins the Nobel Prize in Economics at the start of this novel – applies economics principles to solve murders. Think Hercule Poirot meets Milton Friedman.

trinity_university
Trinity University in San Antonio, TX

In The Mystery of the Invisible Hand – the fourth in a series of Spearman mysteries, the economist-detective arrives as a visiting professor at Monte Vista University in San Antonio, TX – a transparent portrayal of San Antonio’s Trinity University.

Each chapter begins with a passage or quip from a famous economist.

Inside jokes of the economics profession abound – like naming a character Bruce Goolsby, a thinly disguised reference to Austan Goolsbee, Chairman of the Council of Economic Advisors under President Obama.

The humor of Breit and Elzinga shines through in their light satire of academic politics and foibles.

We meet the hard-charging Trustee Annelle Cubbage – heir to a Texas ranching fortune – who wants the best that money can buy. Cubbage wants what she wants, when she wants it. Cubbage creates the “Cubbage Visiting Nobel Professorship” that brings the Nobel Laureate Spearman to Monte Vista University.

The anxious scholar Jennifer Kim – untenured – hesitates awestruck in the face of Spearman’s awesome reputation.

Meanwhile, the art professor Michael Cavanaugh resents the high pay of his economist colleagues at Monte Vista. By his view, they lack appreciation of art for art’s sake.

Visiting artist-in-residence and painting genius Tristan Wheeler cuts a romantic swath through the hearts of Monte Vista scholars – including some professors’ wives – before his mysterious death.

Spearman observes – like a careful anthropologist of the academic world – how the seating arrangement at the Monte Vista University President’s dinner establishes the relative ranking of dinner invitees.

Elzinga and Breit clearly met all of these characters on their real life campuses during their academic careers.

San Antonio readers will appreciate the economic explanation of the cost of the Spurs’ stadium, as well as financial theories on the funding of the fictional “Travis Museum,” modeled after the SAMA.

Spearman solves the murder through an epiphany in the midst of an economics lecture at Monte Vista University, applying economic analysis to intuit the motive of the killer.

Those of you who – like me – prefer your financial and economic theories presented with a spoonful of sugar to help the medicine go down, will enjoy this murder mystery set in the Montevista neighborhood of San Antonio.

The three other Marshall Jevons economics mysteries featuring Henry Spearman are The Fatal Equilibrium, Murder at the Margin, and A Deadly Indifference.

Mystery_of_the_invisible_hand

Please see related post, All Bankers Anonymous book reviews in one place!

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Ask an Ex-Banker: Algorithmic Trading

A version of this post appeared in the San Antonio Express News

Algo-Trading

Dear Mike,

I spotted something on algorithmic trading on your blog, and finance and investment are a bit of a hobby of mine. I am sending you a press release about a Canadian trader who has worked out a successful trading technique based on an algorithm, and a new trio of former Harvard fellows have made an app allowing you to do it yourself.

Here’s an excerpt from the link he sent me:

AlgoTrades, the leading provider of automatic investing systems for individual investors, and EquaMetrics Inc., the leading provider of algorithmic trading systems and their Intuitive, drag-and-drop interface that lets you quickly build and edit complex algorithms – in a matter of minutes, today announced a strategic partnership that will arm both active traders and investors with the ability to have the AlgoTrades investing system traded for them, and build trading systems of their own[…]
Algotrades is seeing increased demand for its existing automated trading systems. The Algotrades futures system is hitting at 100% accuracy for the first 6 months of this year with a ROI of 12.3% to date. Max peak-to-valley drawdown is 2.4% and many of our clients are asking for more diverse and active automated trading solutions to expand their portfolios.

This intrigues me: My question is: What is your gut feeling about this? Apparently some of the big news journals like Barron’s and the Wall Street Journal gave this coverage, so it might be something, or not? Any ideas about it?

–Willem from the Netherlands

Dear Willem,

You probably saw on my site that I’ve written reviews of three books on this topic: Rishi Narang’s Inside the Black Box and Michael Lewis’ Flash Boys, as well as a review of a book by a friend from a high frequency trading firm who says Lewis got it all wrong, Flash Boys: Not So Fast.

As for the opportunity described in that announcement:
I would run, not walk, away from anything like that.

I have a long list of reasons for this advice, but I’ll just name a few.

1. Algorithmic trading typically involves high volume trading activity. For an individual investor the trading costs and – equally importantly – the tax bill make this extremely tax and cost inefficient. Brokers and certain types of professional institutional investors get trading costs lowered dramatically, and are not subject to the same capital gains tax laws as individuals (at least in the US) based on high volume buying and selling of stocks, so they don’t have that inefficiency problem. But for you, high volume trading is likely deathly to your individual account, due to costs and taxes.

2. The ROI (Return On Investment) claim in that press release makes me very wary. Even assuming its true, this is an extremely short time horizon, and barely tells us anything, except the juicy part, namely 12.3% ROI in just 6 months’ time.

In my experience, professional investors who can consistently achieve 12.3% ROI over 6 months (24.6% per year, annualized) never, ever, (ever!), seek to share that technology with others. They don’t market secrets like this. Why should they? Instead, they just quietly compound 24.6% per year for a few years and they can get extremely wealthy all by themselves.

3. Be skeptical of groups or strategies that claim high returns over short time periods, and market their services and technology to the general public. Many strategies can make (or lose) impressive amounts of money over a short time frame. If the strategy could – reliably, provably – earn that kind of return over 10 years, now I might be interested. But again, see point #2 above, because those folks wouldn’t be interested in sharing the strategy with you or me if they had a 10 year track record of 24.6% annual returns. They’d already be extraordinarily rich without us.

4. The successful institutional algorithmic and high frequency traders that make money have extraordinary advantages over individuals trying to mimic their techniques. The kind of traders described in Michael Lewis’ Flash Boys for example, invest tens to hundreds of millions of dollars in software and hardware to give them every technological advantage over the kind of individual traders targeted in this press release. I simply do not believe this ‘algorithmic app’ for individuals could possibly compete with the knowledge, technology, and capital of established firms in this competitive space.

In sum, and to recap: Don’t walk away.

Run!

 

 

Please see related posts:

 

Book Review of Flash Boys by Michael Lewis

Book Review of Flash Boys: Not So Fast by Peter Kovac

 

Book Review of Inside The Black Box by Rishi Narang

As well as:

Would You Like to Understand High Frequency Trading?

The Rise of the Machines

 

 

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Entrepreneurship And Its Discontents

Note: A version of this post appeared in the San Antonio Express News

Here’s one of my first principles:

Everybody who works in the for-profit world should own or start a business.

Now that I’ve said that, I’d like to spend most of the rest of this post describing all of the terrible things about starting or owning your own business. Entrepreneurship requires ignorance. Entrepreneurship induces anxiety and insomnia. It attracts terrible students. Entrepreneurs are people who are clearly running away from something.

Interestingly, entrepreneurs are the only people who have a chance to get super-duper rich.

Ignorance

A friend who started his business during the first Dot-Com boom and bust told me the most important key to starting a business is ignorance. Specifically, you have to be really clueless about how difficult starting and building a business will be. If first-time entrepreneurs knew how hard it would be, they would never start in the first place! Ignorance truly is bliss.

Anxiety

Anxiety

Anxiety appears to run in my family genetic code, although that ailment mostly missed me.

Genetic predispositions, we learn more and more, often need an environmental trigger. Well, for me, starting my own business in 2004 induced my first panic attack.

Meeting for lunch with friends one afternoon, I could not stop blurting out about all of the things that might go wrong with my business. I couldn’t read the menu, I could hardly sit down. No eating. Twitching. I don’t remember what my friends planned to talk about. All I could do was tell them how freaked out I was.

Insomnia

Insomnia, another thing I had hardly ever experienced, also kicked in after I started my business. It’s 2:45AM and I’m wide-awake.

You know, somebody should really start an Entrepreneur’s Insomnia Late-Night Diner.

Sweet Mercy let me sleep
Sweet Mercy let me sleep

Hey, that’s a good idea. Should I do it? Like, right now? Let’s see, first I should…Wait, no, just stop. Try again to sleep.

Goodnight Room. Goodnight Moon. Goodnight Nobody. Goodnight Mush. Ugh. Please, Sweet Mercy, let me sleep.

I mention the insomnia and anxiety because a friend sent me a text recently “Hey, can we meet for coffee? I’m kind of freaking out right now.”

Unfortunately, I diagnosed her problem before we even spoke: she’s an entrepreneur.

Weaker students

One of the most memorable parts of Thomas Stanley’s book The Millionaire Mind is his thesis that most successful entrepreneurs suffered as mediocre students. Students who achieve all As throughout their school years gravitate to highly academically selective professions such as medicine and law.

The C students, meanwhile, are forced to struggle. Without a clear path to academic success and a prestigious well-paid profession, the C students rely on a more improvisational approach that may lead them to start their own sandwich shop, out of desperation. Ten franchises later, they’re the ones hiring the straight-A Harvard Law attorney to work through the weekend to prepare the documents for their next business acquisition.

For that C student, entrepreneurship may be a decision forced by circumstance rather than a fully formed plan.

Unhappy and running from something

Speaking of forced circumstances, I can’t prove the following claim, but it seems anecdotally true in my life.

Before launching, all entrepreneurs are unhappy about something, and that something forces them to start their business.

Do you hate your boss? Are you desperate for a better work-life balance? Are you dying to be rich and its just killing you that you’ll never be paid more in your current job?

Contented people, the people happy to go to work and collect a paycheck, never feel the urge to jump into the parachute-less abyss of entrepreneurship.

Before I started my business, I was desperately unhappy and I said to my Dot-Com friend that it must be great not to work for The Man. He replied that most days he wished he could count on The Man for a paycheck.

Ok, fine then. But still, I didn’t listen to him.

 

The key to extraordinary wealth

For all its drawbacks, business ownership is not one path to riches.

It’s the only path.

All of the folks in the Forbes 400 list are business owners.[1]  None of them got there by performing a large number of open-heart surgeries or preparing the legal documents for a leveraged buyout – as highly compensated and academically exclusive as the top of the medical and legal professions may be.

I’m not saying getting filthy rich is the most important life goal, nor am I saying it will make you happy. And, I also think there are more reasons to start a business than simply to get rich.

But! I do think people should understand that all of the most wealthy folks in this country are entrepreneurs.[2]

The steep path to extraordinary wealth goes to one group only: The ignorant, the anxious, the insomniacs, the C students, the discontented ones.

In short, the entrepreneurs.

Please see related posts:

On Entrepreneurship Part I – Equity v. Fixed Income

On Entrepreneurship Part II – Ownership v Salary

On Entrepreneurship Part III – The Air, The Taxes, The Retirement

Book Review of The Millionaire Mind

Book Review of The Millionaire Next Door

Video for Entrepreneurs – Personal Financial Statement

 

[1] Or heirs to business owners. Because inheriting wealth is increasingly a great tax-advantaged way to get wealthy.

[2] If you don’t own your own business, the next best thing to do – in order to be wealthy – is to start purchasing public stocks with any of your excess cash, and never sell. Pouring excess cash from your salary into the business ownership of stocks provides some wealth-building for the world’s employees.

 

 

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