Embarking on the journey to wealth is no small feat. It requires a blend of smart decisions, strategic investments, and a dash of luck. Let's delve into the world of financial prosperity and explore the pathways that lead to riches.
Kelly Criterion: Avoid Ruin
Don’t bet everything on one big gamble
- The Kelly criterion mathematically formulates how much you should wager per hand, even if you have an edge
- Risk-taking-especially when the averages that are calculated across large populations-is not always rational
- Ruining your reputation is the same as getting wiped to zero
Example: From Laborer to Entrepreneur
Laborers get paid hourly and have low accountability
- General contractors get equity, but they’re also taking risk
- Property developers pocket the profit by applying capital leverage
- Architects, large developers and REITs are even higher in the stack
- One level beyond that might be a developer, where just having your name on a property increases its value
- Real estate also requires specific knowledge and requires people to operate with specific dynamics in real estate markets
Bonus: Finding Time to Invest in Yourself
If you have to work a “normal job,” take on accountability to build your specific knowledge
- You have to rent your time to get started
- Try to learn something that people haven’t quite figured out how to teach yet
- Find the part of the job with the steepest learning curve
- Take on new challenges and responsibilities
- Develop a founder mentality
- Build specific knowledge by taking accountability for things that other people don’t know how to do
- Accountability is something you can take on immediately
- Judgment takes experience
- Leverage is something society gives you after you’ve demonstrated judgment
Pick a Business Model with Leverage
An ideal business model has network effects, low marginal costs, scale economies, and zero marginal cost
- Scale economies: the more you produce, the cheaper it gets
- Zero marginal cost of reproduction: producing more is free
- Network effects: value grows as the square of the number of customers
- Natural monopolies: network effects create natural monopolies
- Each new user adds value to the existing users
Accountability Means Letting People Criticize You
You have to stick your neck out and be willing to fail publicly
- Accountability means letting people criticize you
- The most interesting tweets should be the ones you disagree with-because clearly I’ve proven I know a few things.
- Get the free leverage that’s available in tech
- Don’t refuse to do things just because others can’t do them
- Realize your philanthropic vision by running a business
Specific Knowledge Is Highly Creative or Technical
Specific knowledge is on the bleeding edge of technology, art, and communication
- Can be taught through apprenticeships
- Often highly creative or technical
- You can’t be too deliberate about assembling specific knowledge because specific knowledge is specific to the individual and situation
- It can only be built as part of a larger obsession, interest, and time spent in that domain
Give Society What It Doesn’t Know How to Get
Society will pay you for creating what it wants and delivering it at scale
- If you want to be wealthy, figure out what product you can provide for society that it does not know how to get, but it will want, that’s natural to you, and within your skillset, within your capabilities
- Then figure out how to scale it
Set an Aspirational Hourly Rate
Outsource tasks that cost less than your hourly rate
- Your hourly rate should seem absurdly high
- Set a very high aspirational hourly rate for yourself and stick to it
- You can’t penny pinch your way to wealth
- If you want to get rich, it has to be your top priority
- Paul Graham said it well for Y Combinator startups.
Envy Can Be Useful, or It Can Eat You Alive
Suffering through the wrong thing can motivate you to find the right thing.
- Envy can give you a powerful boost, or it can eat you alive
- It’s all part of the motivation. If that didn’t happen, you wouldn’t be as motivated or as successful.
The Internet Has Massively Broadened Career Possibilities
The internet allows you to scale any niche obsession
- You can find your audience for your product, or your talent, and skill no matter how far away they are
- People are completely unique, and each person has different skillsets, interests, and obsessions
- Each person can be creatively superb at their own unique thing
- Today, you can be completely unique. You can build a business, and create a product, and build wealth, and make people happy just uniquely expressing yourself through the internet
Ethics isn’t something you study; it’s something you do
Ethics is something you think about and do. Everyone has a personal moral code.
- Trust leads to compounding relationships
- You want to work with trustworthy people for long periods of time without having to reevaluate every discussion or constantly look over your shoulder
- Being ethical attracts other long-term players
- Acting ethically turns out to be a selfish imperative
- In the short-run, being unethical pays off which is why so many people go for it
Labor and Capital Are Old Leverage
Everyone is fighting over labor and capital
- Society overvalues labor leverage
- The oldest form of leverage is labor, which is people working for you
- You want to stay out of labor-based leverage because it requires tremendous leadership skills
- Capital is more modern and requires more intelligence
- This is the second type of leverage that people use to get fabulously wealthy
Consumer Surplus: Getting More Than You Paid For
People are willing to pay more than what companies charge
- Consumer surplus is the extra value you get when you pay less than you were willing
- All businesses generate consumer surplus
- Amazon might be a trillion-dollar company, but I’ll bet they’re generating trillions of dollars in consumer surplus through people’s willingness to pay for convenience
Read What You Love Until You Love to Read
You should be able to pick up any book in the library and read it
- Read what you love until you love to read
- The most important thing is just to learn how to educate yourself
- Start off just reading wherever you are and then keep building up from there until reading becomes a habit
Avoid business schools and magazines
There’s no actual skill called ‘business’
- It’s like a skill called “relating.”
- You will never understand them fully until you’re actually in the position yourself
- Basic concepts from game theory, psychology, ethics, mathematics, computers, and logic will serve you much, much better
- Doing is faster than watching
- A lot of people think they can become really skilled at something by watching others do it, or even by reading about others doing it
Free Markets Are Intrinsic to Humans
We use credits and debits to cooperate across genetic boundaries
- Overall capitalism [meaning free markets] is intrinsic to the human species
- Capitalism is not something we invented. It is in us in every exchange that we have.
- When you and I exchange information, I want some information back from you. You give me information. If we weren’t having a good information exchange, you’d go talk to somebody else
- The notion of exchange and keeping track of credits is built into us as flexible social animals
- It’s going to continue to make us all richer and richer, until we have massive wealth creation for anybody who wants it
Pick Partners With Intelligence, Energy and Integrity
Pick business partners with high intelligence, energy and integrity
- Smart is not a pejorative – everyone is smart at different things
- Energy – motivation has to come from the intrinsic motivation
- Integrity – integrity is what someone does, despite what they say they do
- Signals are what people do despite their words
- You want to partner with people who are naturally going to do the things that you want them to do
Product and Media Are New Leverage
Create software and media that work for you while you sleep
- Products that have no marginal cost of replication
- You can multiply your efforts without having to involve other humans and without needing money from other humans
- Product and media leverage are permissionless
- They don’t require somebody else’s permission for you to use them or succeed
- Labor leverage: somebody has to decide to follow you
- Capital leverage: someone has to give you money to invest
- Combining all three forms of leverage is a magic combination
Take Accountability to Earn Equity
When negotiating with other people, ultimately if someone else is making a decision about how to compensate you, that decision will be based on how replaceable you are. If you have high accountability, that makes you less replaceable.
- Taking accountability for your actions is the same as taking an equity position in all of your work. You’re taking greater downside risk for greater upside.
Partner With Rational Optimists
Don’t partner with cynics and pessimists; their beliefs are self-fulfilling
- If you want to be successful in life, creating wealth, or having good relationships, or being fit, or even being happy, you need to have an action bias towards getting what you want
- Partner with rational optimists: know all the pitfalls, know the downsides, but still keep your chin up
- We descended from pessimists: we’re genetically wired to be hardwired to avoid adapting and adapting if possible
- Much more likely to fail than to succeed, which is why it’s so important to be optimistic about the future
The Foundations Are Math and Logic
Mathematics and logic are the basis for understanding everything else
- The ultimate foundations are math and logic
- You really want to focus on the foundations – the ultimate foundation are mathematics and logic.
- Learn persuasion and programming
- To lay a foundation for learning for the rest of your life, you need two things: practical persuasion and deep understanding of some complex topic
- Read slowly, go deep in some technical category, and learn to talk
Escape Competition Through Authenticity
Competition will trap you in a lesser game
- The best way to escape competition-to get away from the specter of competition, which is not just stressful and nerve-wracking but also will drive you to the wrong answer-is to be authentic to yourself
- No one can compete with you on being you
- Entrepreneurs are authentic, and the businesses they create are authentic to their desires and means
- In entrepreneurship, the masses are never right, and competition leads to copy-catting and playing the wrong game
Productize Yourself
Figure out what you’re uniquely good at, and apply as much leverage as possible
- Find hobbies that make you rich, fit, and creative
- Make money a function of your identity and what you like to do. It’s not a skill, it’s who you are.
There Are No Get Rich Quick Schemes
Get rich quick schemes are just someone else getting rich off you
- Every founder has to lie to every employee of the company they have
- The only honest way to do this is to tell the entrepreneurs I recruit: “You’re going to be entrepreneurial in this company, and the day you’re ready to start your own next thing, I’m going to support you.”
- We don’t have ads because it would ruin our credibility
Judgment Is the Decisive Skill
In an age of infinite leverage, judgment is the most important skill
- Warren Buffett is so wealthy now because of his judgment
- Everything else you do is setting you up to apply judgment – intellect and experience come in play
- Judgment, especially demonstrated judgment, with high accountability, clear track record, is critical
- Wisdom is just judgment applied to external problems
- It’s knowing the long term consequences of your actions and then making the right decision to capitalize on that
Embrace Accountability to Get Leverage
Take risks under your own name and society will reward you with leverage
- If you have a small team and you have clearly delineated responsibilities, then you can still keep a very high level of accountability
- A well-functioning team has clear accountability for each of the different portions of the team
- Accountability is really important because when something succeeds or fails, if it fails, everybody points fingers at each other, and if it succeeds, everybody steps forward to take credit
Product Leverage is Egalitarian
The best products tend to be available to everyone
- Product leverage is a positive-sum game
- If Jeff Bezos consumes the same product as a thousand other people, that product is going to be better than the version that Jeff would consume on his own
- Creating wealth with product leads to more ethical wealth
- It is better to create your wealth using code and media as leverage because then those products are equally available to everybody
Learn to Sell, Learn to Build
If you can do both, you will be unstoppable
- Learn to sell, learn to build
- The Silicon Valley model is a builder and seller
- Generally, the Silicon Valley startup model tends to work best when you have two founders, one of whom is world class at selling and the other world-class at building, working together as a CEO and CTO combo
- This is the magic combination
Eventually You Will Get What You Deserve
On a long enough timescale, you will get paid.
- You have to put yourself in that position with specific knowledge, accountability, leverage, and an authentic skill-set in order to be the best in the world at what you do
- Don’t keep track of time – you’re better off picking the single biggest thing or two.
Play Stupid Games, Win Stupid Prizes
When you’re being authentic, you don’t mind competition as much because you’re oriented towards the goal and the mission
- Often, businesses that seem to be in direct competition really aren’t
- You’re one step away from a completely different business
Live Below Your Means for Freedom
People who are living far below their means enjoy a freedom that people busy upgrading their lifestyles just can’t fathom.
- Do not upgrade your lifestyle all the time to maintain your freedom. Once you make a little bit of money, you still want to be living like your old self. You have much more creative expression, and much less about money.
A Calm Mind, a Fit Body, a House Full of Love
When you’re finally wealthy, you’ll realize it wasn’t what you were seeking in the first place.
- The first thing you realize when you’ve made a bunch of money is that you’re still the same person. You just have a lot more material possessions to spend on things that don’t solve your money problems (like a house full of love).
- Your health, your mental health, and your close relationships are things you have to cultivate to bring you more peace and happiness than money ever will.
We Should Eventually Be Working for Ourselves
But we will have to make sacrifices and take on more risk
- This advice is for anybody who wants to be entrepreneurial
- Midlife can be the most fruitful time to apply this advice
- Look up the value chain to find leverage
- Larger companies tend to be more about politics than merit
- The long-term goal is that we are all working for ourselves
- If you’re retired, test them to see if they’re true and then teach them to your kids or grandkids
- Even if applied piecemeal, these principles can guide you
Schelling Point: Cooperating Without Communicating
The Schelling point is a game theory concept made famous by Thomas Schelling in his book, “The Strategy of Conflict”
- People who cannot communicate can cooperate by anticipating the other person’s actions
- Use social norms to cooperate when you can’t communicate
- You can find Schelling points in business, art, and politics
Keep Redefining What You Do
If you want to be successful in life, you have to get comfortable managing multi-variate problems and multiple-objective functions at once.
- The most important thing for any company is to find product-market fit, where you are naturally inclined to to build the right product for a market.
Making Money Isn’t About Luck
It’s about becoming the kind of person that makes money.
- There are four kinds of luck that we’re talking about
- Blind luck: You just got lucky because something completely out of your control happened
- Luck from hustling: You put yourself in a position to be able to capitalize on luck when no one else has created that opportunity for themselves
- In 1,000 parallel universes, you want to be wealthy in 999 of them. You don’t want to become wealthy in the 50 of them where you got lucky. You want to factor luck out of it, and you can do that by building a unique character, a unique brand, and a unique mindset
Make Abundance for the World
Wealth isn’t about taking something from somebody else
- Ethical wealth creation makes abundance for the world
- True wealth creation is not about taking money, it’s about creating abundance
- Everyone can be rich
- In the first world, everyone is basically richer than 200 years ago
- The engine of technology is applied for the purpose of creating abundance
Price Discrimination: Charge Some People More
Price discrimination is a technique for charging certain people more
- It means you can charge people based on their propensity to pay
- Rich people and large enterprises are willing to pay more because they want things that signal they are rich
- Business-class seats routinely cost 5-10x more than economy than standard seats
- Enterprise software companies use price discrimination with freemium products
Make Luck Your Destiny
Build your character in a way that luck becomes deterministic
- Your character, your reputation, these are things that you can build that then will let you take up advantage of opportunities that other people may characterize as lucky but you know that it wasn’t luck.
- You have to be a little eccentric to be out on the frontier by yourself, and you have to dig deeper than other people do, deeper than seems rational just because you’re interested.
Seek Wealth, Not Money or Status
Wealth is assets that earn while you sleep
- People outside of the tech industry want to know how to solve their money problems
- Everyone vaguely knows they want to be wealthy, but they don’t have a good set of principles to do it by
- The entire world wants it, and the entire world is working hard at it
- To get the resources to do what you want, you have to stand out
- Money is how we transfer wealth
- Status is your rank in the social hierarchy
- There are fundamentally two huge games in life that people play
- One is the money game
- Another is the status game
Net Present Value: What Future Income Is Worth Today
NPV is when you say, “That stream of payments I’m going to get in the future-what’s it worth today?”
- You have to figure out what it’s worth today by applying a discount rate, or an interest rate, that accounts for the massive risk startups face.
Compound Interest in Long-Term Games
All the benefits in life come from compound interests.
- Compound interest is a marvelous force, where if you start out with 1x what you have, and then increase 20% a year for 30 years, it’s not that you got 30 years times 20% added on. It was compounding, so it just grew until you suddenly got a massive amount of whatever it is.
- You have to be able to play a long-term game to be successful, and you have to figure out who can you trust.
Turn short-term relationships into long-term ones
Pareto optimal solutions require a trade-off to improve any criterion
- Negotiations are won by whoever cares less
- If you want something too badly, the other person can extract more value from you
- When negotiating, bring reputation into the negotiation and include other people who may want to play games with this person in the future
Principal-agent problem: act like an owner
Principal is an owner; an agent is an employee
- A principal’s incentives are different than an agent’s incentives
- As a principal, you want to spend a lot of your time thinking about this problem
- You want to be generous with your top lieutenants
- If you can work on incentives, don’t work on anything else
Be too busy to ‘do coffee’ while keeping an uncluttered calendar
Ruthlessly decline meetings
- Make meetings short, actionable, and small
- Free your time and mind
- People will meet with you when you have proof of work
- Networking can be important early in your career, but the odds are pretty low.
- You have to do the work
Externalities: Calculating the Hidden Costs of Products
Properly pricing externalities can save resources in a tremendous way
- If people are wasting water, releasing hydrocarbons into the atmosphere or polluting in other ways, society should charge them what it costs to clean up the pollution and return the environment to a pristine state.
Specific Knowledge
Specific knowledge can be found by pursuing your genuine curiosity
- If you want to make money you have to get paid at scale – accountability, at scale, is leverage, and just you getting paid as opposed to somebody else getting paid is specific knowledge
- You can’t be trained for specific knowledge – you get to look at what you have already built by that point in time, and then build on top of it
- Find specific knowledge through pursuing your innate talents and curiosity
You Won’t Get Rich Renting Out Your Time
You can’t earn non-linearly when you’re renting out your time.
- Renting out time means you’re essentially replaceable, and you’re not creating new things for society. You want a career where your inputs don’t match your outputs
- Businesses that have high creativity and high leverage tend to be ones where you could do an hour of work, and it can have a huge effect.
- You must own equity to gain your financial freedom
Work As Hard As You Can
Even though what you work on and who you work with are more important, work as hard as you can
- You can save a lot of time by picking the right area to work in
- Picking the right people to work with is the next most important piece
- No matter how high your bar is, raise it
- Nobody really works 80 hours a week
- People who say they work 80-hour weeks, or even 120-hour work weeks often are just status signaling
- Inspiration is perishable
- When you have inspiration, act on it right then and there
- Impatience with actions, results
- Be patient and do not be impatient with results
Compounding Relationships Make Life Easier
Life gets a lot easier when you know someone’s got your back
- Mutual trust makes it easy to do business
- Most of the benefits of compounding come at the end, so you may not see huge benefits up front
- It’s better to have a few compounding relationships than many shallow ones
Reject Most Advice
Most advice is people giving you their winning lottery ticket numbers
- The best founders listen to everyone but make up their own mind
- You have to have your own point of view
- When something is sent your way, you have to quickly decide: Is it true, is it true outside of the context of how that person applied it, does it fit my context, do I want to apply it?
- Advice offers anecdotes to recall later, when you get your own experience
