They often tell us as financial planners that a good question is much more powerful than a good answer. This got me thinking about how economically successful people have gained their wealth. Was it through great foresight? Shrewdness? Luck? Were they maybe just at the right place at the right time? The more I think about it, the more questions pop into my mind.
A number of traditional answers seem to have been debunked. For example:
Work hard and stay loyal
We used to be told that the path to economic wealth was to work hard and stay loyal to your company. Long service accompanied by promotion, incremental salary increases and a compounding pension would lead to wealth accumulation.
Then along came the baby boomers of the 1980s and, with them, the crushing of the concept of the company man. You no longer had to wait until you were older to get senior positions. If you produced the goods you had to be rewarded immediately and handsomely. Today, you would have to travel to Japan to find the old practice of seniority. Of course, it is debatable whether the Japanese way still works. After all, businesses that dominated in the 1980s, like Sony, Toshiba and Kodak, have all been overtaken by new, younger companies.
What strikes me about economic success is just how random it can be. Let’s meander through some different scenarios and see how luck, hard work, timing and unique business insights can make a difference.
The starting point of a career
The era in which you started working in an industry can be decisive in wealth creation. Compare the earnings of a top lawyer or accountant in the 1980s to those of today’s top professionals. They earn significantly more than their older colleagues mainly because mergers of the smaller firms of the past have created today’s mega professional companies. Yesterday’s and today’s professionals have similar or the same abilities but their capacities to accumulate wealth depends on when they started out on their careers.
A top surgeon used to be the biggest earner in a private hospital, but the advantage now probably lies with the hospital administrator who is part of a listed company and benefits from a high salary and shares. Is the administrator significantly better than the surgeon?
Your place in the industry cycle
Imagine buying a property in Cape Town in the 1980s and holding it for 10 years compared to buying it in 1997 and holding it to 2007. The difference in returns is astronomical. Does this make you a better investor or was this the same investment decision with significantly different outcomes? Did you just happen to have money to buy property or were you using brilliant business insights to buy low knowing that the cycle was about to turn?
Company share schemes
Did you work for Didata in the early 1990s or after 2000? Executives in these eras will have experienced significantly different outcomes if they had had the discipline to slowly sell shares as they went along.
If you went into the media industry in the late 1990s, which company did you join? Independent Newspapers or Naspers? If it was Independent, your prospects would be severely compromised. If you joined Naspers, you will have been part of one of the great economic miracles of our time. Genius, timing or luck, or all of the above?
Inheritance: blow it or grow it?
“I made my money the old-fashioned way. I was very nice to a relative before he died.” – Media mogul Malcom Forbes.
As we have all observed, the fact that one generation of a family made money does not automatically mean that the next generation will just kick-on. Many of the second and third generations have a completely different attitude and background to the generation that created the money. Without the same level of drive and hunger, they can often blow a great start.
“The formula for success is rise early, work hard and strike oil” — JP Getty. He also said: “The meek shall inherit the Earth, but not the mineral rights!”
Being in a network or having the right connections can pay handsome dividends. Take mineral rights, for example. Without them, you can’t mine. Getting mineral rights usually depends on your political connections, whether you were Cecil John Rhodes or today’s political party stalwart. Having the right connections, such as membership of an exclusive club, can give you the inside track in many other ways.
How do economically successful people create their wealth? We tend to think that wealthy people accumulated their money through brilliant insights, great ideas and a good slice of luck.
This may be true in some cases, but what we can attest to is that those who are astute with their money by living within their means and saving consistently from an early age have a very good chance of becoming financially successful.