Therefore, focus less on specific individuals and case
studies and more on broad patterns.
Studying a specific person can be dangerous because we
tend to study extreme examples—the billionaires, the CEOs,
or the massive failures that dominate the news—and
extreme examples are often the least applicable to other
situations, given their complexity. The more extreme the
outcome, the less likely you can apply its lessons to your
own life, because the more likely the outcome was
influenced by extreme ends of luck or risk.
You’ll get closer to actionable takeaways by looking for
broad patterns of success and failure. The more common the
pattern, the more applicable it might be to your life. Trying
to emulate Warren Buffett’s investment success is hard,
because his results are so extreme that the role of luck in his
lifetime performance is very likely high, and luck isn’t
something you can reliably emulate. But realizing, as we’ll
see in chapter 7, that people who have control over their
time tend to be happier in life is a broad and common
enough observation that you can do something with it.
My favorite historian, Frederick Lewis Allen, spent his career
depicting the life of the average, median American—how
they lived, how they changed, what they did for work, what
they ate for dinner, etc. There are more relevant lessons to
take away from this kind of broad observation than there are
in studying the extreme characters that tend to dominate
the news.
Bill Gates once said, “Success is a lousy teacher. It seduces
smart people into thinking they can’t lose.”
When things are going extremely well, realize it’s not as
good as you think. You are not invincible, and if you
acknowledge that luck brought you success then you have
to believe in luck’s cousin, risk, which can turn your story
around just as quickly.
But the same is true in the other direction.
Failure can be a lousy teacher, because it seduces smart
people into thinking their decisions were terrible when
sometimes they just reflect the unforgiving realities of risk.
The trick when dealing with failure is arranging your
financial life in a way that a bad investment here and a
missed financial goal there won’t wipe you out so you can
keep playing until the odds fall in your favor.
But more important is that as much as we recognize the role
of luck in success, the role of risk means we should forgive
ourselves and leave room for understanding when judging
failures.
Nothing is as good or as bad as it seems.
Now let’s look at the stories of two men who pushed their
luck.
John Bogle, the Vanguard founder who passed away in 2019,
once told a story about money that highlights something we
don’t think about enough:
At a party given by a billionaire on Shelter Island, Kurt
Vonnegut informs his pal, Joseph Heller, that their host, a
hedge fund manager, had made more money in a single day
than Heller had earned from his wildly popular novel Catch-
22 over its whole history. Heller responds, “Yes, but I have
something he will never have … enough.”
Enough. I was stunned by the simple eloquence of that word
—stunned for two reasons: first, because I have been given
so much in my own life and, second, because Joseph Heller
couldn’t have been more accurate.
For a critical element of our society, including many of the
wealthiest and most powerful among us, there seems to be
no limit today on what enough entails.
It’s so smart, and so powerful.
Let me offer two examples of the dangers of not having
enough, and what they can teach us.
Rajat Gupta was born in Kolkata and orphaned as a
teenager. People talk about the privileged few who begin life
on third base. Gupta couldn’t even see the baseball
stadium.
What he went on to achieve from those beginnings was
simply phenomenal.
By his mid 40s Gupta was CEO of McKinsey, the world’s
most prestigious consulting firm. He retired in 2007 to take
on roles with the United Nations and the World Economic
Forum. He partnered on philanthropic work with Bill Gates.
He sat on the board of directors of five public companies.
From the slums of Kolkata, Gupta had quite literally become
one of the most successful businessmen alive.
With his success came enormous wealth. By 2008 Gupta
was reportedly worth $100 million.¹¹ It’s an unfathomable
sum of money to most. A five percent annual return on that
much money generates almost $600 an hour, 24 hours a
day.
He could have done anything he wanted in life.
And what he wanted, by all accounts, wasn’t to be a mere
centa-millionaire. Rajat Gupta wanted to be a billionaire.
And he wanted it badly.
Gupta sat on the board of directors of Goldman Sachs,
which surrounded him with some of the wealthiest investors
in the world. One investor, citing the paydays of private
equity tycoons, described Gupta like this: “I think he wants
to be in that circle. That’s a billionaire circle, right? Goldman
is like the hundreds of millions circle, right?”¹²
Right. So Gupta found a lucrative side hustle.
In 2008, as Goldman Sachs stared at the wrath of the
financial crisis, Warren Buffett planned to invest $5 billion
into the bank to help it survive. As a Goldman board
member Gupta learned of this transaction before the public.
It was valuable information. Goldman’s survival was in
doubt and Buffett’s backing would surely send its stock
soaring.
Sixteen seconds after learning of the pending deal Gupta,
who was dialed into the Goldman board meeting, hung up
the phone and called a hedge fund manager named Raj
Rajaratnam. The call wasn’t recorded, but Rajaratnam
immediately bought 175,000 shares of Goldman Sachs, so
you can guess what was discussed. The Buffett-Goldman
deal was announced to the public hours later. Goldman
stock surged. Rajaratnam made a quick $1 million.
That was just one example of an alleged trend. The SEC
claims Gupta’s insider tips led to $17 million in profits.
It was easy money. And, for prosecutors, it was an even
easier case.
Gupta and Rajaratnam both went to prison for insider
trading, their careers and reputations irrevocably ruined.
Now consider Bernie Madoff. His crime is well known. Madoff
is the most notorious Ponzi schemer since Charles Ponzi
himself. Madoff swindled investors for two decades before
his crime was revealed—ironically just weeks after Gupta’s
endeavor.
What’s overlooked is that Madoff, like Gupta, was more than
a fraudster. Before the Ponzi scheme that made Madoff
famous he was a wildly successful and legitimate
businessman.
Madoff was a market maker, a job that matches buyers and
sellers of stocks. He was very good at it. Here’s how The Wall
Street Journal described Madoff’s market-making firm in
1992:
He has built a highly profitable securities firm, Bernard L.
Madoff Investment Securities, which siphons a huge volume
of stock trades away from the Big Board. The $740 million
average daily volume of trades executed electronically by
the Madoff firm off the exchange equals 9% of the New York
exchange’s. Mr. Madoff’s firm can execute trades so quickly
and cheaply that it actually pays other brokerage firms a
penny a share to execute their customers’ orders, profiting
from the spread between bid and ask prices that most
stocks trade for.
This is not a journalist inaccurately describing a fraud yet to
be uncovered; Madoff’s market-making business was
legitimate. A former staffer said the market-making arm of
Madoff’s business made between $25 million and $50
million per year.
Bernie Madoff’s legitimate, non-fraudulent business was by
any measure a huge success. It made him hugely—and
legitimately—wealthy.
And yet, the fraud.
The question we should ask of both Gupta and Madoff is why
someone worth hundreds of millions of dollars would be so
desperate for more money that they risked everything in
pursuit of even more.
Crime committed by those living on the edge of survival is
one thing. A Nigerian scam artist once told The New York
Times that he felt guilty for hurting others, but “poverty will
not make you feel the pain.”¹³
What Gupta and Madoff did is something different. They
already had everything: unimaginable wealth, prestige,
power, freedom. And they threw it all away because they
wanted more.
They had no sense of enough.
They are extreme examples. But there are non-criminal
versions of this behavior.
The hedge fund Long-Term Capital Management was staffed
with traders personally worth tens and hundreds of millions
of dollars each, with most of their wealth invested in their
own funds. Then they took so much risk in the quest for
more that they managed to lose everything—in 1998, in the
middle of the greatest bull market and strongest economy in
history. Warren Buffett later put it:
To make money they didn’t have and didn’t need, they
risked what they did have and did need. And that’s foolish. It
is just plain foolish. If you risk something that is important to
you for something that is unimportant to you, it just does
not make any sense.
There is no reason to risk what you have and need for what
you don’t have and don’t need.
It’s one of those things that’s as obvious as it is overlooked.
Few of us will ever have $100 million, as Gupta or Madoff
did. But a measurable percentage of those reading this book
will, at some point in their life, earn a salary or have a sum
of money sufficient to cover every reasonable thing they
need and a lot of what they want.
If you’re one of them, remember a few things.
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