Socialists in this country love to claim that the rich are always getting richer, the poor are getting poorer, and there is little hope or chance of social mobility.

If this is true, how come:

70% of the nation’s big family fortunes are less than 13 years old, according to research and marketing firm The Harrison Group.

Source: Joining the 5 Million Club Takes an Open Mind

Contrary to somewhat popular opinion, Celebrities like Paris Hilton are not your average millionaire.

How can that much wealth creation be taking place if America has little to no social mobility? Hmmm…

Investors Fooled by Randomness?

Fooled by Randomness by Nassim Nicholas Taleb was a great read and had many poignant arguments.

The quintessential example Nassim outlined in the book was the following scenario:
—————
An “investor” takes a pool of 1,000 potential targets and selects a random portfolio that a group of say, 10 targets will receive each week, with that target group’s weekly & lifetime portfolio performance.

After each week, the investor can weed out those portfolios that are no longer performing well.

After 15-20 weeks (or however long he can manage to perform the experiment), the investor will inevitably hit upon several portfolios that that have done incredibly well.

Not through any skill of the investor mind you, but from sheer luck alone.

The “investor” could then take this incredible portfolio performance record, using testimonials of the original 10-20 people who received it from the beginning, and go on to build a lucrative career. (until he is found out!)
—————
Does this remind you of any mutual fund companies that have hundreds of portfolios? After ten years, of course 1-2 of them will have outperformed the market! The vast majority will have not though.

Millionaires — Not Fooled by Randomness

William Ding: You’ve probably never heard of him. He’s worth $1.1 billion.

Taleb lost me when he tried applying his theories to the success of millionaires. Yes, there are some extremely lucky rich people out there: birth, lottery, market timing (luck is debatable here), etc.

But Taleb’s argument was not just with these millionaires, he claimed a good portion of millionaires as outlined in The Millionaire Next Door got to their status through luck or randomness.

When clearly, there are only a few simple rules the “average” millionaire has to follow to get there:

• Spend less than what you make
• Save as much as you can, from as early on as possible
• Start & own your own businesses with more regularity than the average person
• Invest profits back into wise long-term investments like real estate, index funds & stocks (as opposed to bonds or CDs)

To me, these strategies don’t seem like the average luckiness (or randomness) of the lottery winner, NBA-drafted basketball player or hotel-chain inheriting celebrity. They just seem like common sense.