Saturday, May 10, 2014

How to Smash Through the "Invisible Wealth" Barrier

By Will Bonner, Executive Director, Bonner and Partners

Twenty years ago, my family and I moved from a row house in the Baltimore ghetto to a 12-bedroom chateau in the heart of France. 

My siblings and I were as surprised as anyone. (This surprise factor is extremely important, as I'll explain in a moment.) 

But it was all or nothing for my father – no middle ground... 

Between the Baltimore ghetto and a French chateau there are about
4,500 miles, an ocean, a border and a language barrier. But none of those really matter. You can cross those barriers in a matter of hours. The real barrier is a hidden one. 

Most people don't know it's even there. 

But as a Diary of a Rogue Economist reader, I want to make sure you know about this invisible barrier. Because without understanding what it is... and knowing how to cross it... you'll never become truly wealthy. 

How NOT to Get Rich

Put simply, it's the barrier of publicly-accepted ideas about money and success... 

If you are a slave to these conventional ideas, you simply won't have a shot at wealth, financial freedom, "financial escape velocity"... whatever you want to call it. 

Here's the thing: Nobody gets rich by following conventional wisdom. 

That's Lesson No. 1: Let's call it "eccentricity." As my dad puts it: 

When you think of "eccentric" people you tend to think of people who are strange, weird or even mentally unbalanced.  

But there's no way to build a fortune  except by pure luck  unless you are in some ways a bit eccentric. The reason is simple: Most people are not wealthy. Most people never will be. Only a few are wealthy. They are doing something different. It takes an unusual person to do unusual things. To most people, they will appear a little "eccentric."

For example, Abe Hirschfeld made the bulk of his fortune from New York City parking garages. He wasn't afraid of controversy or eccentricity. 

He bought the New York Post out of bankruptcy, writing a $2 million check on the spot. After the paper lampooned its new owner with a front-page story titled "Who is this nut?" he kissed the editor. 

The controversy boosted the paper's circulation so much he was able to sell it 18 days later, to Rupert Murdoch, for an undisclosed amount... rumored to be many times Hirschfeld's original investment. 

On trial for tax fraud in 1999, he told Jewish jokes to the jury... and got off. He gave each member of the jury $2,500 as a "reward." 

Hirschfeld once told a reporter: "Any person that achieves things and accomplishes things is a little crazy. Perfectly sane people you only find in an insane asylum." 

He has a point. Perfectly well-adjusted people form the great mass at the middle and low-end of the wealth pyramid. At the top are people who think differently, act differently... and who are sometimes regarded as a "bit strange." 

Avoiding the "High-Income Trap"

My father and I have observed this among our friends who've successfully crossed the invisible barrier I'm talking about. 

They didn't go to the "right" schools or get the "right" kind of job. 

If they had, instead of becoming wealthy they would've found themselves in what I like to call the "high-income trap." 

The problem with earning a high income is your spending almost always rises to meet your income. And it's very difficult to get rich and be rich at the same time. 

That's why the surprise factor I mentioned earlier is so important. When my dad bought a French chateau I had no idea that he had enough money to do that... 

That's Lesson No. 2: My father didn't allow our family's spending to rise to the level of his income. We didn't have fancy cars, clothes or houses... 

Dad always took a relatively small salary from his publishing business. Instead of enjoying a high income, he would put the money back into the business and allow it to compound. 

Most people would take the income out of the business and spend it. This is a critical mistake. As my dad puts it: 

The rich look at the issue of income differently. Partly because they can. Partly because they know that cash flow is a dead end. 

What you should really care about is capital growth. And you should care about it even before you have substantial capital to care about.  

Forget the cash flow. Ask yourself: Will this activity, this investment, this business, this career help me build capital? Or will it just give me enough cash flow to live on? If it doesn't lead to capital growth, do something else.

It's that simple. If you want to have serious money, you have to think differently from most people. And you have to do different things with your time and your money. 

That's the invisible border that's so hard to smash through. 

Most people figure the guy who has more money does the same thing they do – only better. Or maybe he is just luckier. Truth is it's not luck. And he's not doing the same thing at all... 

Aim to Fail

Take my story, for example... 

Rather than following my friends to law school or Wall Street, at 23 I launched a start-up publishing company. And I learned about how the world works – the hard way. 

My friends got MBAs. But I got beaten up. (The real business world is tough!) I exited my first business too early. The year after I left sales jumped by over $10 million. And my investments – leveraged bets on South Florida real estate (ha, ha) – went down in spectacular fashion in the 2008 meltdown. 

But I was already on the move. In 2007, I went to Buenos Aires, Argentina, to setup another business and to invest in real estate there. 

I bought a beautiful five-bedroom house on an island in the delta of the Rio de la Plata that came with a boat and its own staff. (All that costs less than a small condo where I live now in South Florida.) 

The Spanish-language publishing company I launched has done pretty well. But I got beat up in South America too. Argentina is not an easy place to do business – especially for a gringo. Every official in the city wanted to a piece of my small business. 

You see, I wasn't interested in how the world of finance and business was supposed to work. I wanted to know how it really worked. And that's something you won't learn in school. It's something you discover every day: by looking... asking questions... and thinking for yourself.

And by failing...  

That's Lesson No. 3: Failure is critical to success. Most people are afraid of failing. The rich are not. 

But here's the thing: You want to fail in a survivable way. 

As my dad likes to say: "If you're not all dead they can't bury you." 

Same goes for investing. The rich understand that the goal is to never die completely. That's why they never concentrate their investments in single positions. 

This is particularly true of positions presumed to be "safe." Often, investments most folks believe to be the safest are dangerously unsafe. 

Portfolio planners refer to this as "diversification," but it is not just about spreading your money around. You don't want to merely toss seeds anywhere and see which ones grow. You want to carefully plant different seeds in the places they are most likely to flourish. 

Now, I've moved onto a new project – the most exciting one so far. Along with my father, I've set up another small publishing start-up called Bonner & Partners, which publishes Diary of a Rogue Economist along with three new investment advisories: Bonner & Partners Investor NetworkBraden Copeland's Building Wealth and Bonner & Partners Platinum

This time, our aim is to help others cross the invisible barrier to wealth... just like my family did. 

The above originally appeared at Bonner and Partners.


  1. NFL players warn rookies: Stop spending!

    Who wouldn't want to be Jadeveon Clowney?

    The NFL's top draft pick just landed around a $22 million contract with the Houston Texans and bragging rights for life. His face is everywhere, and his name is a trending Twitter hastag.

    But while Clowney -- and hundreds of other NFL rookies -- know a lot about football, they know little about managing money. Many are likely to end up bankrupt.

    Just two years after their athletic careers end, 78% of former NFL players are bankrupt or nearly there, according to an analysis by Sports Illustrated.

    "I've made millions and Iost millions," admits Eddie George, who was a first round draft pick in 1996 and went on to play nine seasons in the NFL as a running back.

    "I bought a ton of jewelry coming out, cars, a stereo system that was worth more than the car," George says. "I found out real quick that money and ignorance is not a good combination."

  2. The best way to get rich is to sell ways of getting rich.

    1. Ha!

      +1 to this.

      It's absolutely true. Tons of people make money telling other people how to get rich with no previous experience in doing so themselves, or even if they have, they've done so in what could be viewed as unethical manner.

      I find these types similar to mega church pastors.

      Tony Robbins, similar to Joe Osteen, etc. et al. They all have similar commonalities, fairly good looking & charismatic personalities, with semi-faux positive/feel good personality traits that have no conscience taking money from people that are lost and looking for a messiah/solution to their current lot in life. That's why Gary North's expose on Dave Ramsey was so damning.

    2. To Wenzel: Great article by Bonner! And thanks for posting it. The key question was, "Will this activity, this investment, this business, this career help me build capital?"