For those of you that followed this weekend’s Wall Street Journal, you may have caught Professor Jordan Ellenberg’s op-ed piece on how she believes that child geniuses ought to treated by family and wider society in general. Apparently, if you are a 13 year-old that hits 700 or above on the math portion of the SAT and 630 or above on the verbal reasoning portion, you become a part of this lifetime tracking study conducted by Vanderbilt University. It’s a very nice editorial, but this statistic that relates to finance caught my attention about the long-term earnings power of child geniuses:
Those students, now in their early 40s, have filed regular reports on their intellectual and professional development for decades. They’re pretty developed: Some 44% of them have doctoral degrees (only 2% of the general population does); their median income was $80,000, about twice the U.S. average for people their age; and two ex-prodigies are Harvard professors. These kids don’t flame bright and burn out; they start strong and keep going.
That caught my attention: genius children went on to make $80,000 per year. If we define the typical American household to make $53,000 or so per year, we are talking about a 50% increase over what a person of ordinary mental faculties would bring in. Very nice, to be sure, but perhaps not as big of a spread as you might think.
Why is that? Financially speaking, value is all about what you deliver to others. Superior intelligence, in and of itself, represents an untapped capacity to do more, but it is ultimately our actions that determine our economic value. The dazzle of intelligence is about what you actually create with it, not the fact that you have it.
There is a reason why common stock investing is a relentless focus on this site: it allows you to expand the value that you generate for society without actually having to expand additional effort in the form of time.
When you are the local trashman working 40 hours per week for $15 per hour after-tax, the economic value that you generate for others is entirely limited by the moments when you get out of bed and go house-to-house collecting trash. Money is always a function of the time + labor that you provide.
When you start buying ownership interests in companies, what you are providing the civilization starts to change. When you start collecting trash in addition to putting 15% of each paycheck into ExxonMobil stock, what you are doing for the world starts to change. You are now collecting trash and helping people put gas in their cars. Now, the money and economic value that you generate for society is a function of the time + labor + capital that you provide.
That $360 put into ExxonMobil each month starts to take on larger than life consequences, as the compounding gets harnessed by Exxon management’s decision to conduct buybacks and grow the business, pay out dividends that hopefully get reinvested, which then intermingle with the dogged $360 monthly contribution that we referenced above. If Exxon continues compounding at the same rate it has for the past thirty years, those $360 monthly cuts are going to turn into a market value of $2.2 million in the Irving, Texas oil giant.
How does that change the equation? Here, you have a guy collecting trash and making $31,200 per year saying, “I’m going to create more economic value than this, I want to own a larger and larger percentage of the gas sold at stations across the U.S. and the rest of the world.”
Well, what are the implications of owning 22,000 shares of Exxon? Well, first of all, each share creates $7.39 in net profits, which amounts to an entitlement of $162,000 worth of Exxon’s $35 billion profit-making machine. In terms of the annual cash dividends that the Board of Directors approves sending out, our trash-man would be collecting $60,720 in mailed dividend checks, roughly twice the salary he’d collect from his job.
Someone that saves 15% of $31,000 and puts it into a high-performing asset for three decades would be collecting over $90,000 in annual income, without even taking into account presumed increases in salary or savings amount over that time frame.
Is talent an important variable in your capacity for lifetime economic output? Heck yes. But it is not everything, and suddenly, that is what make life oh-so-interesting. Someone with the kind of intense work ethic that goes above and beyond what members of his peer group can even comprehend can catch up and surpass those few who were able to receive superior intellectual abilities at the time of birth.
It’s not like Exxon was a johnny-come-lately stock three decades ago. Heck, the Supreme Court had to break it up from Standard Oil because John Rockefeller could have brought this country to its knees if he pursued a path of destructive malevolence. Good luck trying to find a year in which some form of Exxon did not rank among the 25 largest corporations in the United States. Who woulda thunk $4,320 per year plus three decades of diligence would alone generate 75% of the annual economic output of a child genius during their prime adult earnings years?
More interestingly, we’re at the point in the ebb and flow of American discourse right now where the value of an intense, take-no-prisoners work ethic isn’t the subject of the glory it deserves. For someone that puts down the remote and gets down to business, the potential to crash through ceilings of expectations and job laps around those more intellectually privileged is there if you want it.