As one of the founders of Microsoft, Bill Gates was able to build his net worth from $0 to $100 million while he was in his 20s and 30s. That is part of his brilliance that is difficult to replicate. But since then, his net worth has grown from $100 million to $85 billion over the past three decades, almost exclusively through investment in the publicly traded stock market. I want to share with you four of the lessons I learned when studying how Bill Gates grew his fortune, with a particular emphasis on the structures and philosophies he followed later in life.
I was recently studying the story of how Eminem built up his $400-$600 million net worth, and I was struck by how various efforts throughout his career led to vastly different financial results. The things that made Eminem rich aren’t necessarily the things that you would guess made him rich, and this is also something I suspect Eminem knows given his launch of “Shady Productions” and repeated insistence to own the equity from his efforts during the later stages of his career. I wanted to share with you four of the insights I gained from studying the economic side of Eminem’s life.
In the United States today, there are almost 11 million individuals with a net worth of $1,000,000 or more, excluding the value of their primary residence (the figure tops 20 million if you count primary home equity in the calculations). With a population slightly above 300 million, this means that one out of every twenty-five Americans is a millionaire. You might wonder then: Why doesn’t it feel like one out of every 25 people you encounter has that type of wealth?
The short answer is that they don’t want to be noticed, and the media doesn’t want to find them.
You also have to guard yourself against those instances in life where rational decision-making on your part creates perverse incentives for counterparties that you may encounter. For example, I don’t think most people realize a danger that arises when you try to pay off your home mortgage early. If you ever lose a job, take a pay cut, or encounter some difficulty with making your mortgage payment once a good chunk of the principal has been paid off, the bank is going to be less likely to work with you if they have clarity that they will make a profit.
I include below five factors that I consider when evaluating a mutual fund offering that are a little bit different than the standard/conventional advice that is repeated ad nauseam on the topic:
#1. Pay attention to the manager rather than the fund when calculating performance history. Most people rely on a fund’s performance history when reviewing the 3, 5, and 10 year history for a mutual fund. But you should care about the specific person. For the past five years, it’s not that there has been something magical about “center fielder for the Los Angeles Angels.” Instead, Mike Trout is the magic player, and he happens to be center field. People fall into the trap of following the track record of the fund name rather than the manager. It is the manager who selects the stocks, and that is the track record you should study.