20 Ideas On Wealth Creation That Transformed My Life
After a year of reading, writing, and applying the models of wealth creators, here are the top 20 ideas that have changed the way I think about the world.
1. Building Equity.
Wealth creation ultimately boils down to owning equity, which is just a fancy word for owning a piece of a business.
You could own a business that you started, a piece of a larger company (stock), a portion of a product, or a piece of intellectual property (IP) like a book, script, digital guide, or other artwork.
No matter what kind of equity it is, remember this: equity is everything. It's the only way to make money while you sleep, which is the key to wealth creation.
2. Compound Interest.
Compound interest is when you make money off your original deposit, plus the interest on that deposit. So if I deposit $10 and get a 5% annual interest rate, after one year, I have $10.50. After year two, though, I've not compounded $10; I've compounded the $10.50 - giving me $11.03 total after two years.
The stock market is a compounding machine. Investing in it is the easiest way to build wealth over the long term.
3. The Barbell Strategy.
The barbell strategy (Nassim Nicholas Taleb) is an approach to uncertainty (risk) that uses two extremes - like weights on the opposite ends of a barbell - to avoid ruin and simultaneously expose yourself to a speculative upside.
On one end of the barbell is extreme risk aversion (safety). On the other end is extreme risk loving (speculation). In the middle is "moderate" risk - an area that is highly prone to hidden risks.
Imagine you have 90% of your net worth in cash. You invest the other 10% in a highly speculative asset like bitcoin. This set-up is a barbell strategy - extreme safety on one end, and extreme speculation on the other.
4. Leverage.
Leverage is just another word for tools that compound your efforts. Types of leverage include:
Labor
Capital
Media
Code
Code and media are permissionless forms of leverage. You can start using them immediately to scale your ideas and your wealth.
5. Asymmetric Opportunities.
These are opportunities that have a capped downside and an uncapped upside. When you buy a stock, for example, it has unlimited upside, but the maximum you can lose is your original investment.
Other asymmetric opportunities include:
writing a book.
building a blog.
entrepreneurship.
tweeting.
living in a big city.
6. Live Below Your Means.
Make more than you spend (which involves actually figuring out what you spend). Simple, but most people don't do it.
7. Positive Black Swans.
According to Nassim Nicholas Taleb, a Black Swan has three characteristics:
The event is unpredictable (to the observer).
The event has widespread ramifications.
After the event has occurred, people will say that it was explainable and predictable.
Positive Black Swans are these kinds of events that help you! Your publishing a book that goes on to become a best seller is a positive Black Swan. There was no way to know if your book would succeed, but the uncertainty surrounding book publishing as an industry is only positive.
8. Non-Linear Success.
Success isn't a straight line upwards. It's erratic, with ups and downs, and long periods of no progress. And then when you win, you win big.
It's hard for people to understand why suddenly, with one additional move, they see a giant, disproportionally large impact. This happens because success is non-linear. You're looking for and waiting for this disproportionate result.
Most people quit on the downslopes because they don't understand that the amount of work you put in does not correlate to the amount of success you enjoy at any given moment.
9. The Good Kind of Selfishness.
The good kind of selfishness is about making your physical and mental health priority number one. It's about finding meaning in your work. It's about staying healthy and fit. It's about eating right.
It's about doing all of this, and still spending focused time with the people you love. Selfishness is about putting yourself first in the short term for the betterment of everyone in the long run.
You can't pour from an empty cup.
10. Execution Over Ideas.
You get paid to execute, not ideate. Ultimately, how you end up doing something is a lot more important than what you do. Execution beats obsession every single time. From Henry Ford to Bill Gates, Felix Dennis writes in his book, How To Get Rich:
Their ability to take chances and to subsequently exploit initial success counted more than their inclination toward a particular industry. Their execution of a strategy trumped the subject of their obsession.
11. Circle of Competence.
Like Warren Buffett and Charlie Munger, you want to operate and invest in areas that you understand and have an advantage. Working within your circle of competence defends you from unexpected downside risk.
Over time, you should slowly chip away at the edges of your circle of competence to expand it.
12. Timing.
Much of success is getting the timing right. Here's what Scott Adams says about being in the right place at the right time:
Timing is often the biggest component of success. And since timing is often hard to get right unless you are psychic, it makes sense to try different things until you get the timing right by luck.
Keep going.
13. Process Over Goals.
Seeking out asymmetric opportunities in positive Black Swan environments is a process, not a goal. You don't know which endeavor will be a success, but if you keep throwing darts at the board, you'll eventually hit the bullseye.
14. Productize Yourself.
Naval Ravikant uses the phrase "productize yourself" to summarize his "How to get rich (without getting lucky)" tweetstorm. To productize yourself, package your skills, specific knowledge, and personality into a digital product and then scale it with media and code.
Then sell, sell, sell.
15. Skill Stack.
This idea comes from Scott Adams, creator of the Dilbert comic strip. Adams says that instead of trying to be the best at one thing, you should try and become very good at two or more things. Very good means that you're in the top 25% in that field.
Here's Adam's skill stack:
Good drawer (top 25%) + good humor (top 25%) = Great comic strip (top 10%)
The skill stack protects you from competition because no one else has your set of skills filtered through your unique personality. Build one of your own.
16. Slow, Incremental Constant Progress.
The small things that you do consistently matter more than the large things you do sporadically.
Small, incremental improvements make a huge difference over the course of your life, whether it’s in the form of compound interest or knowledge.
Charlie Munger advises that if you try to go to bed a little wiser than when you woke up, you'll get the positive outcome you deserve over the very long run.
17. Scalable Professions.
Wealth creation is about equity and leverage. Working in scalable professions, where there's zero marginal cost to reproduce your product over the internet, is a free form of leverage. Iterate in this space, and you never know which product will spread like wildfire.
18. Delayed Gratification.
This is about giving up something now to get more later. Investing your money now instead of spending it is a form of delayed gratification.
This is one of the most important keys to success and probably the hardest one to do consistently. Practice, practice, practice.
19. Specific Knowledge.
This is one of Naval Ravikant's more abstract terms. Specific knowledge is knowledge that can't be taught but only learned. Here's his definition:
The first thing to notice about specific knowledge is that you can't be trained for it… [it's] found much more by pursuing your innate talents, your genuine curiosity, and your passion…Very often specific knowledge is at the edge of knowledge. It's also stuff that's just being figured out or is really hard to figure out... [It] tends to be technical and creative. It's on the bleeding edge of technology, on the bleeding edge of art, on the bleeding edge of communication.
Specific knowledge is the most valuable knowledge you have.
20. Invest In Things That Start Out Well.
If something starts out great, there's a good chance it will continue to be great. If it starts out mediocre or bad, it will likely stay that way.
Here's how Scott Adams puts it in his book, How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life:
My guideline for deciding when to quit is informed by a lifetime of trying dozens of business ideas, most of them failures… The pattern I noticed was this: Things that will someday work out well start out well. Things that will never work start out bad and stay that way. What you rarely see is a stillborn failure that transmogrifies into a stellar success. Small successes can grow into big ones, but failures rarely grow into successes.