wealth

The Difference between Affluent, Rich, and Super-Rich

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One of the best things I’ve read this week is Ben Casnocha’s blog post titled “The Goldilocks Theory of Being Rich” on what it means to be rich. In the post, Ben correctly posits that today there’s a very small difference between the rich and the American middle class in terms of quality of life. In the post, Ben differentiates among affluent, rich, and the super-rich…

The actual best part about being super rich, as far as I can tell, is this: You’re more likely to feel like you led a life of meaning. You might not be happy all the time or most of the time, but you will feel like your time on this earth counted for something. One way to distinguish happiness from meaning is that happiness is the day to day bounce of emotions while meaning is what you feel when you step back, take a minute, and reflect on what will go in your obituary. (Here’s my post on meaning vs. happiness.)

How so? The feeling of meaning and making a difference manifests in real, concrete ways. Someone like Meg Whitman can walk the HP campus and see thousands of employees who support their families thanks to employment at HP; she can read stories about the millions of people who use HP products every day to be better at their job. That imbues her life with a sense that her life matters. If you don’t have a corporate campus to walk around—if, for example, you’re an options trader and not a builder of things—fear not. With a supple bank account, you can still take actions that generate meaning. Write big checks to charity and you’ll get thank you notes from the children at the public school you helped. You’ll get enough feel-good ooze from your charitable giving to last you a lifetime. Entrepreneur and billionaire Marc Benioff has said, “Nothing is going to make you feel better. Philanthropy is absolutely the best drug I’ve ever taken.”

I liked this analogy posited by Tim O’Reilly:

…money is like gasoline while driving. You never want to run out, but the point of life is not to go on a tour of gas stations.

The distinction between affluent, rich, and super-rich:

Maybe wealth needs its own Goldilocks porridge story: you want not too much, not too little. And I think that ideal middle ground is the “Rich” category in the hierarchy I opened with. More crudely, this ideal amount of money is termed “fuck-you money.” With fuck you money, you can’t fly around the world on a private jet (so you’re not as rich as the Super Rich) but do you have the power to say fuck you to essentially anyone or anything that doesn’t interest you (which means you’re richer than the merely affluent).

Put another way, if you work on stuff that doesn’t excite you for more than one day a week, in my estimation you do not have fuck-you money. You’re still working for the man. At the other end of the spectrum, if you find yourself being invited to more than a few charity galas a year, worrying about physical and cyber security at your home, and asking a PR person to review your public statements, you have a lot more than fuck-you money and all the corresponding drawbacks.

Definitely worth reading this thought-provoking post in its entirety.

Pablo Picasso’s Multi-Billion Dollar Empire

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I enjoyed this piece in Vanity Fair on Pablo Picasso’s multi-billion dollar empire.

Picasso did not leave a will. The division of his holdings took six years, with often bitter negotiations among the heirs. (There were seven then.) The settlement cost $30 million and produced what has been described as a saga worthy of Balzac. The family, writer Deborah Trustman noted at the time, “resembles one of Picasso’s Cubist constructions—wives, mistresses, legitimate and illegitimate children (his youngest born 28 years after his oldest), and grandchildren—all strung on an axis like the backbone of a figure with unmatched parts.”

It is unbelievable how prolific Picasso was:

When Picasso died, 43 years ago at the age of 91, he left an astounding number of works—more than 45,000 in all. (“We’d have to rent the Empire State Building to house all the works,” Claude Picasso said when the inventory was completed.) There were 1,885 paintings, 1,228 sculptures, 7,089 drawings, 30,000 prints, 150 sketchbooks, and 3,222 ceramic works.

Much more here.

On the Wealth Disparity in Russia

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The Wall Street Journal highlights the incredible wealth disparity in Russia:

In the days of the Soviet Union, the country boasted that all its citizens shared the wealth equally, but a new report has found that a mere 20 years after the end of Communism, wealth disparity has soared with 35% of the country’s entire wealth now in the hands of just 110 people.

This is a wild statistic:

The study discovered that in Russia there is one billionaire for every $11 billion in household wealth. In the rest of the world, there is one for every $170 billion.

And so is this comparison with the United States:

Overall, 93.7% of Russia’s adult population has less than $10,000 in wealth, according to the report; 5.6% has between $10,000 and $100,000; 0.6% has between $100,000 and $1 million; and 0.1% — or about 84,000 people — has over $1 million. In the U.S., according to the report, 30.7% of the adult population has less than $10,000; 33% has between $10,000 and $100,000; 30.7% has between $100,000 and $1 million; and 5.5% — or 1.3 million people — has over $1 million.

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(hat tip: Annie Lowrey)

Is Vladimir Putin the Richest Man on Earth?

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An interesting report at Bloomberg on the wealth that Vladimir Putin has accumulated via his stakes in Russian companies like Gazprom and Surgutneftegaz:

The media reports, which often cite one another, ultimately tend to rely on one primary source: a November 2007 interview given by a prominent member of Moscow’s chattering classes, Stanislav Belkovsky, to the German daily Die Welt. In the interview, he claimed that Putin “controlled” 37 percent of the oil company Surgutneftegaz and 4.5 percent of natural gas monopoly Gazprom. The $40 billion estimate of Putin’s fortune was simply the 2007 market price of these stakes.

“And these numbers are substantiated?” Die Welt journalist Manfred Quiring asked. “These numbers are correct,” Belkovsky replied, and that was that.

Interviewers regularly ask Belkovsky about the $40 billion number. “That figure could now have changed, I believe at the level of $60-70 billion,” Belkovsky told Maeve McClenaghan of the Bureau of Investigative Journalism.

There has never been the slightest bit of evidence that Putin actually owns stakes in Surgutneftegaz or Gazprom. The Western journalists using Belkovsky as a source either do not know who he is or print his allegations simply because they are colorful. “What game Mr. Belkovsky is playing — and on whose behalf — is unclear,” the Telegraph of London warned in a story copiously citing Belkovsky’s allegations.

If the upper tier estimates are true, then Vladimir Putin may be as rich (or even richer) than Bill Gates, whose estimated worth is around $70 billion.

Success Cannot be Measured

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Success is the strength of your heart, the power of your mind and giving of your soul.

This is a great post by Ketan Anjaria who claims that success, like other intangibles in life such as love, can’t be measured:

Real success isn’t measured by how many cars you own, how hot your startup is, or even how amazing you are at yoga.

Real success can’t be measured, just like happiness or love can’t be measured.

If you are trying to apply a metric to your success you have failed to realize one the most beautiful reasons we are on this earth.

Success to me is what you make. What you give to the world. That your thoughts, and actions and time go to building something that works for others.

We could all this reminder every once in a while.

Warren Buffett: Women are Key To America’s Future Prosperity

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Warren Buffett joined Twitter today. To coincide with that move, he also penned a piece in CNN/Fortune, in which he explains how women are key to America’s prosperity:

Start with the fact that our country’s progress since 1776 has been mind-blowing, like nothing the world has ever seen. Our secret sauce has been a political and economic system that unleashes human potential to an extraordinary degree. As a result Americans today enjoy an abundance of goods and services that no one could have dreamed of just a few centuries ago.

But that’s not the half of it — or, rather, it’s just about the half of it. America has forged this success while utilizing, in large part, only half of the country’s talent. For most of our history, women — whatever their abilities — have been relegated to the sidelines. Only in recent years have we begun to correct that problem.

Despite the inspiring “all men are created equal” assertion in the Declaration of Independence, male supremacy quickly became enshrined in the Constitution. In Article II, dealing with the presidency, the 39 delegates who signed the document — all men, naturally — repeatedly used male pronouns. In poker, they call that a “tell.”

Finally, 133 years later, in 1920, the U.S. softened its discrimination against women via the 19th Amendment, which gave them the right to vote. But that law scarcely budged attitudes and behaviors. In its wake, 33 men rose to the Supreme Court before Sandra Day O’Connor made the grade — 61 years after the amendment was ratified. For those of you who like numbers, the odds against that procession of males occurring by chance are more than 8 billion to one.

I couldn’t agree more. Go Warren go!

A Fortune for No One

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The New York Times profiles the story of Roman Blum, a Holocaust survivor who died last year but left no will. He had a fortune of more than $40 million, the largest unclaimed estate in the history of New York state:

Much about Mr. Blum’s life was shrouded in mystery: He always claimed he was from Warsaw, although many who knew him said he actually came from Chelm, in southeast Poland. Several people close to Mr. Blum said that before World War II, in Poland, he had a wife and child who perished in the Holocaust, though Mr. Blum seems never to have talked of them, and the International Tracing Service in Bad Arolsen, Germany, has no record of them in its database. Even his birth date is in question. Records here give it as Sept. 16, 1914; identity cards from a German displaced persons camp have it as Sept. 15.

But perhaps the greatest mystery surrounding Mr. Blum is why a successful developer, who built hundreds of houses around Staten Island and left behind an estate valued at almost $40 million, would die without a will.

Read the rest.

World’s Richest People, Adjusted for Age

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The most recent tally of the world’s wealthiest people by Forbes magazine put the Facebook founder’s net worth at $13.5 billion in 2011, ranking him 52nd in the world. But Zuckerberg’s 28.4% stake in Facebook could see his fortune rise to as much as $28.4 billion, assuming that Facebook’s valuation is $100 billion.

The telling chart below profiles the world’s richest people in age-adjusted terms (per age capita). At 27, Zuckerberg is number one on this list, with over $1B of wealth per each year of his life. In the top 100 richest people in the world, only the co-founders of Google, Larry Page and Sergey Brin, are also under 40.

(Source: The Economist)

Who Runs America? The Top 0.1 Percent

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I’ve read some interesting factoids about the 1% of the American population, but this post by a money manager who works with ultra-wealthy individuals has a perspective on the upper echelons of the top 1%:

Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

Recently, I spoke with a younger client who retired from a major investment bank in her early thirties, net worth around $8M. We can estimate that she had to earn somewhere around twice that, or $14M-$16M, in order to keep $8M after taxes and live well along the way, an impressive accomplishment by such an early age. Since I knew she held a critical view of investment banking, I asked if her colleagues talked about or understood how much damage was created in the broader economy from their activities. Her answer was that no one talks about it in public but almost all understood and were unbelievably cynical, hoping to exit the system when they became rich enough.

Folks in the top 0.1% come from many backgrounds but it’s infrequent to meet one whose wealth wasn’t acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a “paper” asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO’s wealth comes from stock, not income, and incomes are also very high. Last year, the average S&P 500 CEO made $9M in all forms of compensation. One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company. The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

So who runs America? The author’s conclusion is damning:

A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules.

Full post here.

Paul Graham on Wealth

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I can’t remember how I stumbled upon Paul Graham’s classic 2004 essay on wealth, but I am glad I re-read it last night. Excerpt below:

Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn’t need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn’t matter how much money you had.

Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.

Highly recommend reading the whole thing. It’s long, but it’s worth it.

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Question of the day: What is wealth for you?