The Ways You Are Rich

Young people, you want to be rich, but you already are beyond your imagination.

You measure wealth in currencies, cryptocurrencies, investments and things that are interchangeable into such currencies: stock, timberland, bonds, real estate, art, cars, etc.  This is what people typically default to when they think about wealth.

But money is a currency, which is something that can purchase or exchange other stuff.  And there are a lot of things that the older you get, the more money you would spend to exchange into: while young people have these things in abundance.

Time:

The younger you are, the richer in time you are.  And the phrase “time is money” is literally true, as people willingly pay to free up time, whether in the form of time-saving devices, freelancers, gig economy workers, etc.

This is such a trite phrase that I hesitate to start with it, but when you consider that people like billionaire Nike founder Phil Knight, in the closing pages of his autobiography states that he would give everything up to do it over again, or when Warren Buffett, speaking to students, says, “you want to be me, I want to be you,” then you begin to realize to a very rich old man, a young person’s life could be valued in the billions of dollars.

As you grow older, the price you’re willing to pay for time increases exponentially.  Although I’m not as rich as the aforementioned gentlemen, what I would give to go back 10 years.  Even 5 years.  Probably in the tens of thousands, if not hundreds of thousands of dollars.

Out of all the “alternative” sources of wealth I’m about to list in this post, time is the only thing that can’t be purchased or created.  It can only be utilized where it exists, or exchanged into, by money or financial instruments – i.e., spending money to use time that you already have, but are burning every second.  Maybe this makes it the most precious.

Time also has the characteristic that by default, adding time to money causes money to grow.  This is why when you’re young you might hear the phrase “time is on your side”.  Well, it really is.  Someone who’s 27 literally has 10 more years for their investments to compound and grow than I do.

Options:

This is a source of wealth that is often overlooked, because it is really hard to measure, unlike money or time.

Options, or opportunities, are a form of wealth that work in the background, and do not manifest themselves until they’re exercised.  And young people have an almost infinite array of Options at their disposal, as a function of having more time, energy, boldness, less responsibilities/lifestyle drag, than older people.

This is hard to explain, but when I say they do not manifest themselves until they’re exercised, it’s because it’s hard to know how they will create value to you until you actually use them.

But, consider that us older people – well, all people, spend a lot of money to travel, read, learn languages, move to different cities, obtain knowledge, attend educational institutes, physically train, etc. etc., all of which create Options, which at the opportune time or place, can create money or jobs, or be exchanged for time and other higher-level forms of wealth, like relationships, wisdom, love, happiness, and so on.

The younger you are, the easier you can pick up these invisible options.  You can learn things quicker when you’re young.  You have less opportunity costs and responsibilities.  You have more energy.  You likely have a larger social network than someone whose been working for, say 20 years in the same industry and town.  

Many people who appear lucky, are in fact just awash in the wealth of invisible options.  This is not a great example, but say someone buys 80% of the lottery tickets, and wins.  Was he lucky?  Or did he buy a lot of options?  This is kind of a bad example because the cost of buying that much will likely be higher than the payout, but I hope you get the idea.

More thoughts on why options are really hard to quantify and measure, but are still there in the background.  When people say “right place at the right time”, they are ignoring the fact that you can engineer this kind of ‘luck’ by picking up a whole bunch of invisible options.

Two college graduates with the same intelligence level and achievements: one job is in a stable, blue-chip company, the other in a fast-growing startup.  The first job is located in an old, industrial city.  The second is in a coastal, high-priced one.  The two jobs pay the same.

Right now, I would bet that the competition for the second job is higher, despite it being more expensive to live in the coastal city.  I would even wager that possibly, college graduates would accept a slightly lower salary to take the second one.

This is because the value of the myriad options embedded in the second job is enormous, hard to quantify, but still intuitively there.  As you get older, the cost of those options becomes so astronomical that it is hard to justify their potential value.  I would like to think I could take an opportunity like that, given the same scenario.  But I might not.  Ten years ago, I definitely would have.

Energy:

This is the raw stuff from which both options and money/financial instruments are created.  Energy is costly to obtain and generate, but as with all of the aforementioned, way more abundant when you’re young.

Without energy, one cannot create or have created, money or financial instruments.  Even in the case of generational wealth, someone in the distant past had to have exerted such energies to create a fortune.

Energy diminishes over time, both within a lifetime as well as within the span of a day.  But similarly to time and options, its value increases as a person ages.  Younger people are awash in it.  In the case of my young daughter and others her age (4), it is perpetually pumping through their veins, requires no warm-up, and is converted without any entropic loss into sheer joy and full speed runs at the crack of dawn.  Again, what I would give to have that kind of energy again: tens of thousands, maybe even hundreds of thousands of dollars.

Look at the number of ultra wealthy people buying blood transplants or other fountain of youth-type stuff.  Energy is undoubtedly a form of wealth, and young people are awash in it.

Summary:

The thing about these forms of wealth, is that they are all interchangeable with each other.  When money is exchangeable into time, options, and energy, then the obsession that people have with accumulating only money at the expense of energy, time, and options is probably a little misguided.

You can cultivate energy and knowledge to create other forms of wealth.  You can use money to purchase options in the form of more options, energy, knowledge, to create other forms of wealth. 

And above all, time must be utilized wisely as this is the only thing that can’t be created or purchased.  

In this way are young people bestowed with wealth beyond their measurement or imagination.  And lacking knowledge or wisdom, so are they also dismissive of them.

Of course, there are higher-levels of wealth that cannot be strictly exchanged into or purchased using money, time, options, or energy.  The previous sources of wealth are necessary, but not sufficient to gain things like relationships, love, wisdom, happiness.  But I’m concentrating only on those sources of wealth that act almost as interchangeable currencies with each other.

At the end of it, I would wager that both Warren Buffett and Phil Knight would consider me a young(er) man.  And that’s why I’m writing this down, so as not to forget..

A Real Estate Career: Lessons Learned (2012-2015)

It’s weird the things that stick with you.  For the next few years, I worked three full-time jobs at a time.  I was in full execution mode as a property tax agent, international theme park consultant, and commercial property agent – and I don’t remember much about the period.

When I look back, I think it’s because I wasn’t growing.

There was little new to the jobs.  I was just executing on processes I had put in place years earlier.  I had become proficient, an ‘expert’.  And so the result was that financially, they were some of my peak earning years, but overall I’m not sure it was that fulfilling.

If you can find jobs where you get paid handsomely for personal growth, now that’s the holy grail.

But there were a few things that stuck with me.

I had a client who was an ex-Drexel Burnham Lambert banker.  He predated Michael Milken give/take by a decade, and had apparently made so much money that there was nothing else to do with it but plow it into real estate.

He worked out of one of his apartment properties in Brentwood, in a ground floor office strewn with papers and newspaper clippings.  He was in his 70s and his main tactic in any negotiation or even discussion was to immediately pretend he was slow.

Whenever you began speaking, he would tilt his head and look at you curiously before responding with a set of ‘is that right’s and ‘you don’t say’s.  He didn’t say much, but you could tell he was processing everything.  With so much office space all around LA, he offered free space to young brokers as a way of being plugged into deal flow.  Essentially, to listen.  He was always listening.  Sometimes his ‘you don’t say’s were sarcastic, as if he couldn’t keep listening to our stupidity anymore, but he was always listening.

We had another client who was a movie mogul.  Over a few decades, he had opened a regional chain of movie theaters and plowed the proceeds into real estate.  And about a mile down from our office, he owned 25 condos in the heart of Redondo Beach.  We brought him multiple offers on the property.  $18 million.  $20.  $22.  But he wouldn’t budge for less than his number, which was a million dollars per unit.

And although we had clients who probably would have bit at $22, he didn’t.  Something about his patience struck me, sitting in his office modeled after a miniature theater, cracking a grin at each new offer we brought him, and sitting back, a picture of consummate contentment, and telling us, if we could please try to get a higher number.

Years later, he was proved right.  Actually, the value of his condos probably exceeded a million dollars a unit.

The thing that both these clients had in common were that both owned and controlled more than $100 million in properties, each, both were well into retirement age, and both arrived at their offices at the crack of dawn.

This is just a sample.  There are people like this all over the country, all over the world.  It was just another lesson about wealth.  In so many ways, wealth is not the goal.

I wanted to be like them.  It would be nice to have the level of wealth they did, but I’m talking about their working for the purpose of their work itself.  And having a purpose that made them work harder than people half their age.

No doubt, it’s what made them great.

Then we had another client.  She had emerged as a buyer for another client’s property in Hermosa.

She made us work.

Among other things we had to do to close the deal, we had to chase down people to get them to sign estoppels.  The existing owner didn’t want to do it, because he preferred to be liked more than he preferred to sell the building.

This meant we had to camp out in front of all 12 units and try to get the tenants to sign a document verifying that they were paying, exactly what the rent rolls said they were paying.

Naturally, a lot of them were suspicious.  Was the new owner going to kick them out?  Was she going to convert the apartment into condos?  They were nervous.

No, no, I answered confidently.  I reassured them there was nothing to worry about, that the new owner had no intention of redeveloping.

But there was something else I had forgotten about.

After dragging the deal across the finish line, I felt a sense of relief as we pulled up to the new owner’s $10 million house in Palos Verdes, with a tennis court in the back.  In the living room, she proudly showed us a rent roll of the $80 million portfolio she managed, from her living room.

And later, she even more triumphantly emailed us to say that she had doubled rents, because the previous owner had been undercharging.

It left me with a bad taste for these kinds of deals and people in general.  All part of the industry, but I couldn’t help but think that while knocking on doors to get those estoppels, I had led some of those people astray.  Some of them, kids younger than I was.

It turned out to be my last deal there.  That, combined with the diminishing fortunes of the property tax appeal business, a countercyclical business if there ever was one, led me to other things.

One last reflection about wealth.  I spent half this time period in Hong Kong.

And in Hong Kong, a summer rite is the boat trip.  On the weekends the waters around Hong Kong and its myriad islands teem with junks and yachts that anchor off a secluded beach, then descend into drunken orgy-level partying.

One of our friends was dating a guy who was as close as you could get to Hong Kong royalty.  He was the scion of a billionaire tycoon, which made him one himself, but you wouldn’t know it to meet him.  Well-educated, low-key, soft-spoken, there is no way you could pick him out in a lineup, as is often the case with billionaires.

Anyway, this weekend we had use of his dad’s yacht.  For seven of us, a uniformed staff perhaps double that number helped us board, navigated, helpfully pointed out the amenities, cooked us a hot lunch, and generally gave us the kind of five-star service you would expect from what was basically a floating villa, way larger than my childhood homes, combined.

After anchoring, there are only a few things you can do.  We rode jet-skis.  We bounced off of inflatables.  Some of us read a book on the upper deck.  Some of us just floated in the water.

Which is what I did.  Bobbing, I could see all the other boats around us.  Some of them were like us.

Splendid, sleek yachts.  Barely any people on them, though.  There were kids on some of the nicer yachts, towards the front, and they looked bored out of their minds.

And, the people on the nice yachts were all looking in the same direction I was, which was towards the bacchanal boats, the ones thumping music that could be heard hundreds of feet away, with the people backflipping off the upper rails, doing keg stands, sliding headfirst and belly up down makeshift slides into the water, floating around the boat suspiciously in pairs.

Of course sometimes it’s nice to be alone.  But also sometimes I think that with great wealth comes great isolation.

I noticed this during my brokerage days in LA.  Sometimes it seemed like our richest clients called…just to talk.  Or when we went out in Hollywood – there is type of person, usually male, who buys drinks for everyone, is exceedingly generous, talks a lot, is best friends with everyone at the bar, is also exceedingly rich, and then at some point during the night…leaves alone in a nice car.

In the summers in LA, you can ride a bike from Venice Beach down to Redondo.  Over the course of 15 miles, the crowd changes.  Rowdy and larger up around Venice and El Segundo, Playa del Rey, huge barbeques with organized beach football games.  Then you reach the $10 million houses (at least) in the South Bay, along the Strand.  Nice organized picnics going on, some beach volleyball games, more individual, more rich, smaller.  Sometimes just a guy on the upper balcony of his home sipping coffee and looking out over the ocean.  Of course in some of the houses in between were always some frat antics going on, but still.  Richer, more individual.  In many ways, more alone, although there’s nothing wrong with alone.

But, now why is that?

What We Call Luck or Success is Actually Investing Well

Or, even a lottery winner had to buy a ticket.

Not to conflate the above with investing, but the point is that what we often call luck or success is the result of hundreds or thousands of low-cost (or high) and invisible options working in concert.

Every time you move through this world, incurring costs in the form of time, effort, pain, you are building a portfolio of invisible options.  Whether its learning a language, attending a course or university, traveling out of town, a conversation, going to a party (“networking event”), reading something, learning anything.

Options can develop on their own, with little effort, with the addition of time; i.e., the proverbial investor who buys a building in a dilapidated neighborhood and reaps the rewards decades later when it gentrifies.

These options are hidden and hard to quantify and so we often dismiss them, but I believe they’re a true source of wealth.  Think about the saying ‘right place, at the right time’.  Well, that person had to travel to or be at that place, with that particular mix of skills or mindset.  Traveling somewhere is an option, the mix of skills and experience you carry with you are also a compounded, well-mixed option.

This is why the young are wealthy beyond imagination, although they don’t even know it – not only do they have more time, they also are able to accumulate options more quickly and cheaply than older people who have entrenched obligations, deteriorating energy levels, higher opportunity costs, etc.

A thought experiment: What low-cost options am I picking up every day?  What can I do, to drench myself in optionality?  🙂