If you are born into a “good” family, navigating adulthood is much easier. You can copy what your parents did and benefit from their connections. Kids who come up rough—even if they are bright—are going to face uphill challenges.
It is much tougher to figure out how to live, earn, love, parent, etc. People who manage to do so break the cycle and chart their future family history on a different course.
“Winning the ovarian lottery” is a phrase coined by Warren Buffett. Buffett has attributed much of his success to luck—by being conceived in the right place and at the right time.
“The ovarian lottery is “the most important event in which you’ll ever participate,” Buffett continued. “It’s going to determine way more than what school you go to, how hard you work, all kinds of things.”
Warren E. Buffett, 1997 Berkshire Hathaway’s AGM
While luck plays a significant role in determining the probability of your success, there are actions we can take to put ourselves in a better position to chart our future.
With the internet and library, the tools for learning are abundant. With the desire to learn, I believe that today’s generation are in a better position to break the cycle than at any time in history.
Here are some of my experiences at doing so. While not perfect, I hope they are useful for you to build on my experience and chart your own future.
Unlearn Bad Money Habits
Growing up, there were many concepts about money that I had to unlearn, and many more that I had to pick up. Here are some concepts which I had to unlearn:
Real wealth is not measured by how much you spend or how much material goods you own. Live life according to the inner scorecard. Your worth is not determined by what you own or your place in the social hierarchy.
“Wealth is having assets that earn money while you sleep: businesses, products, media, robots, investments, land. Wealth is for freedom, not conspicuous consumption.” —Naval Ravikant
Investments are risky and should be avoided. Risk is the probability of losing money permanently. With bank interest below 1% and inflation at 2 – 3%, not investing guarantees that you will “lose money”. Start learning how to invest. Indexing is a great way to start.
Insurance is a waste of money. The purpose of insurance is to protect against risks—death, terminal illness or crippling accidents. Many don’t feel a need for it because it offers no tangible benefit when all is going well.
The main enemy of life is uncertainties. When life throws you a curveball in the form of a gigantic medical bill, insurance will protect you from suffering a gigantic setback.
The phrase “confirm make money!” Never believe anyone who says this or offers any get-rich-quick scheme. Always question the incentives and learn the potential downside of any investments.
“Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero.”
Warren E. Buffett
Property is a great investment, it will only go up! Many justify buying an expensive home as an investment. Always think in terms of opportunity cost—could the money be better deployed elsewhere?
Retirement is still far away. Understand that compound interest is a function of time and returns. Start today. Just because the problem is further down the road does not make it less important.
Not all debt is bad. As a rule of thumb, debt taken to finance your education or home can be a good thing. In fact, with interest rates at rock bottom, it’d be wise to have a longer loan tenure.
Pick up Good Money Habits
Apart from unlearning the above, I found picking up the following concepts helpful:
Never fund today’s lifestyle with tomorrow’s income. Never take on debt to live an expensive lifestyle. Living modestly frees you to make appropriate choices.
Don’t do mathematically unsound things. This includes things such as buying the lottery. The probability of each set of four numbers in the right order winning is 1 in 10,000. One person occasionally gets lucky and appear on the news. Countless others don’t.
Automate, automate, automate. Have different accounts for spending, saving and investing. Make the transfer of funds among accounts automated once your income is credited.
Focus first on building up your savings, then on investing. Your savings rate is going to matter much more than your investment returns at the start. A 100% return on $2,000 is $2,000 while a 2% return on $100,000 is also $2,000. Focus on cutting expenses and increasing your income first.
Invest like a business owner. Think about what kind of business you want to own for the long-term. Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
Invest in high-quality compounders. Don’t focus only on income investing (i.e. dividends) or ‘cheap’ stocks, focus on total returns. I really wish I had known this one earlier. It pays well to study the following Munger quote:
‘Over the long term, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.’
Charlie T. Munger
Redesign Your Environment
We tend to construe that success is a product of our effort, motivation, and talent. These are characteristics certainly important. But over time, success is nearly impossible without supportive people at your side.
Never be the smartest person in the room. Hang out with people better than you, and you cannot help but improve. Have the humility to acknowledge that you don’t know everything and allow others to fill the gaps.
“Nothing, nothing at all, matters as much as bringing the right people into your life. They will teach you everything you need to know.”
Be the person you want to attract. The best way to surround yourself with successful people is to uphold yourself to high standards. Buffett shared a useful mental model in 1998 with MBA students:
“Think for a moment that I granted you a right — you can buy 10% of one of your classmate’s earnings for the rest of their lifetime.”
The decision should be based on merit, Buffett advised, so it’d be unwise to pick the person with the highest IQ, the richest parents or the most energy.
“There’s nothing wrong with getting the highest grades in the class, but that isn’t going to be the quality that sets apart a big winner from the rest of the pack,” said Buffett.
He continued: “You’d probably pick the person who has leadership qualities, who is able to get others to carry out their interests. That would be the person who is generous, honest and gave credit to other people for their own ideas.”
And here comes the kicker: In addition to this person, Buffett told the students they had to sell short another one of their classmates and pay 10% of what they do.
“You wouldn’t pick the person with the lowest IQ,” he said. “You’d think about the person who turned you off, the person who is egotistical, who is greedy, who cuts corners, who is slightly dishonest.”
If you see any of those qualities in yourself, you can get rid of them. “It’s simply a question of which you decide,” he said.
Find role models and mentors in life. Choose the right people, then learn their behaviors, thinking, and processes.
Avoid anchoring effect when picking a partner. Studies have shown that children with a dysfunctional childhood are likely to pick partners and have a relationship that resembles their parents’. Be aware of the traits you are looking for in your partner.
Calibrating Your Mindset
Always read. A book is a person’s live-work condensed into its essence. Good books have the ability to shape your mind and change your life.
“The reading of all good books is like a conversation with the finest minds of past centuries”
Develop the habit of writing. Writing forces you to engage with what you’re reading on a deeper level. Writing online can build your network and create opportunities for yourself.
“People who write a lot, also listen a lot. They also change their mind a lot. Not necessarily with new data, but sometimes re-analyzing the same data. They also work hard to disconfirm fundamental biases.”
Learn to ask. Sometimes all we need to do is ask, and opportunities will be created—internships, careers, advice, etc.
The best way to overcome an addiction is to not start one. I have seen lives and relationships ruined by addiction to alcohol and gambling, and often they come hand-in-hand. While extreme to some, I have a personal rule to not touch either.
Take great care of your body. When you’re healthy you have 10,000 needs, but when you’re sick you only have one need. Have at least 7-8 hours of sleep. Exercise regularly and avoid sugar.
If you need tips on diet and working out, my buddy Kah Qi generates great content backed up by research papers. You can follow him on IG @kah.fitness or Youtube.
While some of us were less ‘lucky’ than others in the ovarian lottery, all of us have the opportunity to create our own luck. Because luck simply comes down to a series of choices. As the saying goes “chance favors the prepared mind.” Start inviting lady luck by learning about money, changing your environment and calibrating your mindset.