Feb

16

Several of you began with relatively small sums of capital and made fortunes, got published, became your own boss, etc. (or so it seems based on posts here and material on the internet). This doesn't seem to happen as much anymore. Most Horatio Alger style stories these days begin with well established offshoots of big firms and too often end in handcuffs. I can't think of any instances of people started with a $5k credit card advance or loan and a dream in the past twenty years (except non-market stories like Facebook which is probably why compu sci is becoming so popular again).

Even those with multi-year consistently profitable track records with good alphas are having difficulties raising any reasonable sums of AUM. And turning $50k into $1mm let alone $20mm seems to require incredible risk or a time machine. Most biographies of successful people that I have read (whatever the field) tell stories of men and women who lay everything on the line and suffer any obstacle (lost spouses, prolonged poverty, living in a taxi while subsisting on ramen, etc.) to achieve their dream. Perhaps this is still the formula. But it seems the odds are stacked up against the would-be market entrepreneur more now than in the past with the current environment and many of the great success stories came in a period of unprecedented market rise. So, to those on the list who have achieved the improbable what would you recommend to your children or other interested parties regarding how to become a success in the markets these days while remaining personally solvent and without taking undo risk when in an era where raising external money is difficult with a good track record and impossible without one?

Charles Pennington comments:

Gladwell writes a lot of wrongs, but I think he has a point in this article . He says that often entrepreneurs have images as swashbuckling risk-takers, but in reality, at the time when they made their crucial decision(s), the circumstances were such that the decision was not all that risky.

Vince Fulco writes:

The authors (really Andrew) of the book I mentioned a few weeks back; "Panic" by Andrew Redleaf and Richard Vigilante, go in depth to the point Prof. Pennington is making. They point to the backgrounds of real entrepreneurs who seemed like risk takers but in point of fact often had years of experience before venturing out on their own.

Location 837-838 on kindle:

"…In the real economy we see all the time people being paid for hard work, for perseverance, for insight, and for experience. But it is all but impossible to observe anyone being paid for risk. It is easiest to see this starting with some extreme cases. There are many heros among the great entrepreneurs. It is almost impossible to think of one who got paid for taking risk. The more brilliant the entrepreneur and grand his achievements, the less true it seems. Was Alexander Graham Bell paid for the risk he might not invent the telephone? Nonsense, he was paid for inventing it. Was Edison paid for the risk that he might not invent a light bulb, or for actually inventing it? Henry Ford was not paid for taking the risk that he might not be able to build a car affordable to "any man of good salary"; he was paid for actually doing it. In the extreme case, even insurance companies, as the great Frank Knight pointed out almost a century ago, are paid not for accepting risks but for transforming genuine uncertainty–will I be in an accident?–into statistical predictability–some percentage of drivers will be. Even the flying Wallendas were paid not for their risks but for their skill. Dead acrobats don't get a piece of the gate. Acrobats who risk and fail are less popular than those who succeed despite undertaking greater and greater challenges…"

"…the deeper we look into these men's lives, the more difficult it is to justify the notion that 'risk taking' explains their achievements and rewards. The very notion of risk disappears into incoherence. What are the risks of not inventing a telephone (or a light bulb or an automobile)? Do we mean the odds against doing so? The odds against whom doing so? Anyone or the men who actually succeeded? If the odds against success are the measure of risk and hence reward, why were these men, who were good candidates to achieve these things and thus took less risk, so well rewarded?…"

"…Or by risk do we mean what the entrepreneur had to lose? But the more dramatic the story, the more we see that in their most productive years these men had very little to lose and enjoyed what they were doing far more than most men enjoy their own work. It is at least as true to say that they were 'at play' as to say they were 'at risk'…"

Jan-Petter Janssen writes: 

I won't call myself successful yet, but I do know a recipe for success in today's world.

1) Work and save money in a high income country.

2) Relocate to a low cost, tax free country.

1->2) Exponential growth for the savvy speculator.

The mining sector in Western Australia pays extremely well (you should be able to make $100-$200k). Since there are not many temptations in the Aussie outback (except playing the didgeridoo), you will see your bank account grow in tandem with your salary. After a few years you can take your money and move to one of the low cost, low tax countries in South East Asia.

Join me, Coyle!
 


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7 Comments so far

  1. Currency Guy on February 16, 2011 7:40 am

    George,
    I am one of the 50 000 dollars into 7 figures people (all from financial markets speculation). My view, speaking purely from my own experience, is that when I started I was certain that I had already won. What I mean is that my research made me confident that I could overcome the vigorish et.al.

    I have been exclusively involved in the currency markets so perhaps the below is not relevant for stocks (no drift etc.) but young speculators should be taught the following -

    1. You CANNOT make money using things that other people have in front of them or are published on Bloomberg, CQG etc.

    2. OVER MANY THOUSANDS OF TRADES since 2003 - When I took risk it was - to coin a phrase - against the ‘trend’

    3. I heeded the masters In fact THE MASTER….Dr. Niederhoffer. He will not remember but - without actually telling me anything - he told me to focus on something during our e mail correspondence back when I was still in Australia years ago. I carried through on this focus, developed various approaches and here I am. I only hope I can follow the stunning example of Monroe Trout….Who pulled back from activity after maintaining an outrageously good Sharpe Ratio for many, many years.

    4. I absolutely refused - and still do - to believe that trading is a ‘team sport’. It is an appauling assault on the psyche at times - there is no time to deal with others’ issues in a trading environment.

    Best.

  2. Andrew Kunian on February 16, 2011 12:17 pm

    John Arnold has made $4 Billion trading natural gas and he is only 36 years old.

    http://www.forbes.com/2010/03/16/billionaire-inner-drive-larry-ellison-business-billionaires-arnold.html

    http://money.cnn.com/2009/11/23/news/companies/centaurus_john_arnold.fortune/index.htm

  3. Bill Herrmann on February 16, 2011 12:51 pm

    Although it seems dated, “The Millionaire Next Door” still has valuable lessons for those seeking wealth at the market or with entrepreneurship.

  4. Jeff Watson on February 16, 2011 1:23 pm

    Five sure fire ways to acquire great wealth.
    1. Be born into it.
    4. Inherit it.
    3. Marry it.
    4. Earn it.
    4. Steal it.

    Many of the so called “Rich” have used more than one of these methods, especially in the beach resort areas of Florida, where I would not do business with any individual, preferring to do my business out of town.

  5. ed on February 16, 2011 1:58 pm

    If u have a good record but cant raise money, the solution is simple:

    -Develop a marketing plan
    -learn salesmanship
    -partner up with a gifted salesman

  6. Andre Wallin on February 16, 2011 7:37 pm

    I think born into it and stealing it are the most popular in Palm Beach. Don’t think a person who earned it would spend like they do here.

  7. Alaric Investments on February 19, 2011 2:02 pm

    What flag is shown in the picture? Without the union flag in the corner, it would appear to be Ghanian….?

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