The “Extreme Poverty Problem”: Hans Rosling Explodes Yet Another Myth

Wednesday, April 24, 2019

Delray Beach, FL.-

Answer this: In the last 20 years, the percentage of the world population living in extreme poverty has:

  1. Almost doubled?
  2. Remained about the same?
  3. Dropped by two-thirds?

The correct answer is C. The number of people living in extreme poverty is less than 9%. It was more than three times greater, 29%, in 1997.

If you answered A or B, you are not alone. In fact, an online poll conducted by Hans Rosling found that 90% of those polled got it wrong.

I wrote about Rosling before. LINK His life work is correcting misconceptions. And one of the biggest misconceptions he’s discovered is that most people – and this includes most educated people – believe that poverty is getting worse.

Here are the facts:

In 1800, roughly 85% of the world population lived in extreme poverty, deprived of such basic human needs as food, safe drinking water, shelter, and access to medical care.

And this was not confined to Asia and Africa. It existed everywhere. Even in England, the US, Europe, and Scandinavia. The world economy back then was still agrarian. When crops failed, people starved.

The situation improved only slightly for the next 70 or 80 years. But by then the Industrial Revolution was in full swing. Wealth was being created at a rate that was faster, by multiples, than at any previous time in human history. And the beneficiaries were not only big industrialized countries but also their trading partners.

Read MoreThe “Extreme Poverty Problem”: Hans Rosling Explodes Yet Another Myth

A Brief Answer to a Surprise Question: The 3 Cornerstones of Career Success

Monday, April 15, 2019

Santiago, Chile.- After my speech, I found myself surrounded by a cluster of people wanting to say hello or ask a question. This surprised me because these were employees, not readers. Like matriculated students attending classes, employees attend company-sponsored lectures under some degree of compulsion. They weren’t there because they were fans.

One of them, a young man who works as a telemarketer, surprised me doubly by asking a question so simple it seemed at once naïve and profound: “What do I have to do to be successful in my job?”

The thing is, this kid was serious. He believed I knew the answer. And I had the feeling that he was ready to put into practice whatever advice I was going to give him.

Other people were listening. The question begged for a long and complicated answer, but the moment demanded a brief and simple reply.

What to say?

As it happened, I’d been thinking and writing about a parallel question: What does it take for a social or cultural group to achieve economic independence? My answer to that question was about values and commitment.

To lift themselves out of poverty and acquire wealth, a social group (even a family) must place a high moral value on three ideas: hard work, saving, and learning. No amount of external financial aid will do the job if the group does not believe in and practice these values, for they are the moral and behavioral cornerstones of wealth creation.

So that’s what I went with: Hard work, saving, and learning.

Read MoreA Brief Answer to a Surprise Question: The 3 Cornerstones of Career Success

Two Vitally Important – and Completely Opposite – Business Management Strategies*

Thursday, April 11, 2019

Delray Beach, FL.- Managing a growing company requires competence in two business strategies: centralization and decentralization.

Decentralization, as the name implies, is the process of spreading out the business from the managing core. It is done by developing multiple profit centers, each with its own management team, in different geographical/market areas and/or with different product lines.

Decentralization is usually a strategy for growth. But it is also a good vehicle for innovation, because you have more people separately working on similar challenges and problems.

Centralization is the contrary process. When you centralize a business, you reduce the number of independent operating entities, bringing them back under the command of a central core management team. You end up with fewer people in charge of more business functions and activities.

Decentralization is generally employed when the business seems to be slowing down because of bureaucratic bottlenecks. When there is a concern that growth has stalled because too few people have too much to do.

Centralization is generally done when the business seems to have lost its bearings. When communication and production and processes are breaking down. When there is a concern that profits are being lost due to redundancies and inefficiencies.

To centralize or decentralize? It’s a  critical decision that every CEO of a growing company has to make – and remake – at various stages. And most of the time, the answer is fairly simple. When seeking innovation, decentralize. When seeking efficiency, centralize.

From the perspective of our hypothesis, centralization can be seen as an exercise in concentration and decentralization as an exercise in expansion. But, in fact, decentralizing requires a good amount of relaxation (of control) on the part of senior management. Breaking up one marketing division into four almost guarantees that protocols and practices will begin to change. Some for the better and some for the worse.

To support decentralization, you have to be “loose” enough to accept some degree of unexpected and unfortunate outcomes for the sake of longer-term growth. To support centralization, you have to believe that the policies and practices implemented by the core management team will be better than the sum total of those that had been in place before.

Most managers arrive at their jobs predisposed to one or the other strategy. Those that favor control prefer lots of meetings, memos, monitoring, and “feedback.” They feel safest when the power structure is hierarchical and everything is regulated, so they do everything in their power to keep that order.

Other managers arrive with a more flexible disposition. They are not comfortable with rigid structures and formalities. They prefer fewer meetings and memos. And they provide employees with a good deal of freedom in deciding how to do their jobs. These laidback managers feel comfortable with a more horizontal power structure.

Of course what actually happens in most growing businesses is that there is an ongoing fluctuation between these polarities, depending on external market conditions and internal goals and resources.

Thus the challenge for managers is twofold: to understand their own preferences in terms of control, and to adjust their behavior when circumstances demand that they manage otherwise.

In other words, the concentration-prone manager must understand that there will be times when he/she must make an effort to loosen things up. And the relaxation-prone manager must understand that there will be times when he/she must tighten things up.

The most effective managers can do both.

* In this series of essays, which hopes to become a book, I’m exploring an idea I’ve been thinking about for a long time: that our knowledge of the universe and our experience of living can be understood by the metaphor of pulsation – of contraction and relaxation. And that such an understanding might be helpful in succeeding in life and accepting death.

When Making Tough Business Decisions, You Can’t Depend on the Facts  

Thursday, March 21, 2019

Delray Beach, FL.- Years ago, a professor of philosophy introduced me to a concept that has helped me make business decisions time and again.

We were discussing Nietzsche, the German philosopher and poet. I knew a little bit about Nietzsche. I knew that he was anti-religion (as we say today) and believed that man could perfect himself by self-assertion. But it was what he had said about the decision-making process that intrigued me. Specifically, according to the professor, he predicted that assumptions made from secondary knowledge (what we learn from studies, books, newspaper accounts, etc.) as opposed to primary knowledge (what we learn from experience) would one day replace experience as the basis of judgment.

I had never given much thought to the distinction between primary and secondary knowledge. But after our discussion, I realized that many of the opinions that I held were, indeed, based on information that I had read, not on personal experience. And the more I thought about it, the more I have become convinced that Nietzsche was right.

In fact, I think it’s fair to say that Nietzsche’s prediction has already come true. Because it seems that these days, most people, most of the time, are making important decisions based more on secondary knowledge (Nietzsche called it wissen) than on knowledge from personal experience (erfahrung).

It’s understandable.

There is so just much information out there. Every day, we are bombarded with facts and figures from the media. And it’s incredibly easy to research just about any subject on the internet. Often, what we learn confirms our own experiences. Sometimes, it contradicts them. But here’s the problem. Instead of using our experience to judge the validity of all of that secondary information, we tend to judge the validity of our own experience by what we’re reading and hearing.

 In business, for example, I know from experience that when I invest in something that I know little or nothing about, I lose money. Yet, I can talk myself into making such an investment if I am shown a business plan that is loaded with impressive numbers. (Even though I know, also from experience, that numbers can be rigged to support almost anything.)

In fact, when I think about bad decisions I’ve made in business, it was most often because I allowed myself to favor the wissen (the outside knowledge) over the erfahrung (the knowledge in my bones).

Read MoreWhen Making Tough Business Decisions, You Can’t Depend on the Facts  

So You Want to Be Happy?

Sunday, March 17, 2019

Delray Beach, FL.- Start by doing this: Spend less time thinking.

“Homo sapiens” means thinking human. But for the great majority of our species’ development, we did very little serious thinking.  Most of our brain activity was directed toward survival.

You might think that a lifetime spent searching for grub worms and running from predators would be an unhappy one. The evidence, according to Yuval Arrari, writing in Sapiens: A Brief History of Humanity, suggests otherwise. Prehistoric man seems to have led a reasonably happy life, in part because he had very little time for thinking.

I remember reading about an experiment in England, where a group of volunteers went off to the woods and lived prehistorically. Their lives were very simple. They spent three or four hours a day hunting and gathering, and 20 to 21 hours sleeping. And what did these intrepid volunteers have to say about their experience? They said it was the happiest time of their lives!

There have been several significant studies on happiness in recent times, including the famous Harvard Study that spanned more than 70 years. Most of them came to the same conclusions:

* If you ask young people what they think will make them happy, they will name the usual suspects – wealth, fame success, etc.

* But when you study the actual data, it turns out that happiness comes from experiences rather than things and relationships rather than accomplishments.

These sorts of studies dovetail with the teachings of the Stoics and Transcendentalists and Buddhists. Their view was that wellbeing comes from living “in the moment” and not fretting about the future or the past.

It takes a fair amount of thinking about oneself to achieve success, acquire wealth, and/or become famous (when fame is the goal). But achieving happiness in life is mostly the result of caring about others and living in the moment, which is almost impossible to do when your mind is active with thought.

As someone that spends 98% of his waking day thinking about anything and everything other than what I’m actually doing, I could be a poster person for the deleterious effects of living in one’s head. My bouts of anxiety come, at least in part, from thinking frantically about the future. And dredging up thoughts of the past only exacerbates my bouts of depression.

I believe in the positive effects of meditation. The practice is meant to bring the mind away from transient thought and toward a more grounded state of consciousness – one in which your essential self somehow stops paying attention to the thoughts and feelings that race through the mind and focuses in on the present moment, in all its wonderfulness. But perhaps because I’ve spent so much time thinking, I find it difficult, if not impossible, to meditate in any serious way.

I don’t seem to have much trouble thinking and caring about others. I don’t do it naturally, but I can do it. And when I do it, my mood improves – sometimes into the happiness zone.

But it’s not just caring about others that stimulates a sense of wellbeing. I find contentment, too, whenever I’m working well on something I care about. A building project, for example, or landscaping my botanical garden or a writing a book or playing the French horn.

So what does that all mean?

Read MoreSo You Want to Be Happy?

Would You Like to Start a Serious Art Collection?

Friday, March 15, 2019

Delray Beach, FL.- “What do you think of this painting?” he asked me. “They want $250,000 for it.”

SP is a former protégé and current partner. He’s had a very successful career. He’s got a beautiful house and lots of expensive toys, but he doesn’t spend money foolishly. So it didn’t surprise me that if he was going to venture into buying fine art, he’d ask one of the few people he knew that had some experience.

The image was well done but conventional. I was only vaguely familiar with the artist. But since I knew the broker, I was pretty sure the piece was being offered at an aggressive price. So I looked up the recent history of the artist’s pieces sold at auction and saw that the painting my colleague was interested in was, indeed, seriously overpriced. I told him so. He didn’t buy it.

He sent me a note, expressing consternation at the process of buying investment-grade art. “It’s not like stocks and bonds,” he observed. “There is no transparency.”

That is partly true. If you are buying art from a dealer, you may find yourself relying exclusively on the information he provides. This gives an unscrupulous dealer, knowing how little most buyers know about art, a big advantage. Art brokers, though, usually won’t lie. It could get them in trouble. But they can and will select the facts they want to convey and omit those they would rather not divulge.

When I first went into the art business in 1989, the retail buyer was greatly dependent on the honesty and integrity of his dealer. Although there were records of auction sales, they were published in large bound volumes months after the auctions took place. Hardly anyone but art dealers and auctioneers even knew they existed.

I used those books then and they taught me a lot. Among other things, they taught me that once you understood some basic facts about valuing art, researching past sales for a particular artist could give you a very good idea of what a piece from that artist was worth.

Today, you can find just about everything you need to know about prices online. Which means you can figure out whether a particular piece is worth the asking price by doing your own research.

If you have read any of my essays on art collecting, you know that my first rule is to start small. And by small, I mean two things:

Read MoreWould You Like to Start a Serious Art Collection?

Lessons From What I Learned Losing a Million Dollars

Wednesday, March 13, 2019

Part 2: Misunderstanding “Investing”

Delray Beach, FL.- As a student of literature in college, I came into my adulthood knowing little to nothing about investing. That did not deter me from making money, but it did diminish my ability to convert that growing income into wealth.

As my income went up, so too did my spending. And of the spending I did, the most foolish were my “investments.”

I put quotes around that word to highlight a point: My ignorance of investing was profound. In fact, I could not even define the term. I might have attempted by saying something about putting money into stocks and bonds, but that sort of vagueness is not helpful. In fact, it is one reason most “investors” fail to grow their wealth faster than inflation.

When you think of investing as something as nebulous as putting money into stocks and bonds  (or commodities or futures or real estate or gold mines), you lose the opportunity to examine the difference between different modalities of “investing” – such as trading, speculating, betting, and gambling.

And when you don’t make these distinctions, you can justify foolish behavior by giving it a name it doesn’t merit: i.e., investing.

Wealth Building vs. Investing

Let’s start with this. There is a difference between accumulating wealth and investing.

Accumulating wealth is a good and sensible objective. But investing? It’s an activity – something you do with your money – to achieve the goal of accumulating wealth. Whether it can achieve that purpose depends heavily on what you are actually doing, which depends on your definition of investing.

Examples: my art collection, my botanical garden, my vintage cars, etc.

If you ask me to part with these treasured things, I will refuse. If you point out that they are “just sitting there,” costing me money (insurance/storage/maintenance), I will point out that their values have appreciated over the years and will likely continue to do so. In other words, they are investments.

I’ve been aware of the falseness of this posturing for many years. And I’ve written about it many times, pointing out that the problem with the word “investing” as generally used (especially by the financial industry) is that it puts a sort of seal of approval on a wide range of financial activities – from the cautious to the prudent to the speculative to the downright reckless.

So how do we distinguish?

Read MoreLessons From What I Learned Losing a Million Dollars

Lessons From What I Learned Losing a Million Dollars

Monday, March 11, 2019

Part 1: The One Secret That All Successful Money Makers Know and Use

Delray Beach, FL.- It was the only one left in my audiobook library. I didn’t remember buying it. I’d never heard of it or its authors (Jim Paul and Brendan Moynihan). And the title wasn’t a turn on: What I Learned Losing a Million Dollars.

I mean, really. There are probably millions of businesspeople and investors that could make such a claim. You lost a mere million? Don’t bore me. I want to hear from someone that’s lost a hundred million!

But it was, as I said, the only audiobook in my library. So I began listening to it… and was drawn in.

The first third was a breezy memoir of Jim Paul’s early life, education, and how he rather accidentally became a commodities trader, earning big bucks and living large. Then there was the downfall – a pretty exciting account of going broke and into debt fast.

I almost shut it off there, thinking I’d heard the best part, but I’m glad I didn’t. What followed was an analysis of not just Paul’s pride-bound bad thinking but of the mistakes all investors make sometimes (and some investors make all the time), as well as other insights that rang true.

Paul’s account of his experience is, in part, the story of a smart person that cared more about being right than making money. It is also a portrait of the mortal sins of wealth building: arrogance, ignorance, and greed.

In reviewing the mistakes that led to his million-dollar loss, Paul first examines his trading strategy. Was the strategy wrong? Should he have been using another one?

Then he takes you through a quick review of the strategies of some of the most successful investors of modern times. He demonstrates that each of those strategies was different, and all of them had rules that forbade practices that were followed in the others.

The rules that worked for George Soros, for example, are very different than the rules that worked for Warren Buffett. John Templeton’s strategy worked well for him, but would have not worked for Peter Lynch, and vice versa.

Paul concludes, convincingly, that there is no such thing as a successful trading strategy, and that the search for a winning strategy is a waste of time and money. Instead, he argues that if there is a secret behind the fortunes of Buffett and Soros and the like, it must be something they all did. And when he looked for it, he found it.

The single protocol followed by all of them, regardless of their profit strategies – was about limiting losses.

Paul doesn’t argue that any profit strategy can work. His point is that any profit strategy that isn’t coupled with a loss-prevention strategy is doomed to fail.

I thought about this. And it is true of my experience. Nearly every time I put money into an enterprise without some sort of stop-loss mechanism, I ended up losing most or all of it. And if I look at how I acquired and built wealth over the last 40 years, the strategies that worked all had serious downside protection.

When I consider an investment these days, I spend no more than a moment thinking about the upside potential. I’ve been doing business and investing long enough to know that dwelling on how much money you can make reduces your investment intelligence by about 98%. So when someone pitches an idea to me, I focus my thinking almost entirely on how I can limit my losses if things don’t work out.

There are three ways that I limit my losses:

  1. I use stoplosses– actual stop losses for stocks or equivalencies for other assets – to close out my position at a predetermined point if the investment goes south and hits my “get-out-now” number.
  2. I use positionsizing to determine how much I will invest in any given project. This is very powerful, perhaps the most powerful technique for safeguarding and developing wealth. I have a predetermined dollar figure that I will invest in businesses about which I know little, and another for investments about which I know a lot. When you have a modest net worth, that figure might be 5% of it. As your wealth grows, you reduce the percentage. These days, I never invest more than 1% of my net worth in any single investment or business deal.
  3. I diversify. My investment portfolio consists of real estate (mostly income-producing but some land banking), “Legacy” stocks (large, well-capitalized, dividend-bearing stocks), super-secure bonds (if the yields are decent), private lending (for secured assets), business ventures, options (selling puts on Legacy stocks), and cash.

Read MoreLessons From What I Learned Losing a Million Dollars

Ego Is Reptilian*

Saturday, March 9, 2019

Delray Beach, FL- The young woman sitting next to you on the plane is on the phone. She is not whispering. She doesn’t care if you hear her. She says, “Sure, I can go to the gym and work out like crazy and become a ripped bitch. But what does that get me? If you don’t love me for myself, fuck you!”

You smile. You sort of know how she feels. You get an idea about how you will “improve” yourself. Then you get to work on it, but it’s an uphill battle. At some point, you skip a workout or a class or eat an extra slice of pizza and your willpower disappears. You lose ground. You feel anger and shame. And then you decide the problem isn’t you. It’s the ambition.

You know – because you’re not a kid any more – that achieving that goal wasn’t going to give you the good feelings you were seeking. Wellbeing is not about striving for what you don’t have but in being content with what you do have.

All the sages knew that. Socrates, you recall, said, “He who is not contented with what he has would not be contended with what he doesn’t but would like to have.”

Screw those ambitions! They are false roads built by human ego. The better you will come from resisting them, from letting them go. You are going to be happy with how you are – fat or poor or stupid. What does it matter? You’re going to be a Stoic. Or a Transcendentalist. Or a Buddhist!

And there is good reason to support this view. Advocates of acceptance (i.e., opponents of ambition) are correct in pointing out the futility of chasing material goals. They advise letting go of such ephemeral desires, and of desire itself, and seeking spiritual transformation, The true path is a state of consciousness that exists in the here and now. A mindset that dwells neither in the past (depression) or in the future (anxiety) but in the present. “When you realize there is nothing lacking,” Lao Tzu says, “then the whole world belongs to you.”

But this is only half true, for we cannot escape our dual impulses. Even if we do become Stoics or Transcendentalists or Buddhists and commit ourselves to acceptance, we will encounter moments when we feel challenged or threatened or inspired. And when those moments arrive, we react instinctively. Our egos assert themselves. We contract.

This contracting impulse is located, in Freudian terms, in the ego. The ego, in biological terms, resides in two locations: the limbic and the reptilian brain. The limbic brain processes emotional responses.  The reptilian brain processes instinctual responses.

A life philosophy that advocates the elimination of limbic and reptilian responses is unrealistic. It is impossible to exterminate emotional responses completely and impossible to eliminate reptilian impulses at all.

One can make impressive progress refining thoughts and even training emotional responses. But one cannot change – not even a bit – one’s reptilian instincts.

Read MoreEgo Is Reptilian*