I often wonder why people who have so much money already gamble like that to get even more money. If I had roughly a million dollars I'd put it in an index fund and live a happy live without having to worry about work or money. Yet people like that guy have a hundred times more money than I'd need for the rest of my life and risk it all to become even richer.
First, it is a game. The one with largest number "wins". Second, people do not see how much more wealthy they are than most others. They see how much less wealthy they are to the ones having bigger jets and charity programs and whatnot.
Yep. Hedonic treadmill. It’s a nice theory/observation to summarize this behavior. It is amusing to note despite having more, less, or almost zero dollars, it doesn’t seem to make folks much happier. Hmm.
"almost zero" is exaggerating. When humans worry about basic needs like food and shelter this makes them notably unhappy. In many countries even a basic full-time job might not alleviate poverty enough to take you up to this line where your basic needs are met and the Hedonic treadmill kicks in.
And in the Industrialised North lots of people actually live _below_ zero, with consumer debt at unprecedented levels.
First, he likely got that wealthy by taking aggressive positions. Meaning he is comfortable with it.
Second (and this is obviously an extreme example). Say I have $50m. I borrow another $25m. I put all of that money in a single concentrated position, that is very likely to go up (i.e. Amazon). It doubles in a year. Now you made $75m (excluding some interest payments).
Obviously, there is a limit as to how much money a single individual can have - It doesn't need to be written into law. Wealthy individuals are a flaw of capitalism and the system will always keep trying to get rid of them.
If someone has too much money, working people will stop trying to produce goods and services for each other; instead, they'll focus all their attention and energy on trying to extract money from the rich person.
That's kind of what happened with the tech industry in the past few years; nobody is really trying to provide value to regular people (that's just a pretext); instead, everyone is trying to extract value from rich investors; that's where the money is.
If you want to make money, why bother go after regular people who don't have much? Our whole economy today is built around fooling rich people out of their capital.
Which is easier; 1. To convince 100K working class people to give you $10 each in exchange for 100K units of goods/services or 2. To convince 1 wealthy person to give you $1 million in exchange for a 4-slide pitch deck and a speech that you put together the night before.
You are describing a self regulating system. In your opinion the problem is that some people have too much money, so why do you see as a problem the fact that the system is actively working to transfer this money elsewhere?
> the fact that the system is actively working to transfer this money elsewhere?
A one-guy example vs. "the system" - which overall clearly works towards concentrating wealth, not towards distributing it. https://www.economist.com/finance-and-economics/2014/11/06/f...
Or do you really see "the system" (especially when left alone) work towards spreading wealth away from the rich? Even just away from the concrete person who are rich right now, to new people, even if the overall distribution remained the same. As far as I know not even the second option is happening, being rich seems to be very much "genetic" (in quotes, of course), to different degrees in different countries but even in the best of cases a clear trend.
In any case, I'm a little confused about who meant to say what and whom I should be responding to since it was the OP who wrote
> Wealthy individuals are a flaw of capitalism and the system will always keep trying to get rid of them.
EDIT^2: Before anyone else mentions it, I find discussions such as these silly: https://www.pbs.org/newshour/economy/is-increasing-income-in...
To me this is a discussion about how wet water really is. With tens of millions uninsured, articles like this: https://www.theguardian.com/world/2017/dec/01/un-extreme-pov... -- I think discussions like the linked one are like discussing if there really is more or less water coming through the leak in the roof (or the ship's hull). Overall, over longer periods, the problem does not seem to be going away one bit. Whether it gets half a percentage point worse or better depending on the measurement period and the measures chosen, so what. The main point remains.
People with that plan don't usually make that first $1M. It's the driven ambitious people who make that $1M fast and keep on going. Folks who think like you are too conservative to make sizable amount in short time, because they are too risk averse. In other words, what made him the first $1M also made him lose the last $1M.
Consider a gambler. He walks into a casino and has a good run at the tables. His 1000 turns into 10000. The success was so easy; surely it can be done again.
A funny thing happens. You're up 6000 now, but 6000 is a lot less than the 10000 from earlier. Now 6000 (6x your starting money) _seems_ like a fraction of what you _could_ win.
It's the human adaptability problem. It's also an ego problem. The next success should be bigger than the last one, or it's not exciting. And since you were so good that you 10x-d your money earlier, surely you can something-x your money again.
Now consider the conservative (limited?) mind. You walk in with 1000. You win 150. You go home, because you've gained 15%!!! (You never 10x your money. You never get a million.)
So that's the problem. The mind that knows when to stop stops so early that it never achieves something extra-ordinary.
Meanwhile I've done the math and 2 million USD would let me live my current comfortable middle class lifestyle (single and childless) indefinitely here in Montreal with excessively conservative financial assumptions, without earning income, and without drawing down the principal. That budget includes more than mere necessities, like vacations and tech purchases.
That's not my current net worth, to be sure, nor would I necessarily stop earning income if it were.
It's just a nice example to highlight of a world-class city that isn't that expensive all things considered.
It is considerably harder to make 2 million in Montreal than say London/NY/SF etc, with the high cost of living in these locations it is easier to spend as you point out. If you already had money the perhaps settling in a Montreal is a good idea, but to make that kind of money you will need to choose to live in a place where money is easier to make.
In my case, I have spent most of my life so far in places like those you listed and am a new arrival in Montreal.
But tech workers native to Montreal who consult remotely for SF/NYC tech companies or VCs after spending some years doing a US work stint for networking purposes can definitely build up savings rapidly. I know one such example personally.
How long did you assume you'd be living and how did you assume to store this value? Because if left on it's own, just 30 years from now these $2M will likely have much lower purchasing power (even if stored on savings account and even no black swan financial event happens during that time).
4% draw down on a stock index fund will likely pay 80k anually adjusted for inflation indefinitely.
At least, this is based on historic stock data However, I was taught in undergrad econ, that this 4% return above inflation is considered the risk premium, over what a CD would get you. So there is a real risk of losing everything. Which means hedging is a good idea, some of the money to buy a reasonable house, some %age of rest in bond fund, and quarterly rebalancing can go a long way to preserve a lot of wealth in a black swan event.
Yeah, it's more like 2M will let you live confortable indefinitely in 90% of future scenarios. So there is still an y% chance you might have to go back to work again.
Even if I get to that level of net worth - which, as I noted, I'm not at yet - I'd probably still have some earned income. I could just care much less about how much and could be a lot choosier about what work I want.
But if you had $2 mill to invest you wouldn't have it all in one concentrated index fund - you would have at least 50% in wealth preservation funds and diversified investments commercial property, overseas funds/trusts etc.
I have less that 10% of that in my investment portfolio and don't actually have a FTSE 100 tracker I have around 20 investment trusts and individual shares.
Yeah, needs to be invested, I agree. But can be done without too much risk. This does not involve drawing down principal, in other words it lasts truly indefinitely.
A million dollars at a conservative 1.5% after taxes and inflation would pay for all my current expenses. If I didn't have to work I'd likely move somewhere with lower cost of living.
If you were debt free with 1 million USD in cash and mutual funds would you choose to live in a major city? So many major cities worldwide have high levels of pollution which has a deletirious effect on both physical health and mental performance. You trade that off against having access to the things big cities offer (services, entertainment, etc). It might seem worth the tradeoff if you are single and don't want to own anything. But making that choice for wife and kid seems tough.
>>> If you were debt free with 1 million USD in cash and mutual funds would you choose to live in a major city?
Like everyone else, I don't get to choose.
Do you realize that people have roots, family, friends? Do you realize that border and immigration control is a thing? It's disingenuous to consider changing city as a trivial option.
When someone has $1M, it's because he is in a location that made it possible in the first place.
I am aware of all those things, because I did it. So I know it is not trivial; I'm not being disingenuous at all. I made the trade offs for my family. I am just wondering what other people's thoughts are.
FWIW that apartment in Oslo probably costs around $5M by itself. He also has several other properties around the country in the same price range. I would not be surprised if he owns real estate worth $20M+. Official numbers say close to $100M taxable income in 2017.
And still, personal bankruptcy is waiting for him now. I'm curious what kind of impairment (none? or tilt or insomnia or worse?) lead him to be this reckless, that he could lose more than what he invested.
It's leveraged. The gain or loss is a multiple of the difference, not necessarily linked to the initial sum.
He was probably betting a few millions on what appeared to be a relatively safe trade, then a rare succession of events lead to a 1:100 ratio in the other way.
That's not an excuse for engaging in a trade where one can lose that much. Both the investor and market should ensure there is an upper limit for what can be lost. The market to protect itself (since it or the the insurance mechanism lost > $100 million in this case).
You can't set an upper limit for what can be lost unless you force other traders to buy what a short seller is covering. Non-deliverable futures markets with no shorts are not possible, and it isn't practical to make every futures contract deliverable.
The price of electricity is only going to go so high, though. Without leverage, it's vastly harder to lose all your money on a short, because the asset has to double in price. In this case, the spread peaked at about 38:56. Without leverage he'd be down 10 or 20 percent.
You're being extremely dishonest with yourself if you think you won't blow through a significant portion of that million dollars if you were to get it. Lifestyle inflation is a force of nature my friend
My lifestyle hasn't really changed in the last ten years, while my income has increased by a factor of six. I'm pretty sure I wouldn't blow through the money, and I think I know myself better than you know me.
Aside from the risk of theft/fire etc, you're also running the risk of rampant inflation. You should have a variety of investments in different economies. If $bad_politician gets in and turns the US dollar into the Bolivar, your 10m will be worthless. If you've got 20% invested in other countries you're running a much smaller risk, likewise with investments in other assets
Don't put all your eggs in one basket, don't put all your files on one raid, and don't put all your assets under the mattress.
It gives you a great safety net. It lets you speculate in the great game. 9 in 10 ideas will fail, but that's ok as you won't end on the streets.
Those without the safety net have far more to risk, so are far less likely to succeed. For every richard Branson who starts up a company from the back of their van there's 9 who do that and fail, and are currently on minimum wage stacking shelves. For every millionaire actor there's a thousand waiting tables. For every musician there's 100 teachers. Very little to do with how good they are, all to do with the lucky break.
Hell where your parents live makes a massive difference. When you start out with a job in the big city, you either live rent free with parents and thus save £10-15k a year, or you put your entire wage to paying bills.
After 5 years you have 70k, enough for a confortable deposit on a house, or a few years of speculation, or investments that will grow to half a million by retirement.
If your parents don't live close to where you start your career you're far more hand to mouth.
Great for the long run, but they also have bad years. Global index funds also gave net 0% in the interval 2006 to 2012, since the financial crisis hit there.
Weighed up by good years giving far more than 7%, but one needs to have time.
You have to consider that not that few expenses can wait. Think of the new paint on the walls, or the new floor on the staircase. Or the new table, etc.
Worst case you'll be stuck in a minimum-wage like lifestyle. Best case you're on your yacht in the Caribbean.
I think it's the same personality-traits that made him this money that also made him lose it. Most people wouldn't do these "gambles", and thus wouldn't even ever be in a position to actually lose so much money.
If you're like this guy, and in your late 40s with $250m in the bank, you're going to be hard pushed to ever spend it. Betting it all on red seems ridiculous. Surely better to enjoy the benefits of it and leave his family set for generations. Keep $20m for silly bets, and cover your trades. :)
Makes me think of Elon Musk putting the majority of his PayPal sale (>$100M) into new companies, which hired people and produced something of value that many are now benefiting from. One of which was motivated in part by eliminating carbon emissions.
Feels somehow ironic - this guy losing so much because surprise weather patterns filled up Northern Europe hydroelectric reservoirs, coupled with German carbon tax.
Perhaps karma builds up when you want to hoard and keep living with minimal risk.
Because it seems like you'll never need all that money to live, so you may as well invest/gamble it. You think you'll never risk your lifestyle as long as you only play with a certain pot, but then something like this happens.
My pet theory is that a lot of people who come into such money do so suddenly, and they don't appreciate the nature of the risk involved, on the upside or the downside. Huge wins are due to their genius, huge losses due to the market misbehaving.
Or as my father keeps reminding me, sell/stash half of it.
If you can afford to gamble half go for it if you want to, but if it goes all tits up you still can live off half of $X which in this case is a lot $$$!
You know what I would do if I had a million dollars? I would invest half of it in various mutual funds and take the other half over to my friend Asadulah who works in securities and…
