Cover

 
 
 
HOW TO BECOME WEALTHY

Low Risk Strategies to Start a Business and Build Wealth


 
 
 
 
Charles Spender
 
 
 
 SECOND (UPDATED) EDITION
 December 2018; ISBN: 9781311800916
 Copyright © 2013 Charles Spender


 
 Table of Contents

 

Chapter 1: Introduction
 
Chapter 2: Investing in a lucky stock
 
 Chapter 3: Investing in your own startup business
 
 Chapter 4: Trading of financial instruments
 
Chapter 5: Prepackaged profit systems
 
Chapter 6: The perfect scam
 
Chapter 7: Gambling
 
Chapter 8: Online poker
 
Chapter 9: Safe investments
 
Chapter 10: The role of hard work
 
Chapter 11: The role of luck
 
Literary sources

 

Chapter 1: Introduction

The latest version of this ebook (December 2018 or later) can be downloaded in a high-quality FB2, MOBI, or EPUB format here, here or here.

It would be fair to say that wealth is the level of net worth that would allow a person to not work and to enjoy a luxurious lifestyle for many decades. IRS statistics tells us that only approximately 0.02% of the population can boast this level of net worth, which would be $20 million or more in the United States in the year 2007 (compared to the average net worth of about $200,000 or median net worth of ~100,000 dollars).

Because of inflation and the constantly growing average standard of living, wealth cannot be reliably and permanently defined in dollar terms or in terms of the number of cars, houses, size of houses, the number of refrigerators, and other assets. There are only two enduring characteristics of being wealthy: {1}relativity, that is, owning hundreds of times more stuff or money than average people do, regardless of what this average value is, and {2}exclusivity, i.e., being a part of a tiny fraction of the population (for example, the top 0.02%).

A basic understanding of mathematics makes it clear that there is no way in hell that the majority of the population (say 51%) can become wealthy. This is because {1} the majority of people cannot have hundreds of times more money than average people do and {2} the majority of people cannot be in the top 0.02% of either net worth or income. The majority consists of average people. Fifty one percent cannot be crammed into the top 0.02%. Therefore, within any fiscal year, any given person roughly has a one-in-5000 chance of becoming wealthy and a 99.98% chance of not becoming wealthy.

To fully grasp this argument, it is also helpful to look at the flow of cash or income. Net worth can increase if a person receives more money from other people than he or she transfers to other people (in the form of purchases, gifts, wages, sales, awards, inheritance, and so forth). The money supply and the amount of material wealth in the economy are limited within any given fiscal year (plus/minus several percentage points). Accordingly, the majority of people cannot receive a hundred times more money than they spend. Getting rich means that a person’s income is hundreds of times greater than the expenses. This situation can be true only for a tiny minority of the population (~0.02%) and cannot happen to the majority of people.

This ebook explains why wealth requires luck and why the only way to get rich is to get lucky. Because luck is beyond anyone’s control, 99.98% of people won’t become wealthy no matter how hard they try. Scientific evidence shows that wealth and entrepreneurship do not require either hard work or high intelligence.

Chapters that follow explain why it’s a losing proposition to invest your savings in the following: a) stocks, b) your own startup business, c) trading of financial instruments, d) prepackaged profit systems, e) the lottery and other pure gambling activities, and f) online poker. In addition, this text discusses some low-risk approaches to starting a business and to building wealth, but this information does not guarantee anything thanks to Lady Luck. Also, any publicly available information, if it is useful, spreads quickly and provides no special advantage to any one person. Nonetheless, if you have a good job, it is realistic to become financially independent and well-to-do at the retirement age.

 

Chapter 2: Investing in a lucky stock

SUMMARY. Financial future of any one corporation is unpredictable and the price of its stock is even less predictable because it depends on many factors: future changes in the management of the company, accidents, natural disasters, political changes, and future changes in the marketplace, such as new technologies, consumer preferences, new competitors, and changes in investor preferences. For this reason investing in one or several stocks is risky. A better strategy is investing in hundreds and thousands of corporations simultaneously by purchasing shares of a stock index fund.

 

 

Investing all your savings in one or several stocks is a bad idea because there are too many variables that the investor cannot predict, for instance,

 

1.    future changes in the management of the company

2.    accidents

3.    natural disasters

4.    political changes

5.    future changes in the marketplace, such as

o   new technologies

o   consumer preferences

o   new competitors

o   changes in investor preferences (affect stock price)

 

Investing in one or several stocks is similar to gambling because luck plays a major role in the successful outcome of this activity. It is understandable that these investors are trying to outperform the market average (return on investment of about 10% per year). Yet it is highly unlikely that they will pick a winning stock and keep holding and buying it as their sole investment for decades. Past performance of a stock is not a guarantee of future results. They are trying to win a lottery, but instead, there is a high probability that this investing strategy will perform worse than the market average in the long run. There is also a small risk that the company in question will go bankrupt.

A number of studies have shown that the absolute majority of fund managers (who are not amateurs, by the way) cannot outperform the market average in the long run. That is, they cannot provide their clients with a long-term return on investment better than 10% per year. For example, a recent research article showed that only about 0.6% of mutual fund managers can grow your money faster than the market average. The article examined a period of 30 years and it took into account fees and expenses. People who are not professional investors are even less likely to pick a stock or a portfolio that will outperform the 10% per year. If the great majority of professional investors cannot outperform a broad stock index, then it makes sense to invest in the broad stock index (a fund that holds hundreds of different stocks) and to hold it for decades. It also makes sense to avoid picking and choosing stocks and actively managing the portfolio. Thus, diversification, or simultaneous investing in a large number of stocks, is key to successful and safe investing. Warren Buffett, arguably the best investor in the world, holds a well-diversified portfolio of stocks. A recent study showed that his portfolio had outperformed the average by about 14% per year, based on data from 1976 to 2006. Nonetheless, if copying Warren Buffett’s investing approach were easy, then there would be a far higher percentage of fund managers who outperform the stock market average.

The notion that it is easy to outperform the average market return is self-contradictory and fallacious at its core. The majority of people cannot be better than average in principle because the average reflects performance of the majority of people. Although Warren Buffett has often revealed his basic investing principles, the devil is in the details. It is also possible that he has some special talents that 99.4% of fund managers do not have.

I am not a certified financial advisor, but you can do what Warren Buffett says unskilled investors can do: put your money in an index fund and hold it there forever. This is the precise quote: “By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.” This investing approach is going to be successful if you are patient and going to hold this investment for decades, ignoring year-to-year fluctuations of the value of your portfolio. Don’t check on your portfolio every month or even every year. You shouldn’t be afraid of a stock market crash because it will let you buy the same index at a cheaper price. This principle implies that you are going to save and invest about the same amount of money each year. After several decades, your gains are likely to exceed your temporary losses with a vengeance. You can ignore financial advisers, hedge funds, and all financial literature and financial TV programs. The probability that you will find an outstanding fund manager and stay with him/her in the long run is negligible. If you decide to invest in Warren Buffett’s company today, you shouldn’t expect it to grow at the same rate as it did in the past 40 years. Today, Berkshire Hathaway is too large and therefore unlikely to deliver a higher than average return on investment.

When stock indexes do go up, they do not go up in a straight line, and there are substantial year-to-year fluctuations. If you are uncomfortable with the fluctuations of stock prices, you can invest in government bonds, such as federal, state, or municipal bonds. State and municipal bonds yield higher income than federal bonds in the United States if you take into account their tax-exempt status. Interest income on federal bonds is not tax exempt, whereas that on state and municipal bonds is tax-exempt, with rare exceptions.

Research shows that investment in broad stock indexes has outperformed investment in government bonds in the United States during the last half a century. It is likely that this trend will hold true for the next half a century, although these things are difficult to predict with certainty. The example of the Japanese stock market (Nikkei 225) suggests that in rare situations, bonds can outperform stocks over a period of two or three decades. A small return on investment is better than a zero or negative return. To safeguard against extended periods of bad performance of a stock index you can invest in stock indexes of many countries simultaneously. This global diversification will not eliminate year-to-year fluctuations, but is likely to minimize the risk of negative returns over a period of several decades, i.e., what happened to the Nikkei 225 index. In the United States, the global diversification approach is available, for example, at the Vanguard Total World Stock Index Fund. At the time of this writing, the fund holds 3,736 stocks in 47 countries, and the minimum share that you can buy is $3,000 ($2,000 for education savings accounts).

 

Chapter 3: Investing in your own startup business

SUMMARY. Most startup businesses fail and the chance that an average person will become self-employed successfully is less than one-eighth. IQ scores predict job performance in various occupations, but there is no correlation between IQ and self-employment. These data suggest that starting a successful business requires either a lucky guess (dumb luck) or mental abilities unrelated to IQ, such as an entrepreneurial talent. The latter explanation also involves luck because a person can neither learn nor earn a talent. (A talent is a biological property of the brain that gives a person a competitive advantage over other people.) Success of a startup business depends on unpredictable and unquantifiable variables. For example, the necessary talents of an aspiring entrepreneur are impossible to measure, whereas the tastes and preferences of consumers are hard to predict. There are some ways to improve the chances of success. The sector of the economy that includes agriculture, fishing, hunting, and forestry offers high rates of successful self-employment and is a smart choice if you wish to become your own boss. People with advanced academic degrees (PhD, MD, JD, and others) are twice as likely to be self-employed as an average person. There is a good correlation between probability of success of a startup and age of the founder. Nonetheless, none of the above guarantees entrepreneurial success. Please don’t fall for this popular scam: give-me-a-little-money-and-I-will-show-you-how-to-start-a-business. Luck cannot be learned, and it is impossible to buy a successful business for the price of a book or even for the price of an “advanced seminar” at $3,000. Under the current economic system, most people cannot become self-employed entrepreneurs but can become financially independent at the retirement age.

 

 

Although it is a bad idea to invest all your savings in a single stock, it is even worse to invest all your money in a startup company. Companies with publicly traded shares of stock are established businesses with significant sales and usually with substantial profits. In contrast, startup companies often have no sales and no profits to speak of. Therefore, their future is more uncertain than that of a publicly traded company. It is not a good idea to use your savings to start your own business because most startups cease to exist after several years. It may be a good idea to invest in a portfolio consisting of many startups, but investing all your money in a single startup is too risky.

There is no consensus on how we should calculate survival of startup companies: there is some controversy in this field. In the U.S., one half of startup companies disappear within the first five years of operation. (These data are based on one of the latest reports from the U.S. Department of Commerce and Bureau of the Census, Business Dynamics Statistics.) These data suggest that about 70% of startups go under within 10 years. Earlier research indicates that about 60% of startup companies disappear after 6 years of operation. The highest discontinuation rates are associated with low startup funds, absence of employees, and young age of the founder. Bankruptcy represents a small percentage of the closures; most of them disappear because they require too much effort while providing too little income. This situation causes the owners to liquidate the company at a loss or to sell it to a larger company. According to a U.S. Census Bureau survey in the 1990s, seventy percent of the owners whose startup business ceased to exist admit that the venture was unsuccessful.

Polls suggest that the majority of current employees would prefer to be self-employed rather than work for hire. Yet only about 8% of the employed population in the U.S. are self-employed. Very small companies, fewer than 20 employees, employ about 16% of all private sector workers. Tiny companies, four people or fewer, the kind that you are likely to start, account for 5% of all private sector employees. (The U.S. Small Business Administration defines the term small business as a company with fewer than 500 employees.) About two thirds of all private sector workers in the U.S. work for enterprises that have 100 or more employees. Conversely, about two thirds of all private sector employees work for companies that have 5,000 or fewer people on the payroll. These observations suggest that the current economic system is most favorable for companies that have between 100 and 5000 people on the payroll. These data also suggest that the system is unfavorable for self-employment and for tiny companies (consisting of four people or fewer). You will have to struggle, take risks, and bend over backwards in order to become self-employed, while getting a job is much easier. Although the tiny companies constitute about 40% of all private enterprises if we count companies, they only account for about 5% of private sector employees. Thus, tiny companies represent a negligible part of the economy. The vast majority of people work either for the government or for companies that have more than 100 employees. Therefore, an aspiring entrepreneur will be shoveling sand against the tide if she starts a business under these conditions. There is a high probability that this person will not become her own boss (at least for long). The situation is similar in industrial countries other than the United States. There is one exception, which is the sector of the economy that includes agriculture, forestry, fishing, and hunting. Self-employment rates in this sector are as high as 40–44% and there is a realistic chance to become your own boss in this field.

Investing in a startup business is a gamble and you will do well to leave this sort of investing to professionals, such as venture capitalists and commercial banks. These people usually know a successful business when they see one. They also invest in many different startups such that a failure of one startup will not damage the performance of the whole portfolio of investments (this is called “diversification”). On the other hand, a typical person who starts a business is less qualified to predict success or failure of a startup. On top of that, they are putting all their eggs in one basket. There are many variables that an aspiring entrepreneur cannot assess regarding the financial future of the startup. The tastes and preferences of consumers are hard to predict, as is your own ability to satisfy those tastes better than others can. Because most startups cannot afford thorough market research (which is quite expensive), the aspiring entrepreneur cannot assess consumer tastes and preferences accurately. The talents of the aspiring entrepreneur are crucial for the success of the venture, but this variable is unquantifiable. Consequently, you could say that entrepreneurship is gambling and a successful startup is a lucky guess.

Suppose the founder of a startup business is a person with average net worth (i.e., with small starting funds). In this case, in order to survive, this business must generate an outsized return on capital during the first few years. This outsized return on investment must be around 300 to 500% a year, such that the owner can make a living and stay in business at the same time. A person can achieve this sort of profitability only by chance. (Whether or not someone has an entrepreneurial talent is also a random factor.) If every startup could generate a 300% annual return, the U.S. economy would be growing at the rate of 300% per year or even faster, instead of the usual 2–5% a year. To sum up, the odds are against the aspiring entrepreneur and it is more reasonable to invest the savings in something safer.

Realistically speaking, the majority of people who are employees (about 90% of the labor force in the U.S.) cannot become self-employed entrepreneurs. For example, imagine what would happen to the U.S. economy if all people who are working for hire quit their jobs and tried to start their own businesses. It is naive to believe that anyone can become an entrepreneur if they really want to. It is statistically impossible. Does my advice mean that I am against innovation and entrepreneurship? No, this advice means that you can try to become an entrepreneur, but it would be a good idea to obtain the seed capital from people or institutions who invest in many different startups simultaneously. These entities are also better qualified at evaluating business opportunities and risks: we are talking about venture capital firms, angel investors, and commercial banks (not subprime lenders). Obtaining seed capital from your family or friends is less instructive. These people most often are not experts and may invest money in a doomed startup.

In general, for people who do not have a self-employed parent and do not have an advanced academic degree (Ph.D., M.D., J.D., and others), there is a less than one in eight chance of successful self-employment. About 61% of employees want to be self-employed, but only 7.5% are. Many of those who are self-employed have their rich or self-employed parents to thank for this economic status. Therefore, betting all your savings or savings of your relatives on this kind of a long shot will not be a smart thing to do. You are rolling the dice and if you have to start a business, at least let the experts decide whether your venture is worth investing or not. As mentioned above, these statistics are different in the sector of the economy that includes agriculture, forestry, fishing, and hunting. The chances of successful self-employment for most people are over 5-fold higher in this field compared to other industries. Even though this sector is “low-tech,” it is a smart choice of a self-employed occupation because it offers a lower risk of failure compared to high-tech industries.

In the United States, labor force in the private sector is approximately 120 million employees. Around 600,000 new companies are born each year, and about the same number of companies disappear each year (a few percentage points fewer than the startups). Sixty one percent of those working for hire want to work for themselves, i.e., to run their own business. Looking at these numbers, fewer than 1% of those who want to be self-employed can start a business within a one-year period. If we assume that an average startup has two founders, then the figure is about 2%. The lifetime probability of starting a business is higher than this. Nonetheless, these data should give you some idea how difficult it is to start a business that provides sufficient income for the owners. If starting a small business were such an easy and profitable endeavor as some “success gurus” would have you believe, pretty soon we would have an economy that consists of single-person or two-person enterprises. The majority of people would gladly work for themselves if they could earn sufficient income. The problem is that the majority of startups either lose money or yield negligible income, whereas a small minority goes on to earn outsized returns. If you invest in a single startup business, you are playing a lottery-type game: most lottery tickets will lose money and a few lucky ones will make tons of money.

The notion that entrepreneurs are rewarded for risk is a fallacy. The majority of aspiring entrepreneurs are punished for risk and some of them end up in bankruptcy. The minority of those who succeed are rewarded for luck. The success or failure of any given startup company is difficult to predict. Hard work does not guarantee success of an entrepreneur because most entrepreneurs work excessive hours. A high IQ does not guarantee entrepreneurial success either because there is no correlation between self-employment and high IQ scores. At the same time, high IQ scores do predict better job performance in a variety of occupations.

Even if being very smart did guarantee entrepreneurial success, this advantage would still be attributable to luck because people are not born with equal mental abilities. Nonetheless, some factors can increase the odds of entrepreneurial success. Some of these factors are beyond your control and others are subject to choice. For example, having rich parents increases the probability of self-employment; having a self-employed parent increases the probability of successful self-employment by two- or three-fold. Having a doctoral degree (Ph.D., M.D., J.D., and others) will increase the chances of self-employment two-fold or more. Having an MBA degree does not increase the chances of unincorporated self-employment (head of a small business), but may increase the probability of incorporated self-employment (CEO of a corporation). Starting a business later in life will increase the chances of success. In summary, the weight of evidence suggests that entrepreneurial success has a lot to do with luck. Excessive work hours, high IQ, and risk taking will not guarantee success. Having an advanced academic degree and starting a business later in life do not guarantee but can increase the chances of entrepreneurial success.

Please don’t fall for this popular scam: give-me-a-little-money-and-I-will-show-you-how-to-start-a-business. It is impossible to buy a successful business for the price of a book or even for the price of an “advanced seminar” at $3,000. When someone tries to sell you this sort of information, these sellers fall into three categories:

 

1.    The author owns and operates a successful business and is selling information on how to start a similar but not exactly the same business. He doesn’t want you to become a competitor.

2.    The author owns and operates a successful business and is selling information on how to start exactly the same kind of business.

3.    The author doesn’t have a successful business. He is lying about owning a successful enterprise and about leading a lavish lifestyle. He hopes that selling untested ideas will generate enough passive income to let him quit his minimum-wage job.

 

In all three cases the data are untrustworthy. In the first case the author doesn’t know what he is talking about (because the devil is in the details). In the second case the author won’t tell you the truth because no one in his right mind will help a stranger to start a competing business for a few bucks (or even for several grand). The third case doesn’t need an explanation. As mentioned above, becoming an entrepreneur requires luck and it is impossible to learn how to become lucky. In the United States, a random person has about a one-in-eight chance of becoming self-employed successfully. Entrepreneurial success depends on several random factors beyond a person’s control; some of these things are unpredictable and unmeasurable. Thus, you should never ever pay anyone for advice on how to become your own boss.

Most people do well if they get a good education and find a good job. Studies show that self-employment is not necessary for happiness (although self-employed people tend to be slightly happier on average). The desire to become your own boss is a dangerous fantasy that you will do well to either forget or postpone until much later in life. Since self-employment depends on luck, you should be prepared for years and perhaps decades of poverty and loneliness if you decide to become an entrepreneur. This glass is 90% empty.

In theory, it would make sense to recommend everyone to start a business if we were living under a utopian economic system such as the following. In that economy 50% or more of the labor force are self-employed, and tiny companies, four people or fewer, employ the majority of workers in the economy. This state of affairs means that small enterprises do not have to grow in order to survive and that most people who start their own business succeed. Therefore, self-employment is a rule rather than an exception, and you have a realistic chance of becoming your own boss. This hypothetical system will have to severely restrict growth of the number of employees of private enterprises. (If you allow some people to have tens of thousands of employees, you also make it more difficult for those employees to start their own businesses.) The laws and regulations under the “self-employed system” have to encourage creation of small businesses and self-employed workers instead of creation of jobs. Large companies can often produce things at a lower cost compared to small companies. This is because large enterprises can buy various materials and services wholesale at a discount (this is known as an “economy of scale”). Economies of scale are one of the reasons that make it difficult for small businesses to compete against large corporations. The self-employed economic system will have to make economies of scale disadvantageous through some policies. This change will probably slow down technological progress and economic growth in general. My guess is that this utopian system should be motivated by individual financial independence rather than consumerism.

The advice against investing in your own startup is valid in most cases, but there are exceptions. One example is someone who has rich parents and can try many different ventures before he or she finds something that works. Another possible exception is when venture capitalists are thrilled about your business idea. There may be other rare situations when investing in your own startup company will be justified. In conclusion, you can find a lot of useful information on the website of the U.S. Small Business Administration, even if you do not live in the United States.

I am myself currently self-employed; I successfully started my high-tech business in July 2013, approximately 11 years after I decided to become my own boss. There were many failures, two near-bankruptcies, and the latest venture was successful because of pure luck. I can tell you with certainty that entrepreneurial success has nothing to do with hard work, determination, etc. I am making a comfortable living and wouldn’t want to lose my freedom. I am not even going to tell you what I do because I am afraid that competitors will reduce my income or even put me out of commission (talk about selling advice on how to start a business!).

To start a business or get rich, you have to stay single until you reach those goals, and I mean no dating either. People who cannot comfortably live alone will never be able to enjoy freedom and problem-free existence. There are a lot of stupid folks out there who will tell you that married people are more likely to be rich, and therefore you should get married as soon as possible; this is a classic fallacy. In actuality, rich people are more likely to be married because marriage is impossible without at least average income and net worth. Of course, being single does not guarantee self-employment or getting rich but is an important contributing factor like good education. The same argument is applicable to achievement in any other field, such as science or arts. Read the section on comfortable solitude in the book “How to become smarter.” Another big factor is an automobile. People living in cities can live without a car and will save tons of money, which can be used to start a business. Not to mention that the automobile is the most dangerous mode of transportation that will shorten your life, saddle you with extra medical bills because of injuries, and will possibly kill you. Unless you can afford a superheavy armored car, you are better off riding a bus or subway.

As a person who's been self-employed successfully since 2013, I have one more tip for aspiring entrepreneurs. Fictional character Doctor Gregory House liked to say “Everybody lies.” Most readers would probably nod in agreement but will continue to believe various random people as well as the government and mass media. When all the wisdom of these two short words fully sinks in, your whole worldview and interactions with other people will change dramatically. The latter will become easier and less painful, while the former will become much worse (and more realistic). In almost any interaction with other humans, it is more advantageous for the other party to lie to you than to tell you the truth. The rare exceptions are your parents and your best friends. Even when people are not lying to you, chances are they are repeating somebody else’s lies or perhaps these people drew incorrect conclusions because of fallacious thinking. Wikipedia is a bad source of information, but some articles on noncontroversial topics are useful (see the article “List of fallacies”). We live in the world of bad information, where finding the truth and good-quality information takes a lot of time and effort. If this view seems a bit extreme to you, at the very least, you need to admit that when somebody tries to sell you something, there is a 99% chance they are lying and 100% chance that they are not telling you the whole truth. You should never trust various “customer reviews” and “testimonials” because they can be easily manipulated and faked. Furthermore, some confused people write honest positive reviews of such products because they liked the salesman or the sales pitch. If you read such reviews carefully, you will see that they do not tell you anything useful about whether the product/service works. I will conclude with two quotes from Nietzsche: “Everything the State says is a lie, and everything it has it has stolen.” “All things are subject to interpretation, whichever interpretation prevails at a given time is a function of power and not truth.” [My comment: in the first quote, I would replace “everything” with “most of what.”]

 

Chapter 4: Trading of financial instruments

SUMMARY. Day trading of stocks is quick buying and selling of stocks at least several times a day. Studies show that only a small minority of people can succeed at day trading (much less than 10% of those who try). Most people lose money. There are no reliable statistics on other forms of trading. Prices of financial instruments depend on many unpredictable variables such as news events. Therefore, people who trade less frequently than day traders (several times a week or several times a month) have no chance to succeed other than through dumb luck. You shouldn’t pay anyone for teaching you how to make money by trading stocks or other instruments. For someone who can make money by trading, it makes no sense to sell this knowledge to somebody else for several bucks or even for several thousand dollars.

 

 

You must have seen advertisements on TV or on the Internet that invite you to trade stocks or currencies (or other financial instruments) from home. This activity supposedly will allow you to earn additional income or even to quit your day job. These ads often feature fictional characters, such as self-employed traders, who are making tons of money by trading in financial markets from the comfort of their home. You may have also met people in internet chat rooms or on message boards who claim that they are making a living by trading. There is little research data to either support or refute the advertising claims of brokers/dealers or day trading firms. It is difficult to find any hard data on statistics of success or failure of traders. From what little that I could find though, the general conclusion is that only a minority of traders (10% or less) can make a living and the majority of traders lose money. This is not surprising because trading is a zero-sum game where the profits of one player must come from the losses of another. On top of that, trading involves substantial transaction costs (bid/ask spread and commissions), which further reduce the numbers of winners and increase the percentage of losers. We can conclude that trading will be a waste of time and money for the great majority of participants. My advice is to avoid it because the chance of success in this occupation is 10% or less. Readers familiar with trading and interested in this topic can read Chapter Seven in my more detailed book “How to Become Smarter.” The text below provides only a brief discussion of trading.

The most successful financial speculators have shown long-term returns of 25–30% per year. Even a 16% average annual return is outstanding and people who can deliver this sort of investing results manage endowments of large private universities in the United States. People who are not members of a stock exchange, and who want to become traders, will not be able to make a living by trading if they start with $1,000 or even with $50,000. Living expenses and taxes will eat up all profits. There is also a risk that transaction costs and occasional catastrophic mistakes will wipe out the small account. Thus the trader will not see any consistent profits if he starts with small trading capital. Studies of day traders (people who make at least several stock trades per day) show that only about 10% of these people can make a living, whereas the majority loses money. Day traders with small or average capital cannot make profits consistently, suggesting that only people who start with sizeable funds ($100,000 or more) can succeed in this business. Thus, the probability of success should be much lower than 10% if everyone tries to day trade stocks.

You can ignore widely advertised trading systems: they don’t work. These systems often deal with the stock market, options, foreign exchange, and futures. In particular, avoid “advanced” seminars that cost several thousand dollars and promise you financial freedom for the rest of your life after you attend the seminar. Don’t buy automatic trading systems in a box (software) either, even if these products cost “only” a hundred bucks. It is still a waste of money. Don’t waste your time and money on books about technical analysis or books that promise to teach you how to make a living by trading in financial markets. Most of this information is available for free on the Internet and successful traders do not write books about their techniques. Some successful traders write books sometimes, but these books offer a vague discussion of the authors’ trading techniques. (Incidentally, I do not believe that George Soros is a real trader/speculator. Judging by what his Open Society foundations are doing across the globe—destabilization of governments, promotion of regime change, collection of intelligence [see below], and propaganda—his hedge fund and charitable foundations are most likely CIA fronts. His trading success is probably due to the inside knowledge of the CIA. I was a recipient of a George Soros Scholarship when I was an undergrad [1998, Russia], and I remember filling out a Scholarship report form and running into a question that seemed out of place: “Is there anything else important in your life that you can tell us about? Complete confidentiality is guaranteed.”)

The experience of the famous trader named Richard Dennis suggests that once you reveal your successful trading system to other market participants, the system will stop working. A trading system intended for the mass audience (in the form of books, videotapes, seminars, software, and so on) cannot be profitable for three reasons: 1) there are no willing losers in the markets, 2) the “crowd effect” or competition, and 3) the “secrecy principle.” The text below explains each reason in detail.

 

1)  If a trading system is profitable and becomes known to many market participants, it will stop working. This is because the market participants who used to lose money to this system will stop making the same mistake over and over. Nobody wants to lose money in the markets.

2)  When many participants start using the same trading technique, this strategy will stop being profitable. This is the “crowd effect.” You can make a profit if you buy low and sell high. When many people rush in to buy low, the price will rise and most people will not be able to buy at the low point. Similarly, if too many traders start selling at the high point, then the price will go down and most market participants will not be able to sell at the high point. In the end, most of the users of this trading strategy will break even at best. Successful short selling involves selling high followed by buying low, but the same “crowd effect” applies here as above. This principle is also applicable to financial derivatives. The crowd effect also applies to various self-improvement methods that are supposed to help you achieve “big success,” although the mechanism is different. You can achieve “big success” if you have a big advantage over other people (for example, a special talent that only one person in a million can have). Promoters of the “secrets of success” are trying to sell them to as many people as possible. A “secret of success” known to large numbers of people cannot help you to gain an advantage over these numerous “competitors.” The promoters are promising you a huge advantage over other people, but at the same time, they are trying to create as many competitors for you as possible. Therefore, the best you can hope for when you buy a mass-marketed secret of success is “small success” or no success at all. Besides, a person whose only achievement lies in teaching others how to achieve big success must be a fraud. When this person was starting out, he was teaching others what he could not do himself. “Fake it till you make it.”

At its basic level, the crowd effect is another word for economic competition. Seminars that cost one or two months’ worth of your salary may look like some type of “exclusive knowledge” unavailable to the masses. But they will not give you any edge over other people and will not provide you with access to easy money. For one thing, even if you have fifteen competitors (an audience of a seminar), your knowledge is no longer exclusive and no easy profits will be possible. Richard Dennis taught his profitable “turtle trading” system to fewer than fifteen people (he did it for free, on a bet with another successful trader) and his trading system stopped working several years later. Richard sustained huge losses in his own trading after this bet. Unscrupulous “gurus,” however, sell seminars to hundreds and thousands of people year after year. The easy money that the gurus promise is impossible when you have so many competitors. The providers of seminars will also have you sign various legal disclaimers. The latter will free the organizers of any liabilities in the event that you do not achieve what you are paying for: a quick and easy path to wealth. This sign alone should be a signal that the promoters are untrustworthy. The promoters can fake all testimonials and “success stories,” and you should not take them seriously, unless the promoters show you verifiable trading records. Even if a success story is true, it may be due to simple coincidence or dumb luck or may be a part of a larger failure. If “success” happened after someone attended a seminar, this does not necessarily mean that the seminar is the cause of the success. Academic degrees from prestigious institutions and celebrity endorsements do not mean that the promoters are honest people. Celebrities can make mistakes and there is a certain percentage of crooks and criminals among graduates of any university. When you see someone using celebrity endorsements in their advertising of health-, mental health-, “success-,” or “wealth-building”–related products, this is a big red flag. This situation usually means that there is no scientific evidence of effectiveness, and a “guru” is offering you an overpriced and useless product or service, i.e., snake oil. In summary, competition will ensure that a “secret of easy wealth” will stop working if it becomes known to just a few people, not to mention thousands of people.

3)  From the crowd effect follows the related “secrecy principle”: if a trading system were profitable, then the author(s) would be using it for their own profit instead of revealing it to other market participants. We can prove this principle as follows. If the trading system is profitable, then the inventor can grow the profits by reinvesting them into the system and increasing the size of her transactions. The inventor can also increase her profits by investing other people’s money and charging fees for money management. The growth of profits will be possible until large transactions start to affect the price of the financial instrument. In other words, at some point, the sheer size of an order placed by the trader will be driving the price up (buy order) or down (sell order). This situation will make the trade either unprofitable or barely profitable. After that, the profits provided by the trading system will stop growing. At this point, we will assume that nobody knows about the details of this profitable trading system except the inventor. As you can see, it makes no sense for the inventor to sell her profitable secret to the public at the early stage, when further growth of profits is possible. It also makes little sense for her to sell the secret to the public when the profits have stopped growing. Why risk losing the gravy train for the sake of the uncertain profits that may come from selling the system to the public? What if the proceeds from the sale of the system (as software, videotapes, or books) will be much smaller than the current profits? After all, the market is flooded with get-rich-quick books and books about trading. The existing profits will disappear once other traders start using this system (the crowd effect). Thus, it will be more reasonable to continue to receive profits from the system and to keep it secret (the secrecy principle).

Whenever someone is trying to sell you a secret of easy money that will give you financial freedom for the rest of your life, you can do a little math. Let’s say we believe the seller’s claims that there are piles of money out there that anyone can put in their pocket without much effort. Then why would the seller yield all these piles of money to you? If the amount of easy money is sufficient to give you financial freedom, then there must be at least $30,000 per year of “unclaimed money” lying around somewhere. Why doesn’t the owner of the secret just pocket all this easy money, leaving nothing to you? Is this because the supply of the effortless money is unlimited? No, that’s impossible because the seller of the secret is not the richest person in the world. Is the promoter offering you access to the effortless $30,000 because you will pay him $20 (for a book), $100 (for software), or even $3,000 (a fee for “an advanced seminar”)? That’s ridiculous. To the promoter, forgoing the effortless $30,000 in exchange for $3,000 doesn’t make any sense. If presented with a choice, any idiot would take an easy $30,000 instead of a more difficult $3,000 that one has to earn by providing a seminar. The situation will be even more laughable if you multiply these figures by the number of potential buyers of the secret of financial freedom. Therefore, when someone is promising you financial freedom for a small fee—for example, if they are trying to sell you an option trading technique—the promise of easy money is always false and the technique is useless. Otherwise the promoters would not have put it up for sale.

The only situation where selling the secret system to the public would make sense is when the system stopped working and became unprofitable for some reason. The inventor can still honestly claim in his advertisements that the system has made a lot of money. What the inventor will not tell you is that the system will never make money again. Note that if backtesting shows that the system would have made enormous profits in the past, this does not mean that the system is going to be profitable in the future. Since markets are random, they are under no obligation to adhere to the patterns or formulas prescribed by any trading system.

 

There is also this “big secret” that maybe your trading approach does not have to right 100% of the time. If it predicts the market correctly 55% of the time, then it can be profitable if you always bet the same small percentage of your trading capital. Another “big secret” that some authors are selling is that your trading system can be profitable if it loses many small trades but wins a few big ones. These ideas are not new and, as beautiful as they are, the market is still random and will not bring consistent profits.

If the above arguments still have not convinced you that no one is going to sell you an authentic secret of successful trading, you can do the following. Ask the seller of trading techniques to show you his trading records for the last three years. You can ask him at least to name the average return on capital for the last three years. There are companies that will verify authenticity of any trading records for a fee.

You can look at the table of contents of a book that promises to teach you how to trade. If you do not see a chapter or section that describes the author’s trading achievements, then the book will not provide you with any useful information. If the author does describe his own trading results (not just one successful trade, but total results for the past three or more years), you can do some research on the Internet. You can find out if the author is a fraud or not. The vast majority of writers about trading and technical analysis have no trading achievements at all, even though they often call themselves “professional traders.” It is amazing that some of them can sell hundreds of thousands of books and hundreds of seminars without ever proving to anyone that they can trade successfully themselves. These clever folks are selling pure hope. They cannot give you a proven profitable trading system and they have never had one. Yet they will promise to teach you how to make a living by trading.

 

Chapter 5: Prepackaged profit systems

SUMMARY. It’s a bad idea to pay in advance for these three types of advice: a) how to get rich, b) how to achieve big success, and c) how to start a successful business. These things require luck and nobody can guarantee anything. The sellers of this sort of information promise to give you a truckload of money out of their own pocket if you pay them a small fee. If you knew how to make a million dollars easily and quickly, would you let somebody else have this pile of money in exchange for 20 bucks? For someone who has an excellent business idea, it is much more profitable to hire you as an employee than to sell you the information on how to start the business. Network marketing (multilevel marketing) is an occupation where only a tiny minority of participants can succeed (by some estimates less than 1%). This success depends on random factors, such as your talents, the time and place where you try this business, and the necessary talents and interests of the people you know. Investing your time and money into this activity is a long shot, but you will most certainly alienate all your friends and relatives.

 

 

The same “crowd effect” applies to many profit schemes that various seedy elements sell to the public in the form of books, seminars, videotapes, or software. This stuff includes real estate profit systems, multilevel marketing schemes, and internet profit systems. These methods worked well for the few people who invented these schemes or were the early adopters. By the time you see a profit system advertised in books, newspapers or on TV, the system is no longer profitable. There are too many people who are using it (“competitors”) and the crowd effect (competition) has eliminated high profits. Now the system is either not profitable or provides only an average return on investment.

When somebody offers to help you start a business for a fee, this person is doing some of the following if he/she is being honest: a) giving you some of her own hard-won clients; b) giving you some of her hard-earned parts of the market; c) forgoing profitable growth and expansion of the business "to help you start a business." None of this makes any sense because it means that the "teacher" is giving you millions of dollars in exchange for a few bucks. This transaction would make sense for you if this "helpful information" were sold to you alone in the whole world. On the other hand, if this info is being sold to thousands of people, then it cannot possibly help all these people start a successful business.

A return on capital of about 10% per year is an average investment return available in the stock market in the long term. This kind of profitability cannot make a person self-employed without substantial startup funds. If your living expenses are $20,000 per year, then you need to invest at least $200,000 just to stay afloat, if we ignore taxes and unforeseen events. It makes no sense for an inventor of a successful profit system to sell the know-how to the public if the system provides an above average return with low risk.

An example will illustrate this point. Let’s say someone came up with an authentic business idea that will allow you either {a} to triple your money within a year with negligible risk (0.01% chance that losses will occur) or {b} to earn $50,000 per year with zero investment required. Suppose the business requires one hour of self-employed work per day. This sort of business can give anybody financial freedom right here right now. Does it make sense for the inventor to mass-market this business idea as books, promotional videos, or seminars? Not really. The inventor of an authentic business can hire people to work part-time without disclosing the details of the business to them. She can pay them $20 an hour (the minimum wage in the U.S. is $7.25 an hour). She will gain over $40,000 per year per employee of almost effortless money in business “b” and maybe even more in business “a.” The inventor has a choice. {1} Hire a thousand employees, each of whom will bring over $40,000 of effortless money per year. {2} Try to sell one thousand copies of the book, each bringing about $10 in royalties and creating numerous competitors in this lucrative business. The choice seems obvious, doesn’t it? Even though managing one thousand employees will require some effort, the entrepreneur can hire managers and delegate most of the responsibilities to others. Suppose she has two more options: to sell one thousand promotional videotapes ($100 each) or one thousand seminars ($3,000 per attendee) about this lucrative business idea. Running the actual business with one thousand employees and no competitors is still far more advantageous. Therefore, keeping a lucrative idea secret and implementing it yourself is a far more profitable approach than mass marketing the idea to the public. This is the gist of the secrecy principle. This example demonstrates that no one is going to mass market an authentic secret of easy money in the form of a book, DVD, seminar, website subscription, and so on. Whenever someone is trying to sell you a profit system that will require little or no investment and will allow you to earn higher than average income, this information is guaranteed to be useless.

The secrecy principle does not apply to multilevel marketing (MLM) systems because propagation of information forms the basis of this sort of schemes. Yet the crowd effect (competition) is still applicable. It is unlikely that you can get in on the ground floor of a newborn (or new in your area) multilevel marketing scheme that will go on to become a wild success. Most such schemes go nowhere and your investment will be lost. If you try to join a multilevel marketing scheme that has already become successful (well established in your area), then you are too late to the game. Society is oversaturated with such systems and there is hardly any room for further growth of these enterprises.

A typical MLM scheme is organized as a religious sect with a long list of myths designed to turn you into a believer. The recruiters are very nice and behave as your best friends (because they want your money). Almost everything they tell you is lies, unsupported by any serious evidence and intended to turn you into a source of passive income. The recruiters also have a comeback for every criticism of MLM; these counterpoints are all lies of course. The brainwashing is highly sophisticated and comprehensive. The unfortunate people who get entangled in this web of lies become a source of passive income for the top echelons of the pyramid for many years; what little income these new converts earn in MLM, they spend on MLM products. Relatives and friends start avoiding these poor people because MLMers are annoying with their constant attempts to recruit people into MLM or sell MLM products. Pitiful existence indeed. A tiny percentage (less than 0.5%) of newly recruited MLMers will become self-employed, but the vast majority will stay the slaves feeding the pyramid for as long as they remain in this system. This is because these victims buy MLM products at exorbitant prices, 2- or 3-fold higher than market prices, and then try in vain to sell this stuff at even higher prices.

The typical articles of faith of MLM teach you the following falsehoods: network marketing is currently the “fastest growing” type of business; prices of MLM products are not excessive because these products are “concentrated”; you will be able to quit your day job and become an MLM entrepreneur “within a year or two” (if you work hard); people who try to dissuade you from joining MLM are “dream-killers” and losers who do not want you to “achieve success”; MLM products are “high-quality” and “environmentally friendly”; the typical business model is flawed because a large proportion of the price reflects marketing expenses, as opposed to MLM where you can get a “lower” price because there are no marketing expenses; if you are properly motivated and believe in a “dream” then you will succeed in MLM, “guaranteed”; and on and on. If you are interested in MLM, at least try to listen to different opinions and review the research evidence presented by critics of MLM. If MLM recruiters’ lies are your only source of information, then you will be easy to enslave.

I know four people well who tried their hand at MLM. None of them succeeded. One quit after 3 years and now is a vice-president of a small company (which has 12 employees). Another guy is still in MLM after 9 years despite being unable to earn the minimum wage there, after so much time and effort. He got fired from the same company from the vice-president position (because he was bugging everyone at work, including the boss, trying to recruit them into MLM). Now he is working as a staff scientist at a research institute, and makes about 2.5-fold less money than he did at the above job. This guy still has a “dream” and listens to MLM motivational tapes regularly. Nine years ago, this guy’s MLM sponsor promised that this guy would start making good income in MLM in about one year and would be able to quit his day job. This poor chap still loves and trusts his sponsor. Two other people out of the four that I know continue to be believers (one after 9 years in MLM and the other after 5 years); they still work the same day jobs they had before joining network marketing. Both are proud of the small income that they earn in MLM (about one quarter of the minimum wage), and both spend this modest money and a large proportion of their main income on grossly overpriced MLM products.

Multilevel marketing is an excellent way to lose friends and alienate acquaintances and relatives. You should not envy people who have succeeded at multilevel marketing or at least claim that they have (to sell you on the scheme). It is a lottery and the vast majority of people who play the lottery lose their money. The continued existence of MLM schemes is based on these four misconceptions that MLMers are inculcating in their recruits:

 

1.    The majority of people can succeed at MLM. (If this were true, then only a tiny minority of the population would be working for a living and the vast majority of people would be enjoying comfortable passive income.)

2.    You don’t need any special talents to succeed at MLM. (False. You have to be a good salesman and a “motivator”; we will talk about motivational stuff later.)

3.    There are no limits to the growth of MLM companies. (False. The size of the population is limited and the percentage of people who would like to be in MLM is also limited.)

4.    MLM companies offer a good price for the goods that they sell to consumers. (False. MLM companies sell their stuff at exceedingly high prices, which, in my own experience, are not justified by the quality of these goods. Nobody would buy this stuff at a supermarket because MLM prices are way too high.)

 

The sky-high prices of MLM goods are what generates passive income for those in the upper parts of the pyramid. The cost of purchasing MLM goods (for reselling) is lower for those in the upper parts of the pyramid than those at the bottom of the pyramid. This state of affairs is the result of a special system of discounts. The bottom of the pyramid voluntarily transfers its money to the upper parts of the pyramid. Even with the discounts, MLM prices are still a rip-off. If the price is 2 to 3 times higher than a price at a supermarket and you receive a 20% discount, you are still paying too much. Therefore, it is disadvantageous to be at the bottom of an MLM pyramid. Now imagine the situation where 100% of the population in your geographic area (your city or state) participates in an MLM scheme. It makes no sense for those at the bottom to stay in the system, if they are thinking rationally. This is because a substantial portion of their income automatically goes to the upper parts of the pyramid and because there is no chance that they will assume a higher position in the pyramid. It makes even less sense for somebody who visits this geographic area to join the MLM system. This is “absolute saturation.”

We can make a reasonable assumption that about 5% of the population are interested in joining MLM and all of them have already enrolled in some MLM scheme. This is “realistic saturation.” This is a situation where further growth of the number of people enrolled in MLM is either impossible or too slow. (Population growth in the United States is about 1% per year.) Because MLM companies have existed for decades, it is likely that your geographic area has already reached a “realistic saturation” point. “Realistic saturation” has the same implications as “absolute saturation.” It makes no sense to join an MLM system at this point. The only two situations where it makes sense to join an MLM scheme are

 

1.    MLM has never existed in your geographic area. (For example, the territory of the former Soviet Union in 1991–1992 after the collapse of the communist system.)

2.    MLM has existed in your geographic area, but the MLM scheme in question is far more attractive than existing schemes. Some MLMers will be willing to switch to the new system.

 

The latter situation is possible but unidentifiable. Success or failure of any one scheme is difficult to predict and all of these schemes claim to be “the best and fastest-growing.” What you see at MLM meetings, where it seems like everyone in this business is enjoying unlimited prosperity, is an illusion. What is invisible to you are huge masses of people who tried this stuff and were never able to obtain any serious income from MLM. Either they are not good salesmen or they were too late to the game (MLM has reached a saturation point in their geographic area). A typical speaker at MLM meetings will be telling stories about how everyone was discouraging him from going into MLM, and yet he achieved big success because he was properly motivated. What you need to keep in mind is that no amount of motivation will lead to success if MLM has already reached a saturation point in your geographic area. (There are too many competitors and no potential recruits are left for you to sign up.) Another important point to consider is that if one person in a hundred succeeds at MLM, this does not mean that everyone can succeed at MLM. It is true that anyone can win a lottery, but the probability that this event will happen to any given person is too small. Besides, who is going to produce all the goods and services in the fantasy world where everyone is living off of passive income from MLM? Also keep in mind that MLMers are good salesmen and will say anything to get you to sign up because their livelihood depends on it. (Yes, they can lie and make up “inspirational” stories.)

To summarize, MLM is a form of gambling, which MLMers promote as a sure-fire way to financial independence. If you join MLM, you are dealing with three random and unquantifiable variables:

 

·       you don’t know if you have the necessary talents for this activity;

·       you don’t know if MLM has already reached a saturation point in your geographic area; (if you live anywhere in the U.S., in all likelihood it has);

·       you can’t predict whether a brand-new MLM scheme will grow; (if MLM has existed in your area for a long time, you don’t know whether the new scheme will be more attractive to the MLMers in your area than the existing schemes).

 

Profit systems based on the “power of positive thinking” (not to be confused with the book by the same title) deserve a special mention. This approach means that if you dream about riches several hours a day and think and behave as if you were rich, then it is guaranteed that you will get rich. In my view, the correct title of this method is “the power of wishful thinking.” The scientific validity of this method is questionable because it means that your thoughts alone can alter the universe in your favor. This method also implies that the mind can control the brain: this notion is a fallacy. Science tells us that the brain controls the mind, not the other way around. There is no scientific evidence that thoughts (without physical action) can change the physical world. There is no scientific evidence that obsessing about wealth is either a necessary or a sufficient condition for achieving wealth. There is plenty of evidence to the contrary. It is possible to win a lottery or inherit wealth without obsessing about it. There are numerous people who are obsessed with monetary wealth, for example, compulsive gamblers, readers of get-rich-quick books, and some owners of startup businesses. Yet the vast majority of these people will never achieve wealth (if we define wealth as being in the top 1% of net worth in the population).

The kind of proof that a typical “success guru” provides to back up the claims is laughable. There are no citations of scientific studies. There are no names, addresses, and phone numbers of people or organizations who can corroborate the claims. There is no documented evidence whatsoever. The author makes fantastic claims in every other sentence without any supporting evidence. It would be naive to take this kind of information at face value. The “proof” that a typical guru presents consists of cherry-picked anecdotes along the lines of “I know a person who had always dreamed about becoming an entrepreneur, and eventually he became a CEO of a company with 10,000 employees.” This is the classic logical fallacy, where a person assumes that event A causes event B if “B” happens after “A.” What about millions of people who dream about a bright future (for example, bipolar patients during a manic episode) and achieve nothing special? To give another example, suppose some success guru studies wealthy people and finds that they have some traits or habits in common. For instance, he may find that rich people tend to be self-confident. For a typical wealth/success guru this finding constitutes irrefutable proof that if you believe in yourself, you will get rich. This is the “correlation means causation” fallacy. Does confidence cause wealth or vice versa? In actuality, correlation does not necessarily mean causation.

Nonetheless, it is inevitable that the “positive thinking” approach will be (or will appear to be) successful for a small percentage of the followers by coincidence. These people will become convinced that because their success happened after reading a book or attending a seminar, the success must be due to the mystical teachings of the author in question. This is what feeds the continued popularity of the authors who promote this approach. Another reason is that the effectiveness of “positive thinking” is difficult to disprove. Whatever the outcome, the promoter of the method has an ironclad alibi. If you bet your whole net worth on your startup business and the venture is successful, then the method is “valid.” But if you fail, this means that “you did not want to become wealthy badly enough” and it’s “your own fault.” One of the hallmarks of pseudoscience is that a promoter of a theory formulates it in such a way that makes it impossible to test it.

For the majority of aspiring entrepreneurs, this over-reliance on self-delusion and mystical rituals will be ruinous because these things can lead to taking of unreasonable risks. The constant dreaming about wealth and blind faith in other questionable rituals can distort the perception of reality. This delusional thinking will lead the person to believe that these exercises have reduced serious business risks. I had a cousin who was a fan of a popular writer who promotes this “positive thinking” approach to business. My cousin always wanted to become an entrepreneur. Being certain that the power of positive thinking cannot fail, he ran up big debts with loan sharks in the late 1990s. Eventually, he lost everything he owned and committed suicide leaving his wife and child penniless. This tragic story demonstrates the perils of magical thinking and reliance on voodoo methods in business. Therefore, if you wish to start a business, it is best to base your plan on hard facts and rational analysis, not on dreams and mystical rituals.

You will save yourself time and money if you avoid books and other promotional material that contain the following words in the title: “rich,” “wealth,” “millionaire,” “trading,” and “financial freedom.” All people that I have seen who give advice on how to get rich either inherited a fortune or got rich by selling advice on how to become wealthy. The latter category of authors has no other business achievements. A person who got rich by selling advice on how to get rich must be a fraud. When this person was starting out in the “wealth-consulting business,” he was teaching others what he could not achieve himself.

The same is true of people whose only success lies in teaching others how to achieve big success. The whole notion that anyone (i.e., the majority of people) can achieve big success is illogical. Big success means that you have much more wealth, fame, or competitive awards than average people. But the majority of people cannot be a thousand times better than average people because the majority consists of average people.

The last chapters will explain why wealth requires luck. Nobody will be able to teach you how to become lucky. Luck is beyond anyone’s control, and therefore it makes little sense to pay somebody for this sort of advice. You shouldn’t give a single penny to people who promise to teach you how to control luck by means of positive thinking. If these people had magical access to unlimited wealth, then they wouldn’t be trying to extract a few bucks from you. Instead, they would be giving their books away for free as charity.

You will also save yourself time and money if you avoid all kinds of motivational material. If you want to accomplish something (for example, to lose weight, learn a foreign language, or become a bodybuilder), then what you need is a detailed how-to manual supported by scientific evidence. You don’t need vague, long-winded reassurances. People write motivational material when they have nothing useful to say (have no proven methods) and can only appeal to blind faith. There is not a shred of scientific evidence that motivational books, seminars, the law of attraction (clever people call it “the law of extraction”), and so on, really work, other than through pure coincidence.

The most typical logical fallacy in motivational writings is the confusion of probabilities, such as the following: “one person in a thousand can achieve this, therefore everyone can.” Another common fallacy among motivational writers is the assumption that the only way to become happy is to achieve wealth or great success. Thus the discussion centers on luxurious things and material wealth. In the mind of a typical motivational writer, happiness is impossible outside the top 1% of net worth. This notion is false. There are plenty of ordinary people who are happy and who are neither rich nor successful, if we define success as being in the top 1% in any particular field. Yet another fallacious notion in motivational books is that your perception shapes reality around you (and the related fallacy that you can change your perception by a mental effort). Motivational writers are convinced that if you think negative thoughts, then you will attract misfortune, whereas positive thinking will bring you happiness, health, and wealth. Scientific evidence shows that this notion is incorrect, and in actuality, brain chemistry shapes perception. Both optimism and effective functioning of a person in society are consequences of having a healthy brain. “Positive thinking” is not the cause of anything; it is the result of certain biochemical processes in the brain. In other words, motivational writers are confusing cause and effect.

The notion that negative thinking brings misfortune is false too. Statistical studies show that people who are “somewhat unhappy” achieve a much greater increase in income than people who are very happy, on average. Furthermore, it is a scientific fact that humans cannot change their mood at will, i.e., by a purely mental effort. If people could start thinking positively or negatively whenever they wanted to, then such mental disorders as depression, anxiety, and manic depression would not exist. Some motivational writers cite the placebo effect as scientific proof that positive thinking works. In reality, rigorous scientific studies show that placebos don’t work. (A group of patients who receives a placebo experiences the same random changes as a group that receives no treatment.) In other words, the placebo and the associated “positive thinking” are powerless.

In addition, recent studies show that mental exercises do not improve brain function: these data further prove that the mind is powerless against the brain. Furthermore, it is a proven scientific fact that a person can change mood and mental abilities by applying physical treatments to the brain. People can do this, for example, by consuming psychotropic drugs, certain types of food, or by changing body temperature (Chapters Two and Four in the book “How to Become Smarter”). In other words, you have to change the biological workings of your brain in order to see any significant changes in your life, including if you want to start “thinking positively.” Thus, you should not take seriously a person who is going to teach you how to use positive thinking to become rich, healthy, and beautiful. To sum up, motivational stuff will be a waste of your time and money for two reasons: a) it will lead you in the wrong direction; b) it will not even help you to attain the wrong goal.

 

Chapter 6: The perfect scam

SUMMARY. There are some fraudulent schemes to make money online that are virtually impossible to prosecute. These schemes involve selling advice on how to make money online. This “business model” works as follows: Write and start selling on Amazon.com ebooks about how to write bestselling ebooks and how to sell ebooks. The advice you are selling should be different from what you yourself are doing. There is no limit on how small your ebooks can be. Generate lots of fake reviews for your ebooks on Amazon.com by swapping reviews with other authors. To increase your blog traffic, blog about how to increase blog traffic. Write and start selling numerous ebooks on various ways to make money online, such as Twitter, EBay, YouTube, Facebook, Craigslist, Fiverr, e-mail marketing, blogging, affiliate marketing, etc. You don’t need to know much on these subjects. Continue generating fake reviews. The above scheme works well in no small part because of the massive and deceptive promotion of self-publishing by Amazon.com. Amazon is defrauding aspiring self-publishers by selling them overpriced and useless self-publishing services via its subsidiary CreateSpace. Amazon is also promoting its free self-publishing platform for ebooks called Kindle Direct Publishing (KDP). Users of KDP are exposed to numerous ads for CreateSpace. KDP users are building and driving traffic to the Amazon website at their own risk and at their own expense (hoping to become rich and famous). Amazon is promoting KDP and CreateSpace using various success stories on the front page of Amazon.com and in the KDP Newsletter. These success stories fail to mention that they describe only the tiniest minority of self-publishers (~0.01%): those who already succeeded with traditional publishing and/or those actively promoted by Amazon’s editors. Nor does Amazon mention that 99.9% of self-pubbed books/ebooks earn laughable royalties. As of July 2015, Amazon seems to have stopped most of this deceptive promotion of self-publishing.

 

 

Amazon.com has become a fertile ground for all kinds of scammers, who, for several dollars, will teach you how to create a profitable website or a wildly popular blog, how to write a bestselling book, how to start almost any kind of successful business, how to earn a living by selling ebooks, how to make all your dreams come true, and how to cure any disease. The main reason for this proliferation of B.S. artists is that it is easy to fake reviews of books and ebooks on Amazon.com. Before December 2012, any author could create dozens of different identities using the same credit card. Creation of each identity requires a single purchase of some stuff on Amazon.com; after that, this identity can post reviews of various products on Amazon.com. Some of the ebooks on how to sell ebooks have over a hundred ecstatic reviews, and if you look closely, most of them were written by the same person. In December 2012, Amazon started cracking down on reviews of books written by the author of the book (under different identities) and by his or her relatives. (Amazon can see the real identity of the authors and reviewers.) Unfortunately, the main source of bogus reviews is still wide open: swapping of reviews among authors (without reading the books/ebooks). This method can generate several dozen fake reviews within a few months. There are several websites and message boards where authors actively swap reviews (the “Community” link on CreateSpace.com and the “General” forum on the KDP Community website, to name a few). Or you can contact random indie authors and ask to exchange reviews. Ebooks are cheap and can have free promotions; accordingly, nowadays, many of the fake reviews have the Amazon Verified Purchase sticker.

The most successful money-making scheme on Amazon.com is probably the give-me-three-dollars-and-I-will-show-you-how-to-sell-ebooks scam. By my estimates, this kind of self-publishing scammers can pull down more than $3,000 a month in ebook royalties. On Amazon.com, various versions of this scam are successfully run by the following authors: Steve Scott, Tom Corson-Knowles, Michael Alvear, David Gaughran, and Alex Foster. This is how this scam works.

The real secret to making money in ebooks is the Ponzi scheme where the income of the author grows because he claims that he knows how to sell ebooks, and you start to believe the claims because he shows you (truthfully) that his income and web traffic are growing exponentially. In other words, to sell more ebooks you need to write ebooks on how to sell more ebooks.

If you wish to follow this unethical “formula of success,” then self-publish some Kindle ebooks on how to market ebooks. There is no limit on how small your ebooks can be: on the Kindle Direct Publishing website, you can even publish ebooks that contain no text (only a book cover and a title). After that, generate several dozen fake reviews by swapping reviews with other authors. The advice you are selling should be general, basic, and different from what you yourself are doing. Alternatively, it can be detailed but still different from what you’re doing. Entice new customers with free ebooks or documents (in exchange for an e-mail address), sign them up for a newsletter, and invite them to visit your blog where you show them your growing income and web traffic as proof that you “know” how to sell ebooks and how to make money online. To increase your blog traffic, blog about how to increase blog traffic and give away free ebooks on this topic (with links to your blog). The most basic principle that you need to keep in mind is the following: To make money online, you need to sell advice on how to make money online. To increase your web traffic, publish information on how to increase web traffic. It doesn’t matter that the advice is useless or that you know very little about the topics you are writing about. Your advice will work by pure coincidence for some percentage of the followers, and they will be spreading the word about you.

Write and start selling numerous ebooks on various ways to make money online using Twitter, EBay, YouTube, Facebook, Craigslist, Fiverr, e-mail marketing, blogging, affiliate marketing, etc. You don’t need to know much on these subjects. On your website and in all your ebooks, advertise to the visitors/readers your ebooks about ebook success and making money online. Keep publishing ebooks on various topics related to self-publishing success and online income and continue generating fake reviews for each new release. Voila! Having no actual online business, now you are making a nice living by selling the idea of starting an online business to the naïve. (Most of your ebooks should be about selling ebooks, writing of bestselling ebooks, and making money online.)

If you try to sell an honest (not fraudulent) ebook, you will discover that the ebook is making only a few bucks a month or less and none of the B.S. advice sold by the above-mentioned authors makes any difference. Unfortunately, your ebook can start to make real income only if Amazon’s editors like it and start promoting it (and the book takes off). Such a coincidence happens roughly to one ebook in ten thousand. There is nothing you can do yourself: self-publishing is not a “business,” it’s a lottery. Unless, of course, you are not averse to selling misleading advice.

If you are still curious about the “how to make money in epublishing” advice sold on Amazon.com, then buy such an ebook, read it within seven days, and return it for a full refund. In actuality, the most destructive effect of all these books about “ebook success” is not the small amount of money that you will lose (usually $2.99) if you buy this nonsense. The most serious problem is the huge waste of your time because if you become a believer and follow the useless advice in those books, you will spend months and years in vain trying to start an ebook business. Each month, the above-mentioned B.S. artists are sending thousands of people on a wild-goose chase. On the other hand, the are some authors who promote self-publishing because of this erroneous belief: self-publishing works for a person who has made a name in traditional publishing, therefore self-publishing will work for everybody else. Aaron Shepard, Guy Kawasaki, and some others are in this category. They are not scam artists, but they are mistaken and you shouldn’t take their advice seriously. Amazon has been promoting Guy Kawasaki’s book about self-publishing on every corner.

Some Amazon customers post authentic 5-star reviews for such books before they even read them: this is how exciting and inspiring the idea of self-publishing can be (and how crafty and insidious B.S. artists are). These reviews say something like “Thank you so much for opening my eyes to the enormous possibilities of epublishing! This is a very interesting book and after I finish reading it, I will epublish my novels and become an indie author!” These reviewers are thanking the B.S. artist for telling them what they want to hear, namely, that the dream of self-publishing success is alive. None of these reviews say how much their ebook sales increased after following the advice; even if some claims are made about ebook sales, the reviewers are not showing their real names. Thus, there is no way you can verify the claims.

Amazon generates tons of customers for the epublishing B.S. artists through deceptive promotion of its self-publishing platforms: Kindle Direct Publishing (KDP) and CreateSpace (more on that in a moment). Of course, Amazon pursues its own interests: by attracting tens of thousands of self-publishing authors to its websites, Amazon receives income in the form of various fees related to print self-publishing (via CreateSpace) and receives cheap content via KDP (ebooks that sell for 99 cents with regular free promotions). A person who spent a year or two writing a novel (about $40,000 worth of labor) and then self-publishes it for free on Amazon.com—without an advance payment from Amazon—does a huge favor for Amazon, especially if this person sets the lowest possible price, 99 cents (65% of these revenues will go to Amazon). Self-publishing authors are building Amazon’s website at their own risk and at their own expense. Misled by Amazon’s lies, some of them quit their day jobs hoping to finish long-abandoned manuscripts and to start a lucrative self-publishing career. In addition, Amazon receives free promoters: self-publishing authors attract traffic to Amazon.com when they promote and advertise their self-published books and ebooks, hoping to become rich and famous. These people drive traffic to Amazon.com at their own expense, of their own free will.

Why are Amazon’s practices deceptive? Because Amazon is luring self-publishers with success stories and does not tell them that these success stories only happen to approximately 0.01% of self-publishers. Amazon also doesn’t tell the self-publishers that it selects and promotes a tiny minority of self-pubbed ebooks at its own discretion (1.0 to 0.1% of ebooks), and this promotion (such as “Editors’ Picks” on Amazon’s website) is the main reason that some of these books go on to become bestsellers. A half or more of the self-published ebooks that Amazon chooses to promote are written by authors who already achieved success with traditional publishing and have a substantial fan base. Amazon also does not tell the self-publishers about the dismal statistics of self-publishing, namely, that without promotion by Amazon, an ebook is likely to earn $0 to $5 a month. Active promotion by the author on the Internet will not increase sales by much: by my estimates, this kind of “business” generates about one dollar of net income per hour of promotion. (Ebooks about the “ebook business” are a different story: they are selling like hot cakes regardless of quality of the content.)

Amazon is also lying in its KDP Newsletters when it presents the success stories in the section “Your Voice.” In actuality, this is not “Your Voice”; this is the voice of the luckiest top 0.01% of self-publishers. Amazon should just come out and say honestly that the success of these people is due to either promotion by Amazon’s editors or past success with traditional publishing. Amazon is also lying in its home page ads that occasionally feature some successful self-publisher (hand-picked and made by Amazon) with the byline: “One of thousands of independent authors being discovered by Amazon’s customers.” A truthful statement would say “One of about a dozen independent authors discovered by Amazon’s customers as a result of promotion by Amazon.”

Amazon’s CreateSpace runs (at least used to run) deceptive internet ads on various indie author websites, something like “Self-publish your book today and start earning real income with kinetic marketing.” Kinetic marketing is a technique that involves social media websites, and it was invented by some guy hired by CreateSpace (to be precise, that guy invented the clever-sounding term: there was nothing new about this approach). There is no documented evidence that this method works or ever worked for anyone. There is no statistics on the percentage of people who can earn a living among those who try kinetic marketing. CreateSpace’s website also lists grossly overpriced marketing and publicity services. There is no verifiable evidence that these services pay off for any self-publishers; thus, these “services” are nothing more than snake oil. The deceptive promotion of self-publishing by Amazon was most active during 2009–2014; as of July 2015, Amazon seems to have stopped or toned down most of these activities.

Self-publishers fall for Amazon’s deceptive tactics because they got used to the image of the customer-friendly and hugely successful company who they trust. The prospective self-publishers have no idea that a large part of this success is the result of screwing publishers and authors for many years. For instance, Amazon allows customers to sell used books on the same web page where a publisher is trying to sell a new book. For a self-publisher who sells one or two books a day, it makes no sense to advertise such a sales page. This is because at some point, Amazon’s customers will start buying used books almost exclusively: they are priced much lower and the supply of used books exceeds the demand. Print self-publishing generates a lot of business for vanity presses (such as Amazon’s CreateSpace) but not for authors. With respect to ebooks, Amazon’s policies also favor readers at the expense of authors and publishers. Amazon lets customers buy an ebook, read it, and return it for a full refund within 7 days, no questions asked. The author/publisher gets nothing from this transaction. To give another example, when someone purchases an ebook as a gift for somebody else, the recipient of the Amazon.com gift card can use it to buy something else (again, the author/publisher gets nothing). If you wish to read more about the statistics of self-publishing, see my book about formatting of ebooks.

 

Chapter 7: Gambling

SUMMARY. Most people know this, but it bears repeating that it is impossible to make a living by gambling, with rare exceptions such as live poker, where the outcome of the game depends on experience and talents. In gambling activities where the outcome is purely random (craps tables, slot machines, blackjack, roulette, the lottery, and others), the probability of success will not improve if one plays more frequently or if he colludes with other participants. By investing money in gambling, a person gives up financial security at retirement in exchange for a dream about a quick success tomorrow.

 

 

Pure gambling activities where the outcome of the game is random, such as craps tables, slot machines, blackjack, roulette, and the lottery are a waste of time and money. These activities may have some entertainment value, but one should never hope to make money or to get rich by means of these games. This principle is obvious to the majority of the population, but the pages below try to explain this to the minority of readers who believe that they can make money through gambling.

First, on average, a loss is more likely than a profit in gambling because the providers of gambling activities charge fees for the use of their games. Second, in games where the outcome is purely random, it is impossible to devise a system that will produce consistent winnings. You will be able to generate consistent profits only if you can identify some predictable patterns or predict certain outcomes of the game. If you could predict certain outcomes reliably, this situation would mean that the game is not random: a false assumption about games of chance. The outcome is always random in games of chance and therefore consistent profits are not possible. (There are rare exceptions such as live poker today and blackjack several decades ago; we will talk about them later.) The following is an example.

Let’s say you flipped a coin five times and it came up tails five times in a row. What is the probability that the next time you flip the coin it will come up heads? On the surface, it may seem that you have identified a predictable pattern and now the fortune is on your side if you bet on heads. The probability that a coin will come up tails six times in a row is small: 1/64. Therefore, you might figure that in this case, the probability of heads after the sixth coin toss should be 63/64 or 98.4%. But the probability of heads is still 50%, regardless of what you saw in the previous rounds of coin flipping. Thus, the game is still random and unpredictable.

Certain activities that can help you to predict the outcome of some games, such as card counting in blackjack, are no longer effective due to various countermeasures implemented by casinos. People who will be willing to play blackjack against you outside of a casino are most likely familiar with card-counting techniques. Therefore, you will have no advantage and the outcome of the game will be random.

Third, the common misconception among people who like gambling is that persistence will increase the probability of winning. They believe that if you lose one game, you shouldn’t be discouraged and should keep playing, and this approach will increase your chances of winning. Although the probability of winning will be greater if you play ten games rather than one, your losses will also be ten-fold bigger. The expected return on investment shrunk tenfold: you paid (lost) ten times more money hoping to obtain the prize of the same size. The probability of winning increased also tenfold. This change did not make the game more favorable.

Pooling of bets, such as lottery pools that some people participate in, does not change your chances of profit either. In lotteries, the government withdraws a large portion of the lottery revenues (usually 50% of ticket sales) for its own needs, and leaves the remaining 50% of the proceeds for the prize fund. For example, if you collude with all other lottery players and buy up all tickets of a lottery draw for your single pool, will you lose or gain money? You will lose 50% of your investment despite having the winning ticket in your pool. (We are assuming that your share of the winnings is equal to your share of the pool, which is a fair arrangement.) The lottery is a bad investment and the great majority of people will keep losing money no matter how often they play or how much money they spend on lottery tickets. For this reason, some people call the lottery “a tax on stupidity”: the government collects this money from the population, and this tax only applies to people who are not good at mathematics.

People who spend their disposable income on gambling instead of saving will reduce their chances of achieving financial independence at the retirement age. This is because they will forgo an opportunity to invest profitably thanks to such wasteful activities as the lottery. Put another way, these people will give up low-risk financial independence at the retirement age in exchange for a dream about quick and easy financial independence tomorrow.

 

Chapter 8: Online poker

SUMMARY. Online poker is pure gambling because skills and talents do not affect the outcome of the game, which is always random. Psychological tricks don’t work because you can neither see nor hear your opponents, and odds calculators have eliminated the difference between experienced and novice players.

 

 

Internet poker is a form of pure gambling, where winning is random and unrelated to skill. We saw earlier that games where the outcome is purely random will cause losses for the majority of people and significant gains for providers of the gambling activities. Live poker is different in that the skills do matter and a minority of talented people can win consistently over time, even though the outcome of any one game is random. Internet poker is pure gambling because it obviates the two advantages that a skilled player can have:

 

1.    correct estimation of odds of winning or losing a hand;

2.    “acting” (such as bluffing) and “reading” of other players.

 

The use of odds calculators on poker websites is widespread and not against the rules. Odds calculators eliminate the difference between skilled and unskilled players because this software will allow anyone to make intelligent decisions in a poker game. An odds calculator plugs into an online poker table and shows you pot odds and simple odds of winning a hand, no input of data is necessary. This software often has other useful features, such as tracking and analysis of behavior of the people you are playing against. For example, after you have played 10 or 20 hands, it can tell you if a player is tight, loose, aggressive, or passive. The software can also show you discarded cards in some cases and you can find out if a player was bluffing after the fact.

Bluffing, reading of players, and other psychological tricks that are crucial in live poker are irrelevant in online poker. You can neither see nor hear your opponents. In case you are wondering, there is no software that will allow you to determine if somebody is bluffing or not. Some people might say that you can vary the decision time or read what others are typing in the chat box or use the player profiles compiled by your poker software. These methods are useless and do not make online poker a “people game” that live poker is. Online poker is a mechanical game similar to a slot machine.

Most poker professionals do not list online poker tournaments among their achievements. This is because you cannot win consistently in online poker and the outcome of this game is random regardless of your level of skills. In live poker championships, you see the same group of people among the winners year after year. This observation suggests that skills and talents matter in live poker (but there is a great deal of luck too). In online poker championships, the winners are random and you never see the same people win this game repeatedly. These observations suggest that luck is all that matters in internet poker.

In conclusion, my advice is to not waste your time and money on internet poker. Also, you need to keep in mind that live poker is not for everyone and may be illegal in your geographical area. You need to check your local laws and regulations. The influence of luck in live poker is substantial and only a small minority of participants can make money consistently in this occupation. Therefore, live poker is not for everyone.

 

*    *    *

 

On the pages above, we reviewed the most popular types of activities that are believed to lead to “financial freedom.” The analysis shows that these activities are unlikely to help you achieve self-employment (even less likely wealth) and instead, will lead to financial losses with high probability. Let’s say you hate your boss, are sick of your job, and want to become self-employed. Should you start trading forex, play online poker, sign up with a multilevel marketing system, or engage in any other disadvantageous activities we discussed above? No, you shouldn’t. Either think of something else or, as the saying goes, be wise enough to accept things that you cannot change.

 

Chapter 9: Safe investments

SUMMARY. There are at least three types of smart investments that do not require luck: a stock index fund, a mortgage on a house, and government bonds.

 

 

As we saw above, there are no investment opportunities out there that guarantee huge returns with low risk. In rare situations when such opportunities do arise, the discoverer exploits them to the fullest and does not advertise them in books or on TV. If someone’s purpose of investing is to get rich, this means that this person is relying on luck. For example, he wants to invest in a single stock, a single startup company, or a bunch of lottery tickets. This person will most likely sustain losses. On the other hand, there are at least three types of smart investments that do not require luck. They are a) a down payment on a mortgage, or if you already have a mortgage, paying off the mortgage faster than necessary; b) government bonds or bank deposits; and c) a stock index fund. These approaches can increase your net worth over decades with low risk. We already discussed government bonds and index funds above and will now talk about investing in your own housing.

Although a mortgage loan can be considered a liability (you owe a lot of money to the bank), an asset (your house or apartment) offsets this liability. This arrangement gradually increases your net worth because it allows you to build your home equity, which is the market price of your housing minus what you owe to the bank. Things are more complicated than this because of yearly fluctuations of real estate prices. You will sustain losses if you buy a house and then have to sell it several years later, during a downturn in the prices of real estate. Nonetheless, over decades, the prices of residential real estate go up at an average annual rate of 5.9% in the United States. Therefore, if you are not moving frequently, getting a mortgage is a good idea. A person or a family who rent housing are losing their money in the amount of rent each month and are building their landlady’s home equity. In other words, if you have a mortgage, you are investing your monthly mortgage payments into your own housing.

Given the price appreciation data of real estate cited above, we can conclude that the long-term return on investment in mortgage payments is close to zero. This state of affairs is due to interest you are paying to the bank on your mortgage loan as well as housing insurance, furniture, utility payments, and property taxes. They will offset the long-term increase of real estate prices. This situation means that mortgage payments build your net worth in the same way as if you were depositing them into a savings account that pays 0% interest. Nevertheless, you are in a better situation than a person or family who rent their housing. They are throwing away their monthly rent payments instead of depositing them into the zero interest savings account, that is, the mortgage loan. Therefore, getting a fixed-rate mortgage is not a bad decision if the mortgage payments are comparable to the rent you are paying.

Mortgage rates are comparable to inflation rates in many countries. If your salary increases at the same rate as inflation or faster because of promotions, raises, or indexing, then you may consider your mortgage an interest-free loan. Thus, investing in the housing that you can afford is a good investment strategy. The key phrase here is “housing that you can afford,” meaning that you should be able to easily make the monthly mortgage payments at your level of income. If the sum of your monthly debt payments, including mortgage, constitutes about 25% of your gross monthly income (before taxes and contributions), this is an affordable mortgage loan.

There is one exception when renting is better than having a mortgage. If you are trying to start a business or if you just started a business, renting will be less stressful: getting a mortgage will be a bad idea. If you have plenty of money to invest, then buying real estate and renting it out will be a good low-risk business, provided that you study this business well and you plan on staying in this business for the rest of your life. On the other hand, if you have high income and want to save money for a different kind of business, unrelated to real estate, then you should not put your money in real estate and instead save it in bank deposits (protected by government insurance). First, you will not lose money on commissions of realtors when buying and then when selling real estate. Second, you won't have to spend your time on real estate business and will be able to concentrate on your main job. Third, you will not lose money because of possible fluctuations of real estate prices.

With stock indexes, keep in mind the above example of the Nikkei 225 and consider investing in a global stock index. Because I am not a certified financial adviser, you will have to obtain further information on investing elsewhere.

 

Chapter 10: The role of hard work

SUMMARY. The correlation between hard work and income is weak and limited. Some factors other than hard work must be important for achieving a high income. Higher net worth correlates with fewer hours worked per year. Hard work is not a sufficient condition, whereas luck is a necessary condition for achieving wealth (the top 1% of net worth in the population).

 

 

Returning to the subject of wealth, some people do get rich quickly, so why can’t you? Do these people work harder or are they smarter than you are? The weight of evidence suggests that this is not the case. For example, higher than average intelligence correlates well with higher than average income, but huge intelligence does not correlate with huge income; there is no correlation between IQ and net worth.

There are plenty of people in the world who work excessive hours and who will not get rich (for example, many of the owners of startup companies). Nevertheless, it is possible to become wealthy without working (for instance, through the lottery, inheritance, or marriage) or without trying hard (for example, if your parents are well connected). A person who has a close relative who is a Hollywood star or director has a better chance of achieving big success than the rest of the population. Therefore, hard work is neither a necessary nor a sufficient condition for getting rich. We can define wealth as being in the top 1% of net worth in the population. The above observations suggest that achievement of wealth does not require either hard work or high intelligence.

A convenient indicator of hard work (i.e., effort) is average hours worked per week (or per year). There are some limited scientific data on the relationship between wealth and work hours. Dr. Eric French investigated the effects of net worth, wages, and health on work hours and on the likelihood of retirement. According to his findings, wealth increases with age (a well-known fact), but the number of hours worked per year decreases with age, on average. Thus, if we use average numbers for all age groups in the United States, higher net worth correlates with fewer work hours. I was unable to find studies on the relationship of work hours and wealth within a single age group.

If we look at income, research shows that the correlation of hard work and income is weak and limited. Among different countries, if we compare GDP per capita (average income per person) and average annual hours worked (2010 data), it is difficult to see a correlation. For example, Norway and Luxemburg have higher GDP per capita than the U.S., but they work fewer hours on average. On the other hand, South Korea and Mexico work longer hours than the U.S., but they have smaller incomes, on average.

If we look at a single country, in the United States, there is a moderate trend for longer work hours among higher income groups. But the small differences in work hours cannot explain big differences in incomes. For example, people earning more than $500,000 a year work only 17% more hours than people making between $50,000 and $60,000. Also keep in mind that these are average numbers and there are people making $50,000 a year who work longer hours than some of those earning $500,000. In the graph “income vs. hours” there is a plateau around 50 hours per week (meaning that higher incomes no longer correlate with more hours worked). For example, the difference in the hours worked between people earning $250,000–500,000 per year and those earning more than $500,000 is negligible: both groups at around 49 hours a week. In New Zealand, the percentage of workers who earn more than 100,000 dollars peaks around 50 hours per week and declines among people working more than 60 hours per week. These data suggest that people earning the highest incomes in New Zealand are unlikely to work more than 50 hours per week.

Note that we cannot assume that the longer hours cause higher incomes, based on the above data. The reverse is also possible: higher incomes cause slightly longer work hours. For instance, a high earner can hire a maid and spend less time on household chores, choosing to devote more time to the career. We can conclude that the correlation between hard work and income is weak. Some factors other than hard work must have more influence on income.

 

Chapter 11: The role of luck

SUMMARY. A moderate and limited correlation exists between IQ and income, but there is no correlation between IQ and net worth. These data suggest that wealth is either a result of pure luck or has to do with mental abilities unrelated to IQ (for instance, a musical talent). The latter explanation also involves luck because a person can neither learn nor earn a talent. A person’s income and net worth depend on many genetic and environmental factors that are beyond the person’s control, such as innate health, both physical and mental; physical appearance; various talents; character or personality traits; where and when you were born; your parents’ social status and net worth; the kind of upbringing and education they will give you; the lifestyle that your parents have imprinted on you (habits related to nutrition, exercise, smoking, and drinking, which affect physical and mental health); the environment you grow up in; and whether your talents and skills are currently marketable. A person cannot earn any of the above things; they happen to people by chance. The book “How to Become Smarter” asserts that you can change some of the above (for example, impulsivity). Yet individual differences among people are substantial and will remain substantial regardless of whether these techniques work or not. For example, if everyone increases their IQ by 10 points, some people will still be much smarter than others. The notion that anyone (i.e., the majority of people) can achieve big success is illogical. Big success means that you have hundreds or thousands of times more fame, wealth, or competitive awards than average people. The majority of people cannot be a thousand times better than average people because the majority consists of average people. Hence only a tiny minority of the population can achieve big success, and the probability that this event will happen to any given person is miniscule. An MBA degree does not provide an advantage at starting a business, but this degree represents a low-risk and patient approach to wealth—climbing the corporate ladder. Even if you do not get lucky, an MBA degree or any other professional degree is a reliable path to above-average income. There is a weak to moderate statistical correlation between self-employment and happiness, on average. The same is true for material wealth and happiness. Nonetheless, wealth and self-employment are not necessary for happiness because there are plenty of happy people who are neither self-employed nor rich. Most people do well if they get good education, find good jobs, and make long-term investments.

 

 

There are many factors that influence the chances of getting rich. Most of these factors are not subject to free choice and have to do with luck. A combination of the following random factors predetermines the financial future of a person, with high probability:

 

·       genetic factors, such as innate health, both physical and mental; physical appearance (important in show business); various talents; and intelligence;

·       environmental factors, such as where and when you were born (e.g., a rich country or a poor country, a politically stable or unstable region); who your parents are and what kind of upbringing and education they will give you; your parents’ social status and net worth; the lifestyle that your parents will imprint on you—for example, various habits related to nutrition, exercise, smoking, and drinking—this lifestyle will have an impact on your physical and mental health;

·       character or personality traits, such as conscientiousness; they are thought to be the result of both genetic factors (genes that affect brain function) and environmental factors (upbringing and social environment in childhood); two random people will not have identical character traits when they reach adolescence; (many self-help and get-rich-quick books assume that you can change your personality traits easily by a mental effort: this notion is a fallacy).

 

The combination of these factors will have a strong influence on future income and net worth of the person. Unfortunately, a person cannot “earn” those factors. They happen to people by chance, that is, these things are the result of luck. Therefore, if we are talking about the independent approach to wealth, we have one variable that the person has control over: hard work. We also have about a dozen factors that are random and not subject to free choice. These random factors will determine how competitive and productive the person will be in the marketplace compared to other people (competitors). Thus, hard work alone will not be sufficient in order to achieve great success. The success in the marketplace will depend on the aforementioned combination of variables that are beyond your control. In other words, luck is a necessary condition of wealth.

The implication is that advice on how to get rich is always useless because there is nothing a human being can do that will guarantee wealth or great success. Luck is beyond anyone’s control. Therefore, it makes no sense to pay for useless advice. Another reason why it is best to ignore the advice on how to get rich is that this advice is often based on magical thinking. Examples of common fallacies include

 

Fallacy 1. If you think and behave as if you were rich, you will get rich.

Fallacy 2. If you ask God (or “the universe,” “nature,” “the collective subconscious”) to give you wealth, it is guaranteed that you will get rich. According to some wealth gurus, now you can burn all bridges and undertake the riskiest business ventures—you can’t lose—because now “the universe is on your side.” [My comments: Studies of medical benefits of prayer show that it is not effective or at least not a reliable approach. Of course it is possible that the universe is unwilling to give you health, but will give you wealth if you ask for it, although I find it unlikely.]

Fallacy 3. If you visualize (dream about) something positive every day, such as fame and fortune, it is guaranteed that this positive thing will happen to you. [My comments: If this were true, then a placebo pill would be an effective medical treatment. Placebos don’t work. Manic depressive patients often dream about wonderful things and do a lot of positive thinking during a manic episode. This activity does not lead to wealth; on the contrary, mania and hypomania promote excessive spending and reckless behavior, which often lead to financial ruin.]

Fallacy 4. You are the only person in the world who prefers to buy cheap and sell dear. Other people are fools who do not want to be rich and who will be giving you their money in large amounts without a good reason. They will be buying stuff from you at prices well above the market price. They will also be selling their stuff to you at prices well below the market so that you can get rich.

Fallacy 5. Wealth requires certain personality traits, such as confidence (you should believe in yourself!), courage, self-discipline, and persistence. Once you develop those, then there is nothing standing between you and untold riches. If you do not have these personal qualities, it is your own fault because people can change personality traits by a mental effort.

Fallacy 6. There are no risks and no competition in the marketplace and you will be the only person who wants to get rich using the proposed approach.

 

If you see a “guru” peddling this sort of material, it is likely that you are about to become a victim of a scam. Going back to definitions, material wealth is always relative and we can only define it by how much stuff you have compared to other people. If everyone has a private jet, then you need to own ten private jets to be considered rich. If your net worth equals one million dollars, and the minimum wage is a million dollars per hour, then you are poor, not rich.

A person cannot get rich just because he has decided to do so. Other people are not going to give him their money in large quantities without a good reason because they want to get rich too. During any economic transaction between you and other people, other people will try to get as much money as they can from you if you are the buyer. They will also try to give you as little money as they can if you are the seller. Everyone cannot have more money than everybody else, hence only a minority of people can be rich. If someone is trying very hard, this does not guarantee that he will get rich. Previous paragraphs showed that how productive and competitive you are in the marketplace depends on many variables that are beyond your control.

Please don’t fall for the give-me-a-little-money-and-I-will-show-you-how-to-get-rich scam, which is one of the oldest fraudulent schemes in the history of mankind. Numerous authors have repackaged this scam in a multitude of formats (late-night TV infomercials, books, website subscriptions, videos, software, audiotapes, seminars, and so on) and sold it to tens of millions of people. Think about it: Suppose someone knows how to make a million dollars easily with 100% guarantee and is willing to give you this information for a small fee, say $30. This transaction is equivalent to their giving you one million dollars out of their own pocket in exchange for thirty bucks! This is an illogical and unfair exchange for the seller of “easy wealth,” unless the seller is a charlatan and selling useless, untested, or false information. No wonder the advice in “how to get rich” books is almost always vague, lacking details, and heavy on motivation or popular psychology instead of practical steps.

If there were a concrete and reliable step-by-step approach to making a fortune, then the first person who learned about this method would milk it dry. This person would try to leave nothing to everybody else. (Economic resources are always limited, whereas human wants are unlimited.) A sane and honest person who knows how to make a million dollars easily will make that money without telling you anything. She will not try to sell you the million bucks for thirty dollars. This person may offer you a job, without telling you all the details of the business. Ask yourself why the vast majority of rich people do not write books on how to get rich. In rare cases, some rich people do not understand the role of luck in their good fortune and try to sell useless “how to get rich” tips to the masses. You can ignore this sort of information regardless of its source because there is no earthly reason that you can benefit from it, except through pure coincidence. (For example, you get lucky and, prior to that, you read a motivational book on how to get rich. This situation will create the illusion that the book caused your success.)

If you wish to get rich, you can try doing it slowly, for example, by getting a college degree, then an MBA degree, and then working your way up the corporate ladder. Since wealth requires great luck (see the example below), it will be unwise to take big risks or to make big sacrifices in order to get rich. To summarize, it makes no sense to pay for advice on how to get rich for several reasons:

 

1.    This advice is rarely new and you can find it for free on the Internet. You don’t need to buy a book or a promotional video if you can describe the whole system in two or three sentences. Read the reviews, negative ones first, and you will realize that it is senseless to pay for that trite advice.

2.    The advice in get-rich-quick books is based on magical thinking and will be unhelpful at best or will lead to financial ruin at worst.

3.    If someone had a fantastic business idea, it would be more profitable for the inventor to hire you as a part-time or full-time employee than to reveal you the details of the idea for a hundred bucks.

4.    Wealth requires luck and it is impossible to learn how to become lucky.

 

Please note that I am not saying that you will not become wealthy and will not achieve big success. My point is that the probability that any given person will become wealthy is miniscule. It is true that anyone can win a lottery, but the probability of winning is too small for any given person. An example will illustrate this point. Let’s assume that wealth means being in the top 1% of net worth in the population. In this case there is an approximately one in a hundred chance that any one person will end up in the top 1%. (To be precise, the last sentence should contain the phrase “in that person’s age group.” On average, net worth increases with age. For simplicity’s sake we will ignore the significant age-related differences in net worth.) What will happen if 50% of the population starts doing everything in their power to increase their net worth (which is the case in modern society)? Can 50% of the population be in the top 1% of net worth? No, they cannot. Only 1% of the population can be in the top 1% by definition. Therefore, whatever a person does, the chance that he or she will end up in the top 1% is small. The chance that any given person will get into the top 0.1% is smaller still.

People have unequal opportunities from birth, including genetic differences in intelligence. The book “How to Become Smarter” proposes some techniques that can change certain character traits, such as impulsivity. Nonetheless, any two random people do not have identical character traits to begin with. Therefore, application of the proposed techniques will not provide everyone with identical high-quality character traits and equally high intelligence. The differences in intelligence and character traits among different people will remain substantial, regardless of whether the proposed methods are effective or not. How competitive you are in the marketplace depends on how your personal characteristics compare to those of other people. For example, if everyone increases their IQ by 10 points, then your competitiveness relative to other people will not change. Put another way, publicly available information on how to become smarter can increase your income, but it will not change your economic status among other people. This is because other people will also take advantage of this information. This kind of knowledge will not help a person to get into the top 1%. Therefore, the financial future of any one person depends on random factors, many of which are not subject to free choice.

From the discussion above, it follows that people do not have complete control over their financial destiny. I do believe in the existence of free will, but the evidence presented above suggests that the role of free will in shaping a person’s life is small. In particular, your mind cannot choose your thoughts, needs, desires, interests, emotions, talents, and personality traits because they are the brain’s doing. It is the brain that controls the mind, not the other way around. You are free to pursue your desires, but you are not free to choose which desires you will have. It is likely that fewer than 10% of choices a person faces in life are free choices. The rest are the choices forced or limited by biological and environmental factors.

Nonetheless, in my opinion, it is possible to reduce bad luck. When you are not fully healthy and your brain is not functioning optimally, you experience bad luck or it seems that you are out of luck. The reason must be obvious: you are making bad decisions and are rewarded with a difficult and unpleasant life. On the other hand, if you achieve the best possible health and consequently optimal brain function, and will keep yourself in the best shape, then you will minimize bad luck and will improve your chances for big success. I recommend reading about this stuff in my other book "How to Become Smarter" (Appendices VII and VIII and about hypomania in Chapter Four). If you have never felt great and never experienced hypomania, then you are probably sleeping not living.

I should also say that if you are thinking about moving to another country in hopes of getting rich or starting your own biz, you need to consider the following factors: Unless you immigrate with your parents before the age of 7 or 10, you will always have a foreign accent, albeit a mild one. Most of born citizens will look down on you, and you will feel like a second-rate person in interpersonal relations all your life. This is not a serious problem if you are obscenely rich or know that you will be your own boss in the new country. If you will be working for hire, then you will have to face the above inconvenience. Although your income in the new country may be higher, your status in society will probably be lower in comparison with your home country. Believe me, you will feel more comfortable having an above-average income in your home country than an average income in the new country. All governments engage in propaganda, i.e., false advertising, in the most ingenious ways. Most likely, what you will see in the new country will not match your expectations. Your reasons for moving may be invalid in the first place if they are based on what you see in the mass media, movies, or TV shows (and you don’t realize that this stuff is mostly propaganda). If you will be staying on a work, marriage, or student visa in the new country, your legal rights and various personal freedoms will be limited for many years in the new country. You will be not only a second-rate person (in interpersonal relations) but also a second-rate citizen. You are opening yourself up to various abuses. (Side note: When I just came to the U.S., in late August 1999, I rented a room in Washington, DC, and had a housemate named Liam K. Healy, who bullied me [physical threats of violence] and subjected me to various other kinds of psychological abuse. Amazingly, this guy passed the bar exam in the fall of 1999 and currently practices law in Michigan. I moved out of that house as soon as I could, in December 1999.) In contrast, you are a 100% rightful citizen in your home country and enjoy maximal freedoms in all respects. In particular, if you are thinking about starting your own business, you have a much better chance in your home country. Here are some invalid reasons for moving to another country: {1} a better climate (nonsense; dress to the weather and install better heating or air-conditioning in your home); {2} better economic opportunities (see above regarding propaganda; there are rare exceptions, so rare that they are not worth mentioning); {3} better political freedoms (nonsense; in this field, the definitions and claims are so vague and so soaked in propaganda that it’s a waste of time arguing about this stuff; 99% or more of the population is not affected or does not care about political differences among various countries; when somebody claims that they moved for political reasons, the actual reasons are most likely different).

Going back to the subject of financial destiny, the majority of the population cannot become self-employed entrepreneurs. Realistically, most people will do well if they get good education and find good jobs. Having a bearable boss will be crucial for your well-being, and you need to choose your prospective bosses carefully, for example, you can ask around among former employees. Current employees of the prospective supervisor will not give you an honest opinion because they are most likely scared of their boss. If the prospective supervisor appears to be nice during a job interview, this nicety may be a false impression because most bosses try to be courteous during the interview. Although you are unlikely to find a “nice boss,” finding a tolerable boss is feasible. By “tolerable boss” I mean someone who is not rude, or at least not very rude, and who will not make your life a nightmare by making unreasonable demands. If possible, choose bosses that are 20 to 30 years older than you are because it is easy to take orders (and occasional insults) from someone who is twice your age. Don’t waste your time and money on get-rich-quick schemes. Studies show that high income (and self-employment) is neither a necessary nor a sufficient condition for being happy, although there is a weak to moderate correlation. Keep in mind that in any occupation, as your career advances, you will receive more autonomy, i.e., you will become more like your own boss. Under the current economic system, you have a far better chance of achieving an above-average income if you get a good education and work for hire than if you try to start your own business. It is possible to achieve financial independence with almost no risk when you reach the retirement age, if you are prudent with your finances. In fact, simply by taking good care of your health, you can not only outlive your peers and retire later but also eventually become self-employed and achieve well-above-average net worth. If you don't know what hormesis is, then most of what you know about the healthy lifestyle is probably wrong (for details, see my book "How to Become Smarter," Appendix VII). I update the present ebook from time to time, so feel free to download the latest version. Also check out my other ebooks: Make Your PC Stable and Fast: What Microsoft Forgot to Tell You and Fight Cancer.

 

Literary sources

Detailed scientific argumentation and literary references are found in my other book “How to Become Smarter,” Chapter Seven. The present ebook doesn’t have literary citations in the text because they make it difficult to use the text-to-speech feature of e-reading devices. The following is a list of key studies in the order of discussion.

 

Chapter 1

·       Internal Revenue Service of USA: SOI Tax Stats - All Top Wealthholders by Size of Net Worth. http://www.irs.gov/uac/SOI-Tax-Stats-All-Top-Wealthholders-by-Size-of-Net-Worth

·       Wikipedia: Wealth in the United States. http://en.wikipedia.org/wiki/Wealth_in_the_United_States

·       Zagorsky JL: Do you have to be smart to be rich? The impact of IQ on wealth, income and financial distress.Intelligence 2007, 35(5):489–501.

·       Deary IJ, Taylor MD, Hart CL, Wilson V, Smith GD, Blane D, Starr JM: Intergenerational social mobility and mid-life status attainment: Influences of childhood intelligence, childhood social factors, and education.Intelligence 2005, 33(5):455–472.

·       Silva O: The Jack-of-all-trades entrepreneur: innate talent or acquired skill?Social Sciences Research Network 2006 (August).

 

Chapter 2

·       Barras L, Scaillet O, Wermers RR: False discoveries in mutual fund performance: measuring luck in estimated alphas.Journal of Finance, forthcoming; 2009 (Swiss Finance Institute Research Paper No. 08–18).

·       Martin GS, Puthenpurackal J: Imitation is the sincerest form of flattery: Warren Buffett and Berkshire Hathaway.Social Sciences Research Network 2008 (April, 15).

·       Mishkin FS: Economics of Money, Banking, and Financial Markets. 10th ed.; New Jersey: Prentice Hall; 2012. 720 pp.

·       Monthly historical money stock tables. Federal Reserve of the USA 2009, Table 1 (December, 3):http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

 

Chapter 3

·       Georgellis Y, Wall HJ: Who are the self-employed?Federal Reserve Bank of St Louis 2000, (Nov/Dec):15–24.

·       Pelham B.W.: Business owners richer in well-being than other job types. Gallup poll, 2009 (September).

·       Headd B: Redefining business success: distinguishing between closure and failure.Small Business Economics 2003, 21:51–61.

·       Phillips B, Kirchhoff BA: Formation, growth and survival; small firm dynamics in the U.S. economy.Small Business Economics 1989, 1:65–74.

·       Moore D.W.: Majority of Americans want to start own business http://www.gallup.com/poll/15832/Majority-Americans-Want-Start-Own-Business.aspx

·       Hipple S: Self-employment in the United States: an update.Monthly Labor Review 2004, 127(7):13–23.

·       Employer firms, establishments, employment, and annual payroll small firm size classes. US Small Business Administration, Office of Advocacy 2006 (based on data provided by the U.S. Census Bureau, Statistics of U.S. Businesses): http://www.sba.gov/advo/research/us_06ss.pdf

·       Blumberg BF, Pfann GA: Social capital and the uncertainty reduction of self-employment.Social Sciences Research Network 2001 (June).

·       de Wit G, van Winden FA: An empirical analysis of self-employment in the Netherlands.Small Business Economics 1989, 1(4):263–272.

·       Schmidt FL, Hunter JE: The validity and utility of selection methods in personnel psychology: Practical and theoretical implications of 85 years of research findings.Psychological Bulletin 1998, 124(2):262–274.

·       Hunter JE, Hunter RF: Validity and utility of alternative predictors of job performance.Psychological Bulletin 1984, 96(1):72–98.

·       Holtz-Eakin D, Rosen HS: Economic policy and the start-up, survival, and growth of entrepreneurial ventures. US Small Business Administration, Office of Advocacy 2001 (June): http://www.sba.gov/advo/research/rs206.pdf

·       Fairlie RW, Robb A: Families, human capital, and small business: evidence from the characteristics of business owners survey.Social Sciences Research Network 2004 (September).

·       Silva O: The Jack-of-all-trades entrepreneur: innate talent or acquired skill?Social Sciences Research Network 2006 (August).

·       Perani D: The neural basis of language talent in bilinguals.Trends Cogn Sci 2005, 9(5):211–213.

·       John T. Reed’s Real Estate B.S. Artist Detection Checklist http://www.johntreed.com/BSchecklist.html

·       John T. Reed’s Ratings of Gurus http://www.johntreed.com/Reedgururating.html

 

Chapter 4

·       Barber BM, Lee Y-T, Liu Y-J, Odean T: Do individual day traders make money? Evidence from Taiwan.Social Sciences Research Network 2005 (January).

·       Jordan DJ, Diltz JD: The profitability of day traders. Financial Analysts Journal 2003, (Nov/Dec):85–94.

·       Garvey R, Murphy A: How profitable day traders trade: an examination of trading profits. 2002 (working paper):http://www.econ.utah.edu/~ehrbar/erc2002/pdf/P407.pdf

·       Lo AW, Repin DV, Steenbarger BN: Fear and greed in financial markets: a clinical study of day-traders.American Economic Review 2005, 95(2):352–359.

·       Lin C-H, Hsu H, Chiang C-Y: Trading patterns and performance of trader types in Taiwan futures market.Review of Pacific Basin Financial Markets and Policies 2005, 8(2):217–234.

·       Schwartz M: Pit Bull: Lessons from Wall Street’s Champion Day Trader. Harper Paperbacks; 1999.

·       Soros G: The Alchemy of Finance. Wiley; 2003.

 

Chapter 5

·       Stephen Barrett’s Skeptical Guide to Multilevel Marketing http://www.mlmwatch.org/

·       Wu W: The Truth Behind the Smoke and Mirrors of Multi-Level Marketing and Network Marketing.DebunkingSkeptics.com Accessed January 14, 2016.

·       John T. Reed’s Real Estate B.S. Artist Detection Checklist http://www.johntreed.com/BSchecklist.html

·       Oishi S, Diener E, Lucas RE: The optimum level of well-being: can people be too happy?Perspectives on Psychological Science 2007, 2(4):346–360.

·       Diener E, Biswas-Diener R: Happiness: Unlocking the Mysteries of Psychological Wealth. Oxford: Wiley–Blackwell; 2008. 304 pp.

·       Hrobjartsson A, Gotzsche PC: Placebo interventions for all clinical conditions.Cochrane Database Syst Rev 2010(1):CD003974.

·       Owen AM, Hampshire A, Grahn JA, Stenton R, Dajani S, Burns AS, Howard RJ, Ballard CG: Putting brain training to the test.Nature 2010, 465(7299):775–778.

·       Papp KV, Walsh SJ, Snyder PJ: Immediate and delayed effects of cognitive interventions in healthy elderly: a review of current literature and future directions.Alzheimers Dement 2009, 5(1):50–60.

 

Chapter 9

·       The equity you live in: the home as a retirement savings and income option.Fidelity Research Institute 2007 (February).

·       Barras L, Scaillet O, Wermers RR: False discoveries in mutual fund performance: measuring luck in estimated alphas.Journal of Finance, forthcoming; 2009 (Swiss Finance Institute Research Paper No. 08–18).

 

Chapter 10

·       French E: The effects of health, wealth and wages on labor supply and retirement behavior.Review of Economic Studies 2005, 72(2):395–427.

·       King M, Ruggles S, Alexander JT, Flood S, Genadek K, Schroeder MB, Trampe B, Vick R: Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. [Machine-readable database].Minneapolis: University of Minnesota, 2010.

·       Fursman L: Working long hours in New Zealand.Data from the 2006 Census, NZ Department of Labour, March 2008.

 

Chapter 11

·       John T. Reed’s Ratings of Gurus http://www.johntreed.com/Reedgururating.html

·       Hrobjartsson A, Gotzsche PC: Placebo interventions for all clinical conditions.Cochrane Database Syst Rev 2010(1):CD003974.

·       Andrade C, Radhakrishnan R: Prayer and healing: A medical and scientific perspective on randomized controlled trials.Indian J Psychiatry 2009, 51(4):247–253.

·       Owen AM, Hampshire A, Grahn JA, Stenton R, Dajani S, Burns AS, Howard RJ, Ballard CG: Putting brain training to the test.Nature 2010, 465(7299):775–778.

·       Papp KV, Walsh SJ, Snyder PJ: Immediate and delayed effects of cognitive interventions in healthy elderly: a review of current literature and future directions.Alzheimers Dement 2009, 5(1):50–60.

·       Zagorsky JL: Do you have to be smart to be rich? The impact of IQ on wealth, income and financial distress.Intelligence 2007, 35(5):489–501.

·       Silva O: The Jack-of-all-trades entrepreneur: innate talent or acquired skill?Social Sciences Research Network 2006 (August).

·       Perani D: The neural basis of language talent in bilinguals.Trends Cogn Sci 2005, 9(5):211–213.

·       McConnell C, Brue S, Flynn S: Economics. 18th ed.; New York: McGraw-Hill/Irwin; 2008. 880 pp.

·       Pelham B.W.: Business owners richer in well-being than other job types. Gallup poll, 2009 (September).

·       Diener E, Biswas-Diener R: Happiness: Unlocking the Mysteries of Psychological Wealth. Oxford: Wiley–Blackwell; 2008. 304 pp.

·       Headey B, Muffels R, Wooden M: Money does not buy happiness: or does it? A reassessment based on the combined effects of wealth, income and consumption.Social Indicators Research 2008, 87(1):65–82.

·       Oishi S, Diener E, Lucas RE: The optimum level of well-being: can people be too happy?Perspectives on Psychological Science 2007, 2(4):346–360.

·       Kahneman D, Deaton A: High income improves evaluation of life but not emotional well-being.Proc Natl Acad Sci U S A 2010, 107(38):16489–16493.

On the cover: a photo of Caesars Palace (Las Vegas) by Jon Sullivan.
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