2008-04-14

The 9 Or So Paths To Getting Rich—And My Purported Analysis Of Them (Part 2 of 2)

So in Part 1 of 9 or so Paths to Getting Rich…, we laid out 9 paths, methods, schemes, strategies, or whatever you want to call them toward getting rich. Since these are paths we want to consider for us, let’s go ahead and eliminate the ones for which we don’t have any realistic chance of pursuing toward success: Visionary; Ridiculous Talent; and Blind Luck. What I would call the “barriers to entry” are too high for the first two. Those of us who are visionaries probably already know they are; and those of us with ridiculous talent most likely also already have some sense of that; and the rest of us aren’t all that likely to change our lots to put ourselves on those paths. And we can’t really pursue Blind Luck. If it happens, it happens.

No, buying lots and lots of lottery tickets is not a strategy.

How about the other six—are they sufficiently realistic to consider? Well, all six could at least be pursued in earnest. Now it’s a little weird to think of pursuing Opportunistic Luck in the way that I have named and defined it—but we could consider it to be the more aggressive form of Highly Aggressive Investment or Skilled Investor. Sort of like a venture-capital strategy. For example: look for an individual home-run stock (or other investment) whose potential return is so immense that you only need 1 in 20 to work out (and don’t mind the other 19 being total losses).

Not for the meek.

So let’s get more into that. Why should we consider doing or avoiding each of these six remaining paths? Now I’m just going through this with a roughshod trample—no even purported probability analyses or anything like that. More just what my gut reactions are. Yours may be different.

First, let’s look at upside. The Opportunistic Luck (and venture capital) path may have the highest—nearly unlimited upside. I would put the Small Business Empire next. Then I would put Small Business Investment, Highly Aggressive Investment, and Skilled Investor in roughly the same category of upside, and I would round up the bottom with Slow and Steady.

Looking
at downside, I’d put Opportunistic Luck and Small Business Empire as having the worst. The low hit rate in a strategy of pursuing opportunistic-luck home runs could rack up losses quickly, and if you don’t ever hit that home run, your losses could be ruinous. Venture capitalists have the money to spare and therefore to risk—most of us don’t. The Small Business Empire path by definition includes multiple expansions—and my sense (though lacking experience or knowledge) is that adding locations or lines of business is quite precarious.

The downsides of the next few paths start to vary with the specifics. Most real-estate strategies involve a lot of borrowing—so the flipping properties example of Highly Aggressive Investments and the buy-and-hold real-estate example of Skilled Investor both offer lots and lots of downside. (Maybe even more so in the current market.) But putting aside real estate, the downsides of Small Business Investment, Highly Aggressive Investment, and Skilled Investor paths can
somewhat be managed. Of course, like any investments, if you put in more than you can afford to lose or start borrowing money for the investments, the downsides can get worse in a hurry.

The Slow and Steady path, relatively speaking, has little downside. It still holds the usual risks of the market, inflation, and so forth.

How long might these paths take? Opportunistic Luck could be the fastest—though it too benefits from the power of time. Here are “examples” that The Motley Fool likes to use in hawking its Hidden Gems stock services:

Dell Computer [NASDAQ: DELL] Had you invested just $10,000 in Dell Computer in 1990, you'd be sitting on $6 million today.
Southwest Airlines [NYSE: LUV] Had you invested $10,000 in Southwest in 1980, you'd be sitting on $2.7 million today.
Wal-Mart [NYSE: WMT] Had you invested 10,000 in
Wal-Mart in 1975, you'd be sitting on $25 million today.


The shortest of those would still have involved 18 years to get to the stated figure—or a bigger initial investment.

I’d probably peg the Highly Aggressive Investment path as having the next-best potential for being quick. Most any small-business enterprise takes time both to launch and become profitable, let alone “richly” profitable—so I’d put Small Business Empire and Small Business Empire on the slower end. The Skilled Investor and Slow and Steady paths would be the slowest, requiring decades by design.


Of course, the million-dollar question (no pun intended) is which, if any, could realistically work for us. I won’t try to get into what combination of luck, skill, and hard work is needed for each path in this post—but assert that they all need all three. The different paths also require different ability to tolerate risk. Some of this could come through mindset. And some of this could come through having existing income or assets that mitigates some of the risk.


Okay, what did I over-simplify, over-represent, or just mess up above?


This is nevertheless a starting point—an organizational framework. A way of thinking about what we might want to do. There are some paths for which we and probably a fair number of folks can probably overcome the barriers to entry and could theoretically pursue and get rich. So the answer to “Can I get rich?” is yes.

Only a few of the paths inherently require full-time effort—and quitting an existing job. So inadvertently, or maybe not so inadvertently, we see that the answer to “Can I get rich on a salary” looks like yes too.

I’ve mentioned that Slow and Steady is our primary strategy. From here, using this framework and hopefully learning a lot more about each of these paths going forward, we’ll look at whether pursuing some of the other paths as secondary strategies could shorten the timeframe. The trick will be trying to do this without derailing the Slow and Steady path. In other words, can we develop a “Slow and Steady on Steroids” type of path?


Related Posts:
The 9 Or So Paths To Getting Rich—And My Purported Analysis Of Them (Part 1 of 2)
Success Factors Of The Really Rich?
20-40% Returns Sound Heavenly But...

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