Why Rich People Do Crazy Things
Kurt Vonnegut, an American Author known for the novel, Slaughterhouse-Five was at a party with Joseph Heller. Another famous author who wrote Catch-22. They were at the home of a well known billionaire.Kurt said to Joseph
“Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel ‘Catch-22’ has earned in its entire history?”
And do you know what Joseph Heller said? He said that he had something the billionaire could never have.
“Enough.”
The word “enough” is one of the simplest, yet most powerful concepts in the world of personal finance. If you can harness the power of that word, you can live a life richer than the most billionaires out there.
However, if you don’t know what your enough is. It will not matter if you have $100 million dollars, or even $100 billion dollars because you will always be poor. You will constantly risk everything you have to have more and more. And you will never know when to stop until everything you have is gone.
Jeff Skilling - Never Enough
We don’t have to look far to find examples of the dangers of not knowing your enough. Jeffrey Skilling is most famous for his role as the former chief executive of Enron. Mr. Skilling was one of several Enron leaders who guided the company through a spectacular rise in the 1990s.
Enron evolved from a sleepy pipeline operator into one of the world’s dominant energy companies by reshaping the way natural gas and electricity were bought and sold. Unfortunately, he was later convicted for his leading role in a complex fraud and conspiracy scheme that led to the company’s stunning fall. To this day it is considered one of the largest corporate bankruptcies in American history.
The fall of Enron not only cost shareholders billions of dollars in investments but also many of its employees of their life retirement savings. After a 56 day trial, in 2006, Mr. Skilling was convicted of 18 counts of fraud and conspiracy and one count of insider trading. He played a central role in the accounting schemes that masked Enron’s debts and weak finances from shareholders and regulators.
However, what is overlooked most often is that Jeff Schilling was more than a white collar criminal. Before Enron, Jeff Schilling was a successful corporate executive with great potential. Having grown up in a middle class family from Pittsburgh, Pennsylvania, he carved out a nice path for himself by not only getting himself into Harvard Business School but graduating top 5% of his class. Afterwards he had a great career at McKinsey & Company. A highly prestigious global management consulting firm and he eventually became one of the youngest partners in the history of McKinsey.
Now, at this point in his life, had Jeff Skilling had defined his ‘enough’ his story would have turned out very differently. However, as we all know now he wanted more. Way more. Even to a point where he would break the law to fulfill his insatiable desire for more wealth and more prestige. So why do people like Jeff Skilling do what they did? Why did someone already successful and rich by any standards do crazy things and put everything they have at risk? Here are a few reasons why.
The Need To Compare
My 8 year old son’s dream is to one day become a professional soccer player. He wants to be the next Korean American Cristiano Ronaldo so he can make millions of dollars just like him. Now, given that his dad’s greatest athletic achievement was a second string bench warmer in a Junior Varsity volleyball team, I do have some doubts about his future in professional sports.
So I have to carefully straddle the line between encouraging him to pursue his dream and instilling within him some pragmatism. But let's say he proves me completely wrong and does achieve his dream of being a professional soccer player. I would be so proud even if he is a second string bench like his old man.
But even if he becomes a professional soccer player, the probability that he will make millions overnight is still a far-fetched dream. The average salary of a professional soccer player is $69,303. Now, this is nothing to scoff at. In many countries around the world, a salary of $70,000 can feed a whole family and then some.
But let’s say my son starts playing on the same team as his role model, Cristiano Ronaldo. Cristiano Ronaldo is considered one of the best soccer players in the world. Most recently he signed a $200 million per year contract with Saudi Arabian club Al Nassr making him the highest-paid soccer player in history.
Cristiano Ronaldo - The Highest Paid Soccer Player In History
Becoming a professional soccer player is ridiculously hard. And anyone who gets to that level should be very proud of him or herself. But when you are playing on the same field as someone like Cristinao Ronaldo, you can’t help yourself but always feel poor. And what’s worse, you will always want more.
The ceiling of social comparison is so high that if we constantly allow ourselves to compare our net worth or income to other people, we will never hit it. It is a futile battle that can never be won. And the only way to win is to not start the comparison to begin with. To accept the fact that we have enough, even if that seems less than those around us.
If I am Jeff Schilling, finding satisfaction in the fact that I achieved the American dream of becoming a partner at McKinsey and stop comparing. If I am a professional soccer player, being grateful that I made it this far and not comparing myself to the handful of celebrity athletes who are making millions.
Overconfidence
Most rich people became rich because they were great at something. In the case of Jeff Schilling, he was extremely smart. Not only did he earn his MBA from Harvard Business School, he graduated top 5% of his class as a Baker Scholar. And after graduation, he went only to become one of the youngest partners in the history of McKinsey & Company.
I mean if I was in his shoes, it would have taken me a lot of effort to find some humility as well. He was confident in his ability to succeed and he carried on that confidence to Enron. Constantly pushing the boundaries to make him and his company look great to the outside world. But this overconfidence eventually became the reason for his downfall. Because of his past success, he greatly overestimated his own ability for success. And it's not just Jeff Schilling that has this problem.
Most people on average have an unrealistic and rosy view of our abilities and prospects. Majority of us think we are better than average. We think we are better looking than average. We think we are smarter than the average. But if statistics are accurate, this can’t be true. At least half of us are below average no matter what. So if we don’t want to become crazy like Jeff Schilling, let’s digest some humble pill and constantly keep ourselves in check.
Greed
When we’ve tasted having more, it's interesting how instead of satisfying our desire, it actually leads to wanting more. It's human nature.
I remember getting my first car. It was a used Nissan Altima that I bought for $10,000. At the time I was so happy and content with my purchase. But as time went by, I started to see all these other nice cars on the road and began to feel like my car wasn’t good enough. Especially when I was parked next to my friend’s BWM or Audi. I became greedy and wanted more.
Our minds are weirdly twisted that way. And actually very dangerous. Because the taste of having more money, more power and more prestige leads to increased ambition versus actual satisfaction. We take more unnecessary risks in our lives in order to satisfy this ambition and greed. In the case of Jeff Schilling, he put the livelihood of thousands of people at Enron at risk in order to satisfy his greed.
Generating wealth is a positive thing. But only if we can define our “enough.” Only then can we really enjoy our wealth versus feeling constantly lacking.
Clearly Define Our Enough
Alright, now that we spent enough time pounding on poor Mr. Jeff Skilling, let’s talk about some practical tips on how we can prevent ourselves from doing crazy things.
One as I mentioned several times in this video is to clearly define our ‘enough.’ To some, the idea of “enough” might seem like we aren’t taking enough risks in our lives. That we are just sitting around not being proactive members of society. But that is a completely wrong view of “enough.”
Enough is knowing and recognizing that the insatiable appetite for more is a bottomless pit that can never be completely filled. When it comes to eating good food, generally ‘enough’ is defined by our physiology. Regardless of how good something seems, there is a physical limit to how much we can put into our stomachs.
The dangerous aspect about money is that there are no other similar physical limitations to stop us from wanting more. And pursuing more. It makes us invest in risky investments we don’t understand, but promises high returns. Or it can make some of us cross the ethical boundary like Jeff Schilling and resort to essentially stealing money. Clearly define our enough and find satisfaction in that.
Identify Things Never Worth Risking
Another practical tip on how we can prevent ourselves from doing crazy things is to identify things that are never worth risking. No matter how lucrative something seems.
Our reputation is invaluable. We should never cross ethical boundaries to make extra money. It will eventually catch up to us and we can never recover our reputation.
Our families are invaluable. Never do something that can put our family’s well being in jeopardy. For me, ensuring that my kids and my parents have a roof over our heads and food on the table is something I will never risk. Thus despite how appealing some investments may seem, if the risk could impact our home mortgage payment or the ability to buy food, I never consider it.
And our health is invaluable. Both mental and physical. I’ve seen too many young people who put themselves through very unhealthy lifestyles in order to try to make it. Not getting enough sleep. Not eating well. Not prioritizing self care. We only have one body and one life to live. If you don’t take care of it, it will not matter if you have a billion dollars because you will never enjoy it.
