Peculiar Traits of Rich People

The funniest thing I've noticed about rich people is how little their income has to do with their wealth. Mike Tyson earned $300 million during his career and went broke. An orphaned, unmarried administrative assistant died with millions in the bank. A lot of rich people aren't exceptionally talented at what they do. They just have quirks and habits that let them think differently about money than the rest of us.

Here are three I've noticed. 

They are (mostly pleasant) sociopaths
I'm convinced that nearly every rich person has the characteristics of a sociopath. Not in a cruel, soulless way. But sociopaths can disregard emotional events that cause normal people to worry and panic. Great investors can do that, too. They can watch stocks fall 50% and shrug their shoulders or see 10 million people lose their jobs and remain unshakably calm. In her book Confessions of a Sociopath, M.E. Thomas writes:

Sharks see in black-and-white. Scientists have suggested that contrast against background may be more helpful than color for predators in detecting potential prey, helping them to focus on crucial spatial relationships rather than extraneous details. I'm color-blind in a way that makes mass hysteria seem particularly striking in contrast to normal, expected behavior. My lack of empathy means I don't get caught up in other people's panic. It gives me a unique perspective. And in the financial world, being able to think opposite the pack is all you need.

Napoleon's definition of a military genius was "The man who can do the average thing when all those around him are going crazy." Rich people are similar. They remain normal when everyone else can't.

They care about time periods most can't comprehend
There are four ways to invest:

  1. Unsuccessfully
  2. Long-term (varying degrees of success)
  3. Short term, successful due to luck
  4. Short term, successful due to manipulation/fraud

That's the complete list. Nos. 3 and 4 eventually become No. 1.

Long-term investing is the only sane choice. But it's unnatural. We're hardwired to grab immediate gains and avoid immediate threats. That's why we eat donuts and watch CNBC.

My friend Carl Richards made a great sketch last week:

As Carl notes, studies show that we have the same emotional connection to ourselves 30 years in the future as we do an unknown third-party today. Rich people have the rare ability to bridge that emotional gap. They are allergic to the short run. "If you look carefully," Bill Bonner writes in his book Family Fortunes, "almost all Old Money secrets can be traced to a single source: a longer-term outlook."

In August 1929, John Raskob wrote an article called "Everyone Ought to Be Rich." All you had to do was buy stocks and hold them for a long time, he wrote. Two months later, the market crashed. It fell 88% over the next four years. To this day, people cite Raskob's article as a sign of irrational hype. But was it? Anyone who bought stocks the day it hit the stands increased their wealth sixfold over the next 30 years, adjusted for inflation. Missing this is why everyone ought to be rich, but few are.

They don't give a damn what you think of them
Dilbert creator Scott Adams once wrote: "One of the best pieces of advice I've ever heard goes something like this: If you want success, figure out the price, then pay it. It sounds trivial and obvious, but if you unpack the idea it has extraordinary power."

The price of being rich is really simple: You must live below your means.

But living below your means is hard. Most people want to be rich to impress other people. They do this by spending money, which is the surest way to have less of it.

The reason so many Americans are in dire financial shape is because their aspirations, desires, and wants have grown faster than their incomes. That's why the size of the median home has increased by 30% over the last 25 years while the median income has barely budged. For every $1 raise most people receive, their desires grow by perhaps $1.10. This is the express lane to disappointment.

Rich people avoid this trap. They care less about what others think of them than ordinary people do. They don't give a damn, actually. They can get a raise without buying a new car or have a great year in the market and not blow it on a new watch. A lot of them are after control over their time, which comes from having a wide gap between what they can afford to buy and what they actually buy. They are more impressed with retiring early than $90 T-shirts or $20 cocktails. It's classic Millionaire Next Door stuff.

Having the emotional backbone to drive an uglier car than you can afford, live in a smaller house you can afford, eat out less often than you can afford, and wear cheaper clothes than you can afford is rare. In my experience, less than 10% of people can do it in a meaningful way. It's the cost of being rich, and most people have no desire to pay the price.

"A miser grows rich by seeming poor," poet William Shenstone wrote. "An extravagant man grows poor by seeming rich." I don't think it's any more complicated than that. 

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

 


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  • Report this Comment On April 15, 2014, at 6:44 PM, Tallen00001 wrote:

    I would suppose that knowing what rich is, would be a good start for me. Many people make milions a year and still have less then others??? I think it's like saying, "How long is a line?" I just don't think there is a diffenative answer that is suitible for all people.

  • Report this Comment On April 15, 2014, at 6:57 PM, cmalek wrote:

    "Most people want to be rich to impress other people."

    Perhaps. Personally I don't give a fig about what other people think of my car, my house or the clothes I wear. If they don't like it, they can bugger off.

    I want to have just enough money so that I can pay my bills without a second thought. If that's being "rich", fine. I just want to be comfortably well off.

  • Report this Comment On April 15, 2014, at 7:46 PM, SMFT wrote:

    Tallen,

    I think you've nailed it on the head. The perception of what is rich.

    As Mr Housel has so ably pointed out in past articles, just being born in the United States puts you in a club that the majority of the world's population would judge as "Rich".

    You know - do you own a car? Did you eat at least twice today? Was it relatively good food? Clean drinking water? Roof over head? Lack of despotic tyrant's henchmen coming to your door and dragging your wife and kids away? Etc.

    Rich is a relative term.

    Happiness, though. Ah! There's a goal worth shooting for.....

  • Report this Comment On April 16, 2014, at 12:44 AM, biker885 wrote:

    And let's also not forgot that our health is one of the riches that should be very 1st. on the list!

  • Report this Comment On April 16, 2014, at 3:52 AM, talotu wrote:

    The one thing I would add is focusing on what you need rather than what someone else has.

  • Report this Comment On April 16, 2014, at 8:45 AM, mikecart1 wrote:

    This article is pretty much my life story. I follow #3 24/7/365 since the day I was born.

    "Money is freedom, but spending it takes it away." - mikecart1

    HAHA!

  • Report this Comment On April 16, 2014, at 10:37 AM, kwl1763 wrote:

    Absolutely agree, Being rich means being free. Whatever that means to you. It means being able to do what makes you happy and not having to worry about affording it. For some that can be amazingly little. For athletes and hedge fund managers it's 100s of millions. Most of us are somewhere in the middle. I know what my number is to retire and that is my #1 goal. Retiring comfortably.

    Distancing yourself from the "keeping up with the Joneses" syndrome is by far the most important in my mind.

    I do well but am by no means a one percenter. I do however live in a house that is about 1.5x my annual income (could qualify for at least 4x that) in a perfectly fine neighborhood with great neighbors and schools and drive a perfectly fine truck that has 150k miles and is ten years old. I could easily afford "better" but it gets me to and from with no issues. I don't spend much on clothes or "stuff" and generally spend what I need but defer what would be "nice to have". I have never spent a dime of any bonus ever. It always goes straight to investments accounts and same generally with annual raises.

    It's all about discipline to me and challenging yourself and the status quo. Make sure you are doing things because they make you happy not because someone says they should make you happy. I am far from overly frugal. My wife and I go on an expensive foreign vacation at least twice a year and eat out much more then "normal". You have to pick and choose. If we did that and had brand new cars every 2 years and lived in a 5x income house we'd be broke.

    As it is we are setup to retire in our mid 40s. It's all about discipline and spending less then make no matter how much that is. Discipline!

  • Report this Comment On April 16, 2014, at 1:11 PM, overley wrote:

    Spot on article, well done.

    My only comment is the tragedy that our government views these same folks with contempt implying that they somehow stole their money or were "lucky" rather than hard working and frugal.

  • Report this Comment On April 16, 2014, at 6:18 PM, Lucaskasan wrote:

    Overley, Which "these same folks" do you mean? As a master tax adviser, I can tell you that plenty of "rich" people were lucky or profiting in ways that may be legal, but still not right. I can also tell you that some are hard-working and frugal. However, Morgan is correct. Rich people tend to have the characteristics he lists. However, let's not forget the great mass of people who also display these characteristics and will never be rich.

    Your comment is about where the seed money comes from. The article is about growing that seed money. Plenty of rich people engage in questionable practices and display the listed traits. The traits and the personal integrity are not well linked at all.

  • Report this Comment On April 16, 2014, at 9:48 PM, Revrant wrote:

    "while the median income has barely budged. For every $1 raise most people receive, their desires grow by perhaps $1.10"

    This is rather contradictory, the median income is stagnant right now, people aren't getting raises like they used to.

  • Report this Comment On April 17, 2014, at 12:13 AM, PaFrogboss wrote:

    SMFT wrote "Happiness, though. Ah! There's a goal worth shooting for....."

    I've always believed that the key to hapiness is to WANT what you HAVE!

  • Report this Comment On April 17, 2014, at 9:44 AM, kspes wrote:

    I would like just enough money to live the life I would like to be accustomed to.

  • Report this Comment On April 17, 2014, at 11:16 AM, feawtewa wrote:

    Living below your means doesn't make you rich, it makes you stable. Owning assets for profit (ie business) makes you rich.

  • Report this Comment On April 17, 2014, at 11:19 AM, rotorhead1871 wrote:

    happiness and fulfillment over rich any day...comfortable and secure is all the real money you need.....the rest is surplus........happy......fulfilled....are not goals to seek they are states of MIND...and are developed over a lifetime....consciously seek and refine.......there you go.....you got it.....

  • Report this Comment On April 17, 2014, at 11:19 AM, 48ozhalfgallons wrote:

    Based upon the quality of comments, this must be one of Morgan's best articles. Hats off!

  • Report this Comment On April 17, 2014, at 11:39 AM, DSmod wrote:

    Great article! One more trait I would ascribe to the majority of rich people is that being rich was never their primary goal -- it comes as a nice reward from having the passion, vision, and drive to succeed in meeting some greater goal.

  • Report this Comment On April 17, 2014, at 11:48 AM, Trashman0430 wrote:

    There is a huge difference between politics and reality. A politician has no problem with being wealthy and spending little to none of it to better the world around him. However to draw votes for his campaign he will say anything and throw the rest of us under the bus. This is not to say that left or right plays a part in this kind of thinking. It is to say that politicians will do anything to get into and stay in office. Therefore rip the wealthy.

  • Report this Comment On April 17, 2014, at 12:24 PM, Enlighten3 wrote:

    Another outstanding article from Morgan! The key is being able to filter that external noise of others views and perception. Learning to be content and most importantly as someone said being rich is not their goal but leads them to oath of riches.

  • Report this Comment On April 17, 2014, at 12:25 PM, Enlighten3 wrote:

    Sorry typo meant Path to riches not oath.

  • Report this Comment On April 17, 2014, at 1:17 PM, NozRydr wrote:

    Good stuff. The title of the article could just as well "Peculiar traits of content people" -- perhaps.

    I'd argue as a corrollary that "The key to living below your means is contentment."

  • Report this Comment On April 17, 2014, at 3:06 PM, onetermandout wrote:

    Interesting; I never looked at myself as any sort of sociopath due to the negative connotation to the word, but it does sort of apply.

    I view many people who could have succeeded, but didn't, as losers. Even more so when they bemoan their condition as they wring their hands and demand more from those who put in the effort, took the risks, and succeeded.

    The value of my main residence is about 40% of my annual income and the mortgage is about 40% of its value.

    I drive a Ford and only replace it every 3 years because it's cheaper to drive a new car due to our crazy tax laws.

    Full disclosure: I do have a second home that is 4 times the value of my main residence, but it also has a very low mortgage and I could afford a home 4 or 5 times as valuable.

    The key to being happy is to be content with what you have. Always be careful what you wish for because you may get it and the reality is rarely as good as the perception.

  • Report this Comment On April 17, 2014, at 3:56 PM, brigidl wrote:

    "They care less about what others think of them than ordinary people do. They don't give a damn, actually. They can get a raise without buying a new car or have a great year in the market and not blow it on a new watch".

    An old guy I knew years ago who was a cattle dealer thought differently, his philosophy was "When your doing well look like your doing bad, and when your doing bad look like your doing well."

  • Report this Comment On April 17, 2014, at 4:03 PM, mamarazednofool wrote:

    I think the term "sociopath" is a bit strong. It may well be that a good percentage of those who are able to ignore the events that frighten others are actually sociopaths. However, I would posit that many wealthy people (aka successful investors) are those that do in fact feel panic like everyone else, but have learned NOT to act while in a state of panic. I consider myself such a person. When the market hit the skids in 2008, I would literally feel knots in my stomach when looking at my balances. But as a graham/buffett student, I raised some cash and put more money into the market. Most of my friends think I am a really good investor. I am just a good copycat, and willing to live below my means. The trick is to copy to wealthy. All other points in this article are spot on and great advice. Getting rich is not complicated, it is just very hard. :)

  • Report this Comment On April 17, 2014, at 4:52 PM, BuilderJS wrote:

    I particularly like the sketch. Interestingly, the power or compounding interest can be represented with a sketch that is the opposite - the small dot is today's money and the larger circle being 30 years from now. Understanding those two things is the first step to becoming rich.

  • Report this Comment On April 17, 2014, at 5:18 PM, tcopel1981 wrote:

    I think the statement "They care about time periods most can't comprehend" is accurate although the explanation is probably a little misguided. Being long and blindly fully invested when economic and market conditions are fundamentally and technically deteriorating (2000, 2008, etc) is ludicrous, despite what many financial advisers, brokers, or other salespeople may try to convince you. You are able to keep and grow wealth with absolute and not relative returns. Being short is a very bad long term strategy, but can be very accretive in the short term, and being fully invested and holding liquid tradeable securities with low transaction costs through volatility and into a draw down is not usually the best move. However, a buy and hold strategy for private investments with a sufficiently high expected rate of return is probably a sound decision.

  • Report this Comment On April 24, 2014, at 8:10 PM, cooknguy wrote:

    Insightful, thought provoking article. Thanks!

    ps- In a quiet, non-offensive way, I have found comfort in the notion that "what other people think of me...is none of my business".

  • Report this Comment On April 29, 2014, at 5:54 PM, pedorrero wrote:

    People may underestimate the role pure luck plays in investing, getting rich, or a thousand other areas of life. There are no guarantees (well, death and taxes...) but there are guidelines. Just like doing healthy things like proper diet, exercise, avoiding known troublemakers (illicit drugs, alcohol to excess, eating Trans-fats etc.) heavily favors your odds of getting or keeping healthy, it doen't guarantee you won't get run over by a bus tomorrow. The point is to work on what you can control and try to not worry about the rest.

  • Report this Comment On June 06, 2014, at 12:00 PM, crashchandler wrote:

    The definition of wealth is being able to do what you want when you want----

    This takes in all of the comments above--- your health and diminishing time are the only inevitable uncontrollable variables.

    Great thought provoking article.

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