Category Personal Insights and Experiences

Today, we discuss the mathsof wealth and attempt to answer one key question: how to get rich. But first, let’s consider the fine print: there’s more than one algorithm to wealth, and there are many paths taken by people like Jay-Z, Warren Buffett, and Vladimir Putin. I’m a self-made entrepreneur, and I’ll share what has worked for me and what I teach my students.

First, it’s important to acknowledge that the circumstances of your birth significantly impact your success and failure, which often isn’t your fault. There’s a common misconception, especially in technology, that conflates luck with talent. As a white male growing up in the USA in the 70s and 80s, I had advantages many did not. I received a nearly free education and entered the professional world in the era of the internet.

So, what is the algebra of wealth? From my experience, it comes down to this formula: Focus + (Stoicism x Time x Diversification).

Focus

People often mistake a lack of focus for a lack of talent. While talent and intelligence are correlated with wealth, they aren’t as powerful predictors of success as determination and focus. Find something you’re great at, something you can do better than most, and something people will pay you for. It may not be your passion initially, but excelling in it will make you passionate about it. Position yourself for success by getting certified, moving to a city where you can compete with the best, and identifying growth industries and themes.

For example, I’ve benefited from the e-commerce wave by starting an e-commerce firm, advising big firms on their e-commerce strategy, and investing heavily in Amazon. The next big waves of opportunity include the dispersion of healthcare, work, education, and fintech.

Relationships

Investing in the right relationships is crucial. The most important economic decision you’ll make is choosing your partner. Married individuals experience significant net worth increases compared to their single counterparts. However, marriage is a bet on a lifelong partnership, and divorce can be costly. Maintain a relationship by not keeping score and bringing forgiveness, generosity, and engagement to the table.

Stoicism

A key task of stoicism is to determine what is within your control and what is not. Living below your means is essential for financial freedom—it’s not your salary that makes you rich, but your spending habits. Anyone can make money, but holding onto it is challenging. Wealth isn’t about being a billionaire; it’s about financial discipline and character.

Avoid conflating consumption with investment. For example, upgrading to first class or constantly checking social media for affirmation are not investments in yourself. Recognize the difference between activities that cost money for fun and those that enhance economic security. Show discipline and modulate your desires.

Time

In the long term, time is your ally; in the short term, it’s your enemy. The amount of time we have is beyond our control, so don’t squander it. Invest early and make it a habit, leveraging the power of compound interest. For example, starting to invest at 20 and stopping at 40 can yield significantly more wealth than starting at 40 and stopping at 65, even if the investment amount is the same.

Remember, it’s time in the market, not timing the market, that counts.

In conclusion, the algebra of wealth involves focusing on what you can control, investing in the right relationships, embodying stoicism, and leveraging time. By following these principles, you can position yourself for long-term financial success.

Artificial intelligence. Where do we begin? Perhaps by asking if it will steal all our jobs. Or maybe by having ChatGPT write this script for us. Or we could just watch a video of AI Drake singing “Chicken Fried” without ransom beneath the shade of a Georgia pie. And that’s home, you know. I’ve seen that 1,200 times. But instead of doing any of that today, we’re going to examine artificial intelligence through the lens of an immense force. I’m talking about hype. Today, we investigate.

The Good Work Dictionary of Business Terms defines hype as the propulsive force by which the noise surrounding a phenomenon is exploded super big. And when it comes to artificial intelligence, oh boy, there has been hype. Artificial intelligence. AI. Artificial intelligence. Artificial intelligence that will be the top spending area for artificial intelligence is bound to become more intelligent. The world is not aligned on whether AI is a threat or an amazing thing.

The sheer amount of noise surrounding artificial intelligence has translated into a whole lot of funding for AI startups. Just look at Hugging Face, an AI startup that’s valued at $4 billion, or 100 times its revenue, or Mistral, a French startup that raised the largest seed round in European history this year despite being just four weeks old. Or Character AI, a 16-month-old startup valued at over $1 billion, that creates digital characters for you to talk to. Like this AI Michael Jackson trying to sell you a vacuum.

So how much of this is revolutionary technology and how much is hype-filled bull hockey? I’m Alex Conrad, a senior editor at Forbes magazine. Alex told us that a lot of the hype surrounding AI right now is generated by venture capitalists.

“They’re obviously overhyping. I mean, it’s absolutely crazy. I’ve heard stories about VCs cornering each other in hot tubs. You have founders getting asked on playdates for their toddlers by VCs who want to then ask them about their company. Like, this is crazy stuff.”

But at the same time, Alex thinks that the hype comes from a real place. So, I would say kind of yes and no. Exuberance from investors and users around these AI tools has gotten ahead, I believe, of the substance, but I believe that that’s also natural with new technologies.

Sure, it’s really expensive to build revolutionary technology. I buy that, but I need a real nerd to explain how revolutionary this technology actually is. Enter Jason Abela, a professor of economics at Yale School of Management.

“I certainly think that this is a revolutionary moment in technology. The huge uncertainty is just, okay, are we in this world where technological progress is suddenly going to accelerate and we’ve now solved a lot of the hard problems? Or is it the case that the existing technology is basically going to stall out?”

So how close are we to artificial intelligence that can think and accomplish tasks like humans? Some experts say we’re close, others think we’re farther down the road. But that uncertainty hasn’t slowed down certain key stakeholders. The number of AI mentions on earnings calls for public companies has more than doubled year over year. Even companies like Zoom have been overwhelmed with questions on how they’re going to implement artificial intelligence. Meanwhile, AI-adjacent companies like NVIDIA and Microsoft have held up the stock market this year despite mass tech layoffs and speculation of a recession.

Clearly, this is all driven by the altruistic intention to better humanity through technological advancement, right? The business world is going crazy about AI recently. Why do you think that is?

“It’s so easy to make money and buy altruistic intention,” says Kyla Scanlon, a financial educator, author, and creator. “After a certain point, you have certain companies working on certain things, but not everybody should be developing the same thing side by side. Like, we don’t need stacks on tops of stacks.”

Do AI companies today deserve the level of funding they’re receiving? “I’d say probably on average, yes. Although many of them are opposite of what materialize.”

Some wonder if all the cash being poured into AI right now might be better spent elsewhere. “All of this money is going into AI, all this excitement, and there’s so many other things that need focus, like the climate. So I think there’s all these other things that money could be allocated to, and it ends up going into the next hype cycle, which now is AI, previously was crypto.”

The dirty secret about venture capital is there’s far too much money to be deployed that these guys have been sitting on for months because they weren’t sure if the economy was just going to blow up. So there’s a ton of money that just needs to be invested for these folks to show that they’re actually doing their jobs or everyone’s going to ask for the money back.

So what’s next? Could AI destroy humanity? Will it save the world? Those were two articles literally written in the same week this year. You’re going to see a bunch of spikes of interest today around new releases, new capabilities, and then you’re going to see the same concern or thought pieces about whether this is the end of civilization as well. And I predict we’re going to see this happen every few months now for the foreseeable future. Over the next decade and several decades, you’re going to see dramatic changes in how the economy is organized because of AI. That’s very different from saying that every individual business should be devoting its attention to this. So I think it’s just a lot of understanding what the technology is capable of and then figuring out how to use it day to day.

Despite our original intentions to roast everyone cashing in on the AI hype, it turns out the hype is actually a lot more nuanced. I hate when there’s nuance. AI can be both overhyped and properly hyped at the same time, where there is truly an explosion of technological advancement we don’t fully understand yet. There will also be people trying to get rich off it, which looks like random AI startups getting millions of dollars, thought pieces competing to suck up our brain juice, and me talking to an AI chatbot at 3 a.m. Overrated or not, this isn’t going away any time soon.

In 1965, the typical CEO of an American company made 21 times what the typical worker made. Fast forward to 2022, and CEOs were making 344 times the typical worker. How did that happen?

As I embarked on reporting this dangerous story, I decided the first thing I had to do was take some precautions. If I was going to publicly question whether the richest, most powerful people in the world actually deserved their paychecks, I was going to have to do it incognito. Now that I was in disguise, it was time to do some investigative journalism.

Why do CEOs make so much money now? It’s a really good question, and I don’t think there’s a super simple answer to it. One camp says it’s rent-seeking, which is an economist’s fancy term for they get paid a lot because they can get away with getting paid a lot, essentially extracting resources from the company. The other side says it’s an efficient market for executive talent. There’s competition to hire the best and the brightest, and that takes a lot of money to attract them.

So, it looks like we have a classic “they’re extracting resources from the company and getting away with it” versus “it’s an efficient market for executive talent” situation. If you look over the past 30 years, the mathematical reason why CEO pay has risen so much is that the stock market has risen so much, and they have managed to hook their pay to the wider stock market.

These days, top CEOs are making the vast majority of their money through stock-related pay. This started back in the nineties when a rule implemented by the Clinton administration backfired. Bill Clinton wanted to curb rising executive pay by declaring that any CEO salary over $1,000,000 was not a reasonable business expense worthy of a corporate tax deduction. However, performance pay, including stock options and bonuses, was exempted from the tax-deductible cap. Ever since, companies mostly pay their CEOs in performance rewards like stocks or bonuses, while their actual salaries remain relatively low.

For example, Sue Nabi, CEO of Coty, took home about $150 million last year, with nearly $146 million of that coming from Coty stock she was awarded. This comes out to over 3000 times the median Coty employee’s salary. While $150 million a year might seem excessive, it also kind of makes sense. Shouldn’t CEOs be rewarded if their company’s stock is performing well?

However, there are problems with linking executive pay to their company’s stock prices. Many things can make a company’s share price go up, and many of those things are outside the CEO’s control. For instance, if you look at the CEO pay of oil companies, when the global price of oil rises, their pay rises because their share prices go up. It’s ridiculous to think the CEOs had much to do with the global price of oil going up, yet they get rewarded for that luck.

It was the stock market all along. But I wasn’t satisfied. What were the fundamental systemic conditions that allowed these opulent executives to successfully negotiate such favorable remuneration?

If you talk to people who believe in the efficient market competition for executive talent, they’ll say you only have so many people capable of running companies this big. Critics of executive pay often ask if you could find someone who could do about as good a job for less money. My guess is there are incredibly smart people out there who could do a good job, possibly for less.

Another simpler reason why CEOs end up with mad stacks is that they tend to be cozy with the people deciding how much they get paid. In theory, the CEO is supposed to be hired by shareholders to run the company and maximize profits. However, it’s usually up to the CEO to decide who sits on the board of directors, the very people negotiating their salaries.

In Delaware, a judge ruled in favor of Tesla stockholders who sued the company, saying Elon Musk’s 2018 pay package was unfair due to too many board members having close ties to Musk. Similarly, the United Auto Workers Union demanded a 40% increase in pay over the next four years, mirroring the same pay gain their CEOs saw over the previous four years.

Even some capitalists are speaking out. Carl Icahn has said many top CEOs underperform, are overpaid, and aren’t held accountable by their boards. Warren Buffett has described some executive pay packages as irrational and excessive, calling for the largest institutional shareholders to demand a fresh look at the system. The SEC has announced new regulations designed to shine a light on the closed process through which boards decide on executive pay.

In Nigeria, the situation is somewhat different but shares similar concerns about executive pay. CEOs in Nigeria, particularly in the banking and oil sectors, also earn significantly more than the average worker. For instance, the CEO of a top Nigerian bank could earn hundreds of millions of Naira annually, while the average employee earns a fraction of that. This disparity has led to public outcry and debates about the fairness and sustainability of such pay structures. The high executive pay in Nigeria is often justified by the need to attract top talent in a competitive global market, similar to the arguments made in the United States.

The general public in both the United States and Nigeria seems to agree that the discrepancy between CEO and worker pay is too high. A 2016 survey from Stanford Business School found that about 70% of Americans believe CEOs are overpaid. A similar sentiment is echoed in Nigeria, where there is growing discontent over the widening pay gap. This discontent is not just limited to the general public but also includes shareholders who feel that excessive executive compensation is eating into their returns.

There is evidence that people care about the issue but don’t fully understand just how much top CEOs are making. It seems that systemic policy changes are necessary to address this growing concern.