Growing Up: making millions but still not wealthy

Hey guys,

Two things happened this week that made me think of a story I read in Morgan Housel's Psychology of Money.

A podcast interview where the guest is saying he wants to bring in more money e.g. $100k per month. Not even that much right? The host: yeah what is that, $1.2m a year? That's honestly not that much at all for LA standards.
A fund manager commenting that he's personally "not wealthy".

These were both innocent comments from people who I like, and I'm not at all implying that either of these people are going to become criminals, (as in the Rajat Gupta story I'm about to share.) But it's classic loss of perspective don't you think?

When you hang around other fund managers, your version of wealth is multitudes higher than the average person's version of wealth. According to the data this guy would be in the top 0.1% of UK earners. Surely top 0.1% of earners = wealthy? I guess he's comparing himself to his peers in the industry, rather than the UK workforce as a whole and since the top 1% of hedge fund managers are probably all billionaires he genuinely believes he's not wealthy because he's not one...

The podcast host started with nothing (i.e. born to an alcoholic teenage mum on a ranch) and struggled on minimum wage for years before building a successful business. But I guess she's no longer comparing herself to the waitresses she used to work with for $4 an hour, else she wouldn't be saying $1.2m a year "isn't that much".

This is the classic being rich is relative thing. I.e. money doesn't make us happier but making more relative to other people does. There's also the whole hedonic adaption thing / lifestyle creep.

What's the antidote to this? (Just in case you find yourself making millions and believing you're not wealthy.) The first thing that comes to mind is maintaining relationships with people in other income brackets, surely then you'll be less likely to make comments that make you sound a tad obnoxious (or at least out of touch)? Or reminding yourself where you came from? Restraining lifestyle creep so you don't lose perspective?

(Just to make sure I'm not coming across as holier-than-thou, I've definitely been guilty of making a bad taste comment like this at least once before... in Islington we lived next door to some British filmmakers (Bridget Jones Diary maybe?). One of my flatmates commented on how wealthy they were consider the success of the films and the beautiful house they owned. I scoffed, probably thinking the senior bankers I work for are much wealthier and live in much fancier places. Obnoxious. Delia.)

Relevant wise words from a mentor this week, when I was expressing doubt about being clever enough compared to the imaginary competition for whatever job I want to do next: There will always be someone richer, someone more attractive, someone smarter. Don't worry about it.

Anyway, here's the passage from Psychology of Money (FYI it follows the anecdote I shared with you guys back here Growing Up: No one cares about your Rolex that you all seemed to love r.e. Kurt Vonnegut, Joseph Heller and having "enough".)

Rajat Gupta was born in Kolkata and orphaned as a teenager. People talk about the privileged few who begin life on third base. Gupta couldn’t even see the baseball stadium.

What he went on to achieve from those beginnings was simply phenomenal.

By his mid 40s Gupta was CEO of McKinsey, the world’s most prestigious consulting firm. He retired in 2007 to take on roles with the United Nations and the World Economic Forum. He partnered on philanthropic work with Bill Gates. He sat on the board of directors of five public companies. From the slums of Kolkata, Gupta had quite literally become one of the most successful businessmen alive.

With his success came enormous wealth. By 2008 Gupta was reportedly worth $100 million. It’s an unfathomable sum of money to most. A five percent annual return on that much money generates almost $600 an hour, 24 hours a day.

He could have done anything he wanted in life.

And what he wanted, by all accounts, wasn’t to be a mere centa-millionaire. Rajat Gupta wanted to be a billionaire. And he wanted it badly.

Gupta sat on the board of directors of Goldman Sachs, which surrounded him with some of the wealthiest investors in the world. One investor, citing the paydays of private equity tycoons, described Gupta like this: “I think he wants to be in that circle. That’s a billionaire circle, right? Goldman is like the hundreds of millions circle, right?”

Right. So Gupta found a lucrative side hustle.

In 2008, as Goldman Sachs stared at the wrath of the financial crisis, Warren Buffett planned to invest $5 billion into the bank to help it survive. As a Goldman board member Gupta learned of this transaction before the public. It was valuable information. Goldman’s survival was in doubt and Buffett’s backing would surely send its stock soaring.

Sixteen seconds after learning of the pending deal Gupta, who was dialed into the Goldman board meeting, hung up the phone and called a hedge fund manager named Raj Rajaratnam. The call wasn’t recorded, but Rajaratnam immediately bought 175,000 shares of Goldman Sachs, so you can guess what was discussed. The Buffett-Goldman deal was announced to the public hours later. Goldman stock surged. Rajaratnam made a quick $1 million.

That was just one example of an alleged trend. The SEC claims Gupta’s insider tips led to $17 million in profits.

It was easy money. And, for prosecutors, it was an even easier case.

Gupta and Rajaratnam both went to prison for insider trading, their careers and reputations irrevocably ruined.

Interesting stuff hey...

This week on the Growing Up with Delia Burgess podcast

Ep. 48 - Doug Grant: tennis and the Himalayas
While I was back in Melbourne in Jan, Doug who had been my brother's tennis coach (and at some point employer) many years ago, took me to play at his club on grass. What a privilege. Afterwards we recorded this conversation where you'll hear about:
- How he became obsessed with tennis and travelled the world, playing the qualifiers at the US Open but mainly trying to work out how he could make a living out of the sport (and the original sport, Real (royal) tennis) through business (e.g. coaching, retail, court maintenance, stringing... prize money in those days wasn't super lucrative, even if he'd wanted to go that way)
- How after a long cancer battle he lost his wife to cancer and travelled to the Himalayas alone on a trip they had planned to do together. He ended up falling in love with Nepal, coaching the National tennis team there, starting a tennis / trekking business and ultimately meeting his wife who he has two genuinely adorable children with.

Enjoy

xx Delia

P.S. Feel free to share this newsletter with that friend of yours who you're worried about going to prison for insider trading. (Mems of my first day in banking, we had a training session called "How to stay out of prison" (this was right after the Libor scandal...))

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Hi! I'm Delia Burgess

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