Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Time to Get Rich, the Compounding Process

Personal_Finance / Learning to Invest May 11, 2011 - 05:50 AM GMT

By: Gary_North

Personal_Finance

Diamond Rated - Best Financial Markets Analysis Article"If I had just known at age 18 what I know today!" That lament is among the most universal among people aged 50 or older. Is there any society in which it cannot be heard?

I was reminded of this when I watched a video of half a dozen of coach John Wooden's most talented basketball players. It was produced in 2010, just after his death at age 99. He had retired 35 years earlier, yet he was still remembered and admired.


The story was basically the same for each of those now middle aged – or older – men. Wooden had been a great teacher, not just a coach. They all said how much sense his principles of living had meant to them two or more decades later. But all of them said that they had not paid much attention at the time. I had heard the same thing before he died from other former players.

Here was a legendary coach who taught some of the finest athletes in America. He was a very smart man, and more to the point, a very wise man. His chart of the pyramid of success has been seen by millions of people. Yet he was unable to get the basics of his outlook across to young men who had come from all over the nation to play for him. (Oddly, the group in the video had all come from southern California.) You can see it here.

What does this tell us? That youth is wasted on the young – a lament of oldsters throughout history and across many borders.

It is not a matter of brains. It is a matter of character. From time to time, we do hear of young men who seem to understand as teenagers how little time men have, and how large the payoff is for hard work, high thrift, and dedication to the mastery of some field. These are the super-performers discussed in books like Malcolm Gladwell's Outliers. They invest their crucial 10,000 hours before they reach age 21.

But it is not just character. It is something else. It is their understanding of time. They recognize that effort and assets invested early in life have a compounding effect. This makes an enormous difference at age 40 or 50, if a person finds the right niche in which to invest his time.

To do this, a young person needs future-orientation. This is exceedingly rare among the young. As Ben Franklin put it in 1750, "A child thinks that twenty pounds and twenty years can never be spent." A few musical artists figure it out early, or at least consent to their parents' demands while they are still forming their habits in life. But few understand it with respect to money.

GET RICH SLOWLY

You have heard the phrase, "Get rich slowly." That is good advice. It applies to societies as well as individuals.

Why should getting rich take so long? Because it takes a long time to accumulate capital: the tools of production.

Economists have understood this for over a century. But, sadly, most people are into middle age before they figure out that it takes time to accumulate sufficient capital to provide for a comfortable retirement. When we are young, we rarely understand how much we must save, and how long we must save, to accumulate capital.

In Chapter XVIII of his magnum opus, Human Action (1949), Ludwig von Mises presented the case for the importance of time perspective as a source of thrift, capital formation, and wealth. He called this outlook "time-preference." Some people are present-oriented. They want satisfaction now. They will not lend money at low rates of interest. They borrow at high rates. Others are future-oriented. They save at low rates of interest. They refuse to pay high rates of interest when borrowing.

He made a profound observation on why we are rich compared to earlier generations.

Our activities are designed for a longer period of provision because we are the lucky heirs of a past which has lengthened, step by step, the period of provision and has bequeathed to us the means to expand the waiting period.

Mises recognized that modern man is the heir of generations of capital formation and thrift.

We are in a position to rely upon a continuing influx of consumers' goods and have at our disposal not only stocks of goods ready for consumption but also stocks of producers' goods out of which our continuous efforts again and again make new consumers' goods mature.

Today, we possess far more capital goods than society did in 1949. Around the world, the message is taking root. The free market social order provides incentive for people to innovate. Innovation requires capital. This requires thrift. Thrift is the result of future-orientation.

A generation ago, Harvard University's political scientist, Edward Banfield, suggested that time perspective, not wealth, is the correct basis of class. Lower class people are present-oriented. Upper-class people are future-oriented. He wrote this in the late 1960s, at the height of the counter culture. Chapter 3 of his book, The Unheavenly City, made this explicit. Radical students complained so much that he left in 1972 for four years, In 1976, he returned to Harvard from the University of Pennsylvania. He told Robert Nisbet that the students at Penn were just as hostile as the students at Harvard. Nisbet passed this tidbit along to me years later.

TIME PREFERENCE AND SUCCESS

Professor Philip Zimbardo has studied the long-term effects of time perspective in children. Beginning with studies begun over two decades ago by a colleague, Zimbardo has tracked the lives of an early group of children. He has concluded that a child's future-orientation – the psychological ability to defer gratification – is a major indicator of future success in a child's life. He has produced two videos on this.

The person who is willing to defer present consumption for the sake of future income is in a strong position in society. He has the internal make-up necessary for building capital in the broadest sense.

A person who is ready to consume all of his income now, and even borrow to consume more, is not going to accumulate capital. He will not have the tools, including education and skills, to maximize his contribution to a paying society.

By neglecting the investment required to increase a person's productivity, the present-oriented person finds that he has gotten what he wanted: high consumption at the expense of future income. In contrast, the future-oriented person gets what he always preferred: lower consumption for the sake of future income.

The great benefit of the free market is that it allows people to buy what they want if they are willing to pay the price. The present-oriented person says" Buy now, pay later." The future-oriented person thinks, "Save now, buy later."

In school, we are taught many skills. But what is rarely taught is goal-setting and time management. Perhaps this would be wasted. But if I were to design a curriculum – and I am doing this – I would emphasize goal-setting and time management as soon as a child is capable of adopting a self-taught curriculum. This is probably around age 8. The only one I know like this is Dr. Arthur Robinson's, which at $200, grades K-12, is a bargain.

By the time a student is a teenager, he or she should understand the basics of lifetime success. Coach Wooden looked for quickness above all other categories. That one is too limiting. Here are the ones I would look for, in this order.

PREDICTABLE PERFORMANCE

"A man's word is his bond." That is an ancient principle. It should be basic to any person old enough to make a binding promise.

In a free society, the division of labor is crucial. People must learn to delegate. They cannot do everything by themselves. But decentralization is risky. The person who promises to perform a service may not deliver.

I have said that there are three principles of success.

1. Do what you say you will do.
2. Do it at the price agreed on.
3. Do it on time.

These may sound trivial. They are difficult to achieve for the vast majority of people. Perhaps I should add a fourth.

4. Do it without being reminded or monitored.

At this point, the character set is difficult to find, especially in employees under age 30.

Any teenager who is governed by habit to meet the three requirements of performance has an enormous advantage over his peers. It will be difficult for them to compete with him.

FIRE IN THE BELLY

There are good employees who meet the criteria of predictable performance. But they will remain employees if they do not have fire in the belly.

Some people call this character trait an obsession. It probably is. Others call it ambition. It often is. Still others call it visionary. It always is.

The person with no fire in his belly is unlikely to take the risks that mastery require. Mastery is a high-risk endeavor. It is more than routine maintenance. It is a matter of putting your reputation on the line in something like full public view.

Rockefeller and Carnegie had fire in the belly. They helped to create a new, far richer world. Both of them switched to charitable giving when they got old. Their money bankrolled some of the most insidious projects of the so-called New World Order. They were better at piling up wealth than giving it away. They had no skills at giving it away. They would have done more good for mankind in their lifetimes if they had stuck to their knitting. But super-rich men cannot escape their responsibility for managing great wealth in this way. Their piled-up capital will be inherited. By whom?

Consider Howard Hughes. Leonardo DiCaprio got it right in The Aviator. Hughes was unbalanced from the beginning. He was brilliant. He was creative. He was also rich at a young age, because of his father's invention of a unique oil-drilling bit. He more than outperformed his father. Yet he was unbalanced to the degree that he became unhinged. He had too much of a good thing. But no one ever called him poor.

Bill Gates had fire in the belly at a young age. He made a lot of money. Then he married an eminently sensible woman. She was able to give him a new vision of service other than designing and marketing digits.

I think a person must have this fire in the belly: his calling. I define calling as the most important thing you can do in which you would be most difficult to replace. This may be a person's occupation, but only rarely. It was an aspect of John Wooden's job, but it reached far deeper than his job. After he retired, his calling remained. His influence grew greater over the years as a result of the foundation of his life, which was also the foundation of his occupational success.

After Wooden's death, Kareem Abdul-Jabbar commented on this aspect of Wooden's coaching. When Kareem/Alcindor went to UCLA in the fall of 1965, Wooden's office was a Quonset hut. This was after two NCAA championship seasons.

Fire in the belly keeps a person from getting sidetracked. He may go over a cliff. Surely Hughes did. But it keeps him moving forward.

Ludwig von Mises had this characteristic. Nothing could stop him. He was still teaching and writing at age 85. So was his disciple, F. A. Hayek. Hayek's book, The Fatal Conceit, is a masterpiece. It can easily serve as the tombstone of the idea of socialism. Hayek finished it at age 86. I visited him in the Austrian Alps in 1985. He handed me a chapter, which I had photocopied by the hotel. He could not be stopped.

ATTENTION TO DETAIL

Hughes had this, obviously. Had he not had it, he would have died in a plane crash. Others have it. They present their work to the public without loose ends. They may revise later on – hooray for eBooks – but they bring a ready-for-prime-time product to the public the first time.

The devil is in the details. So are the failures. This is where a producer pays attention to the customer. He makes sure that the product works as promised, at a price promised, delivered on time. Again, if it is released as a beta-version, fine. The customer knows. But it is best to release it free of charge.

This is a matter of going the extra mile.

CONCLUSION

Success comes at a price. The earlier someone begins paying it, the more success he should expect. The compounding process is a power for personal and economic change.

This outlook requires faith in the future. But it requires more than faith. It has to be accompanied by future orientation. A person needs to discount the future by a low interest rate in order to maintain a high present value of his forfeited income.

The time to get rich is in your teens. The longer you wait to begin the process, the higher the rate of return that you must achieve.

I wish I had more teenage readers. But, then again, Coach Wooden had his share. It took time for what he told them to register.

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

© 2011 Copyright Gary North / LewRockwell.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules