New 'Irrational Millionaires' Club!
Yes, you can do everything 'wrong,' and still die rich and happy
By Paul B. Farrell, MarketWatch
Last Update: 7:06 PM ET Feb 5, 2007
ARROYO GRANDE, Calif. (MarketWatch) -- Remember Howard Beale, that lovable wacky TV news anchor in the classic film "Network" screaming: "I'm mad as hell and I won't take it anymore!" Good old Howard even got his audience going to their windows and shouting out loud: "I'm mad as hell and I won't take it anymore!"
That's how I feel: I'm sick and tired of those arrogant, stuffed-shirts behavioral finance academics and high-priced Wall Street insiders looking down their noses at America's 95 million Main Street investors like we're clueless inferiors who can be easily manipulated using esoteric quant algorithms, so Wall Street's old boys club can make big bucks.
Here's how those eggheads and fatheads see us: Wall Street "needs investors who are ... irrational, woefully uninformed, endowed with strange preferences, or for some other reason willing to hold overpriced assets. Get it? Their goal is to get you to buy "overpriced" securities by keeping you "woefully uninformed" and distracted by "strange preferences." Why? Because that makes it easy for them to treat the market like a private hunting reserve where they can bag unwary targets at will.
You bet "I'm mad as hell." It's time to stand up to those self-appointed "arbiters of rationality" ... tell them "we're not going to take it anymore" ... that we're going to stop playing their game by their rules ... that we know there's a better way ... that we really can do everything "wrong" (that is, ignore the rules of their "rational investing" game), and still live happy and die rich ... playing by our own rules.
Folks we need our own club: Let's start the new "Irrational Millionaires Club!"
We know real millionaires get rich thinking for themselves. Thomas Stanley's "The Millionaire Mind" is a perfect model. He says: "What most millionaires tell me [is] they learned to think differently from the crowd." So his book was "designed around a central theme: It pays to be different." That means thinking outside the box, going unconventional, against the herd, a contrarian who breaks the rules of the game set by Wall Street and the quants. Be a maverick, trust your gut instincts.
Unfortunately that's not easy, it challenges the "rational" mindset that's so deeply locked into our cultural brain it sounds almost anti-American. Look around, "rationality" is everywhere:
Corporate America: its operations, systems, plans, strategies, goals
America's business schools: their core beliefs, theories, curriculum
Books on business and investing: oversimplified with annoying platitudes
Wall Street's misleading theories and self-serving pseudo-rational advice
Now we get the dismissive arrogance of the behavioral-finance quants
This rigid, ultra-rational mindset is blinding us, transforming 95 million investors into robots who believe that if you want to become a millionaire you must minimize irrational behavior and maximize rationality.
Well folks, they're wrong and they're misleading you! If you really want to be a successful and happy millionaire, I say shift your focus and aim at becoming an "Irrational Millionaire!" I believe it's time to go contrary, debunk the conventional wisdom and embrace irrationality.
We need to see the world differently, like Stanley's millionaires. Forget that "rational man" mantra, it's a myth. Forget the new science of behavioral finance, their quant math and algorithms. Why? Because none of that stuff will ever change your basic irrational nature ... that's what you are and always will be.
9 traits of the successful "Irrational Millionaire"
In researching "The Millionaire Mind" Stanley surveyed a thousand people in the top 1% of our economy. He identified nine common traits. Let's grade those nine traits against the Wall Street quants' narrow concept of irrationality (behavior that's "nonpecuniary" and therefore something quants can't fit into a mathematical equation.) Here's the score I came up with, graded from 1 to 10, where the most rational is 1 and most irrational 10. Please note and send us your score too:
Courage under fire. Adversity hits many millionaires early, toughens them, builds character. Most were rated average by tests and authorities, even degraded as kids. That's their incentive to work harder and outperform. Can't quantify, so I give an irrational 10.
Got character. Stanley's research says millionaires have multiple intangible character traits: Honesty and discipline were tops, then faith, career passion, supportive spouse, social skills, hard-working, leadership, focused, entrepreneurial, competitive, energetic, physical health, etc. Another 10, can't really quantify.
Driven to succeed. Most are college grads, half got advanced degrees. But not high SAT scores. Grades were so-so, which kept them out of the best schools and prestigious jobs. So they choose their own path! Let's hedge with a 5.
Passionate in a dream job. Most people blindly pursue careers on advice of parents, counselors, peers, job trends, salary potential, job security or status in a prestigious company. "Millionaires are those who selected a vocation that they love." Definitely 10.
Get rich in little niche. Forget status, grab a niche business. Maybe a junkyard or Burger King franchise. "Too many people select vocations filled with competitors," says Stanley "Select a vocation and target where you can more easily emerge a winner." 10.
Traditional vocations. A third of Stanley's millionaires were entrepreneurs. Another third were retirees, business managers, educators, architects, engineers. About 20% were doctors and attorneys. One-sixth, corporate executives. Careers are personal, irrational and nonquantifiable, another 10.
Cheapskates (sort of). In the earlier "Millionaire Next Door" they made about $130,000 annually, "living below their means" on about $70,000. That plus lower taxes (2% versus 12% for average taxpayers) helps them build wealth faster. You can't quantify this in advance, so let's compromise with another 5 here.
Strong personal values. Principled but out-of-sync with our buy-now, consumption-driven, get-rich-quick culture. They'd rather watch the kids play sports, socialize with friends, garden, go to movies or do charity work. Intangible: 10-plus!
Loving spouse. Choose well and stay married. Divorces are costly and debilitating. The average millionaire is 54, male, married to the same person 28 years, got 3 kids. Spouses are "honest, responsible, loving, capable and supportive." But the quants ignore this soft stuff because they can't put a dollar value on such intangibles. An irrational 10.
Bottom line: Stanley says millionaires get rich going with their gut, "thinking different from the crowd," doing what they love, getting rich. But measured by the standards of Wall Street quants, "The Millionaire Mind" traits get a highly irrational 80 out of 90 points.
Maybe you have another way to evaluate "irrational millionaires." Or maybe you simply disagree; don't believe you can do everything "wrong" (by conventional rules of "rationality") and still live happy and die rich.
Tell us: What's your experience? Are you a millionaire (or on the path to becoming one)? What works for you: The irrational millionaire approach? Or do you think the rational approach gives you better odds?
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