Principles of Wealth #31* 

There are several assets that have a higher historical ROI than stocks. By adding one or two of them to your portfolio, you can reduce your exposure to stock market risk while boosting your overall results. 

Income-oriented real estate (rental real estate) is one of those assets. The historical return on real estate stocks (REITs) is almost 11%. This is one point higher than the historical return on the stock market in general. But if you invest directly in rental properties, you can safely ratchet up the return in a way that you can’t do it with stocks. I’m talking about an ROI of 12% to 15%.

Let’s look at the math:

Scenario One: Let’s say you have $200,000 to invest and use it to buy a rental property generating rental income of $25,000 a year. (This is the range you’d be looking for.) After deducting expenses – taxes, utilities, repairs, maintenance, and so on – you’d expect a gross profit of about 60% of that or $15,000. And then let’s assume you have the property managed at a cost of $100 a month (8% of the rent). Your net income would be $13,800.

Scenario Two: You use that same $200,000 to cover a 33% down payment on a $600,000 property. Assuming the same ration of purchase price to rent, you could expect rental income of $75,000. Deducing the same percentage of expenses (40%), you’d be left with $45,000 before management fees and about $41,000 afterwards. Then you’d have to pay for the mortgage, which, at 5%, would run you about $20,000. Your net cash flow would be $25,000.

In the first scenario, you bought a $200,000 property and netted $13,800. That’s a return of about 7%.

In the second scenario, you used that same $200,000 to buy a $600,000 property, financing $400,000, and ended up with a net of $25,000, which is 12.5%.

And that, you may be interested to know, is about what I’ve averaged on my rental real estate investments over the past 30 years.

But that’s only part of the story. That return of 12.5% is what I get in the early years of renting out the property. As time goes by, the rent goes up while the mortgage goes down. Eventually, of course, there’s no mortgage at all. The rental fees have paid it off.

So the actual ROI on rental real estate, if you hold it for, say, 5 years, is going to be around 15%, and it will grow higher from there.

And remember, rental real estate is just one of several asset classes that will give you 12% to 15% returns safely. And these higher ROIs are – in my opinion –safer than investing in stocks or even REITs, because you know the property better and you have some control over what you charge and what you spend.

So getting back to the original point: Some asset classes, such as rental real estate, can give you ROIs that are 2 to 5 points higher than stocks with, in some cases, less risk. The prudent wealth builder will take advantage of these.

Here’s how you might do it. Let’s say you divide your investments into 3 buckets: An index fund giving you 10%. A Warren Buffett type portfolio giving you 12%. And rental real estate giving you 15%. Your average ROI would be 12.3%.

The difference between 10% and 12.3% may seem insignificant. But over a career of investing, it can make a huge difference.

A thousand dollars invested every year at 10% would give you $5 million in 40 years. The same investment earning 12.3% would give you more than $10 million – twice the return for an ROI that was better by just 2.3 points.

The takeaways:

* Over the long term, there is a huge difference between a 10% ROI, a 12% ROI, and a 15% ROI.

* Trying to get much-higher-than-average ROIs will almost certainly make you poorer.

* So shoot for 10% with stocks and add other asset classes to your mix where you can expect to get 12% to 15% safely.

* In this series of essays, I’m trying to make a book about wealth building that is based on the discoveries and observations I’ve made over the years: What wealth is, what it’s not, how it can be acquired, and how it is usually lost. 

“It is an unfortunate human failing that a full pocket-book often groans more loudly than an empty stomach.” – Franklin D. Roosevelt

Inside the Mind of the Not-Quite-Rich Leftist 

I’ve never been inside his/her mind, but I have been inside my own 21-year-old mind, and so this is what I imagine… 

The world is full of people that have less than I do. I see them on the streets, in the media, and even in my workplace. They are just scraping by.

It’s depressing. They live in dirty, crappy houses. They drive, if they drive at all, dented-up, gas-guzzling junk heaps. They have no idea how to dress. Their hygiene could be better. And to be honest, they don’t seem all that bright.

I generally keep my distance from these people. I observe them from afar. But you can’t avoid them. They’ll be waiting on you in a restaurant or sitting next to you at a ballgame or even standing next to you in line at the supermarket.

It’s not that I’m afraid of them. Quite the opposite! I feel tolerance – even compassion – for them. I’ve talked to a lot of these people over the years – when they come to my house to do repairs or are driving me to the airport –  and I have to tell you, many of them are salt-of-the-earth. I mean good-hearted, earnest, even hardworking.

I feel a little embarrassed by the fact that I clearly make more and have more than they do. Embarrassed and more than a little guilty. I worry that they may think badly of me for being better off. Meanwhile, I genuinely wish the best for them.

I truly hope for a better world – a  world where everyone makes at least a living wage and has free health care and all the basics to lead a comfortable and respected life.  (A world, frankly, that doesn’t make good and sensitive people like me feel guilty.)

But hoping for a better world – however much it proves that I have a good heart – is not enough. I have to do something to make that world a reality.

Luckily, there is something concrete that I can do. I can align myself with smart and caring people that think and feel as I do. I can get on social media sites and join organizations that promote ways to fix the unfair wealth and income gap. And I can vote for candidates that share my good intentions.

And the great thing is, there is an easy fix. We simply have to raise taxes on the rich to pay for the solutions we need.

Who are the rich?

Well, not me. Yes, yes, I’m in the top percentile of the country in terms of my income and my net worth. But I’m not rich. I’m just comfortable.

And anyway, I worked hard for what I have. And I deserve it. Hell, if you want to know the truth, I deserve more. I mean, hell… I work my ass off. I’m busting it and, yes, I am doing well. But I’m not rich.

The rich fuckers are the people that have a lot more than I do. Like my SOB boss… and that idiot broker who built that vulgar mansion on the corner.

They’re the ones that are going to pay for our plans. And they should pay. I mean really, we know what they are – rapacious, unscrupulous monsters that are getting rich off of the hard work of honest people like me. And what’s worse, they are exploiting all those unfortunate people that are making less than half of what I’m making.

These scumbags make their money by breaking the rules and sometimes breaking the law. It’s a disgrace the way they get away with it. And to think… I have more integrity than any of them. But they just skate by, getting richer every day and acting like they deserve it.

If they had two brain cells to rub together, they would welcome the chance to solve all of the problems of the world by paying for it out of their taxes.

That’s definitely the solution to the wealth and income gap. Just take back most of the ill-gotten gains that the rich stole in the first place and give it to the good people that deserve it.

That’s what I think we should do. It’s the obvious solution, and I feel good about it. And I feel very good about being one of the people that are actively changing the world for the better by writing books and essays, by making speeches, and by telling “our truth” to whomever will listen.

[Coming soon: Inside the Mind of the Not-Rich-Enough Conservative] 

“You ain’t got to wait on a cab no more; just call your Uber, and it pulls up.”

– Trip Lee

Uber: A Great Idea, a Bad Strategy, a Cheapskate Market 

For as long as I can remember, taxi service in the Big Apple has been horrendous.

The taxis are generally filthy on the outside and dingy on the inside. Legroom is cramped because the drivers favor driving hood-style, with the seat pushed as far back as possible. Half of them speak very little English. And few of them have any idea about how best to get you where you are going.

I can put up with all that. But I don’t like feeling that my life is in peril because of the reckless way they drive.

I was in New York City several times in 2009 when Uber was launched. The cars were new and spotlessly clean. The drivers were nicely dressed, courteous, and helpful. They spoke fluent English and took you quickly and comfortably to your destination, relying on Google Maps and/or Ways. Plus, they offered limousine-styled amenities, such as tissues and chewing gum.

And there was more…

Using Uber, you didn’t have to deal with cash or credit cards or feel compelled to leave an undeserved tip. Arriving at your destination, you simply thanked the driver and hopped out. If you forgot something in the car, it could be quickly located and returned to you.

Another thing… you didn’t have to worry about your driver mugging you. You knew that he’d been through some sort of vetting process. And besides, there was accountability: Your ride was electronically recorded, and (afterwards) you could anonymously rate his service.

Great Expectations 

My early experiences made me a big fan and a loyal customer. I recommended Uber to everyone, and I stayed with them when other personal transportation services popped up.

I liked Uber for ideological reasons, as well. As a free-market believer, I loved the idea that Uber was opening up thousands of jobs for people that needed to make more money. I loved the fact that they were for the most part unregulated, supporting my view that regulation usually increases costs while simultaneously decreasing quality. And I felt certain that Uber’s high standard of service would, through competition, improve the quality of service throughout the entire taxi industry.

Such were my hopes…

Recent Reality 

Things have changed since those halcyon days.

If you use Uber Black, you will get limousine-quality service today. But you will be paying limousine prices, which is typically two or three times the cost of the basic Uber X service.

If you opt for Uber X, which competes price-wise with taxis, you may have a different experience.

Case in point: K and I were going from the Baccarat Hotel on West 53^rdto LaGuardia at 8:30 in the morning. She called for an Uber X and we waited six minutes for it to arrive. Meanwhile, a dozen available taxicabs drove by. Okay, fine.

The car arrived – a small black Honda with dents along the passenger side doors. The driver pulled up in front of the hotel and idled there, while he seemed to be finishing some sort of video game on his iPhone. The hotel’s valet had to knock on the window to alert him of our presence.

The interior of the car was… not filthy, but miles from clean. The driver had a thick mustache and an equally thick accent. We exchanged pleasantries, and I, having the sniffles, asked for a tissue. He didn’t have one. K asked if he had a URL plug-in. He said it wasn’t working.

He drove maniacally, gunning the engine when traffic opened up and slamming on the brakes just before crashing into the car ahead. He cut right and left to gain a few feet, as if he were rushing us to a hospital.

“There’s no hurry,” I said at one point. But he wasn’t paying attention. He was busy screaming out his window at the other drivers with whom he was engaged in some insane life-and-death contest.

And then, to our astonishment, he missed the exit to the airport, even though his GPS was telling him to take it. I brought this to his attention, and he told me that the GPS was wrong. That it’s frequently wrong, and that he knew a faster way.

Five minutes later, he handed me his phone and asked me to locate the airport for him. I’m not kidding.

I did a little online research and found that I wasn’t alone in thinking that Uber’s “quality of service” was slipping. There were dozens of complaints.

What Went Wrong? 

The decline could be linked to driver compensation.

Uber’s amazing early growth spawned lots of copycats that were competing on price. (Lyft, Zipcar, Getaround, Car2Go, Zimride, etc.) But rather than building a protective moat for itself around its initially good service, management apparently decided to enter into and dominate the competition by offering cheaper services and cheaper fares for Uber X, which was, by far, its primary service.

Initially, Uber X cars were smaller, less expensive vehicles – but they were clean and the service was great. And they were cheap. Significantly cheaper than taxis. I remember thinking that the fares were barely enough to cover gas and maintenance. I estimated that if the driver was making minimum wage he would be lucky.

I expected Uber X fares to rise as Uber’s popularity spread and the company enjoyed its market dominance. They didn’t. In fact, they seemed to be getting cheaper.

And then there’s this…

Uber has done an amazing job of growing its business and its revenues. As of 2019, it was operating in 785 cosmopolitan areas and servicing 110 million users worldwide. In the USA alone, it has a 69.0% market share in the personal transportation industry.And that’s to say nothing of its ventures into other industries – such as food delivery, where it has gobbled up a 25% market share.

Revenues are impressive – moving up to the billions in recent years. But as for profits… there aren’t any.

Uber isn’t profitable. It never was. Its business strategy was always about gaining market share (which it did) and then going public and getting a huge market valuation. The idea is to use all those billions not only to build the business but also to pay off the founders and the early employees that were promised stock shares in lieu of large salaries.

This is the strategy of “Unicorn” companies – businesses that aim to transform the world with “destructive” (i.e., radically innovative) technologies, using investor funds to keep getting bigger until one day they can figure out how to make a profit.

Before Uber’s IPO (initial public offering), market pundits were projecting a valuation of $120 billion. Does that seem crazy? A business whose revenues are $3 billion a year being worth 40 times sales?

Well, that’s what the experts were saying.

But after the IPO, prices dropped pretty quickly – by 15% within days. This happened at the heels of Uber’s most recent quarterly report, where the company posted losses of $5.2.billion.

You read that right. $5.2 billion!

And here’s the kicker: Almost $4 billion of that went to “stock-based compensation expenses” – stock option payoffs to founders and early employees. Another $400 million to $500 million will be shelled out in the third quarter.

Facing continued losses, Uber’s COO and CMO stepped down and its marketing department headcount was reduced by a third.

 How Did It Happen? 

My early admiration and hope for Uber has been dimmed if not dashed.

I blame what’s happened on three things:

First, Uber was launched as a gain-market-share-now, make-profits-later enterprise. It was a strategy that worked very well for Google and Apple and even Amazon, but failed to work for countless, now nameless, dot.com start-ups. A strategy that ate up billions of hard-earned investment dollars, making millions of foolish investors poorer.

Second, Uber’s decision to enter into a price war with other unprofitable companies was not, in retrospect, a wise one. In maintaining its market dominance, profitability – and perhaps even the hope of profitability – went down the drain.

And the third reason, which I suspect is what forced Uber to get into the price war, was that it discovered there was no significant market for the kind of high-quality service they had been offering: reliable transportation in clean cars driven by courteous drivers.

I blame that on the American consumer. I don’t know why, but when it comes to transport Americans (and maybe the rest of the world) have only one criterion: cost. Nothing else – comfort, ease, courtesy, or even safety – seems to matter. The company that offers the cheapest fares gets the lion’s share of the market.

We saw this happen in the aviation industry decades ago. When carriers came along and started offering fares that were sometimes half or a third of what conventional carriers were charging, the big players jumped into the fray and began offering discounts of their own. These discounts were irregular and often deceptive, but they were sufficient to keep the planes full, at least for a while.

Then some of the big guys dropped out, unable to stay profitable. And the rest of them started cutting back on amenities and then services and then legroom. The luxury service that was de rigueurin the early 1980s when I started flying no longer exists except in first-class international travel. Passengers may gripe about how the quality has deteriorated – but when it comes time to book that flight from LaGuardia to Fort Lauderdale, they are going to take the one with the cheapest fare.

I’m all for cheaper fares and crappier service for those that want it. But why can’t we have quality for those that are willing to pay more?

We have it with hotels. We have it with restaurants. We have it in just about every retail and consumer business I can think of. But with airlines and personal transportation services, it’s bad and getting worse.

Principles of Wealth #30* 

If you have realistic expectations, you can do very well with stocks.  

I’m what you might call a chicken-shit investor. But there have been a few times when I’ve taken a risk – invested good money in a speculative deal that promised big returns.

Most of them were direct investments in start-up businesses brought to me by friends. They all came with exciting stories, as well as the promise of huge gains.

Fortunately, I had enough sense to limit those investments to what I could afford to lose without feeling like an idiot. That was, depending on the level of the friendship, $25,000 to $50,000. The idea was to roll the dice out of magnanimity, but not to end up being angry with my friends or myself if the investments went south.

And they all went south.

I’ve had a similar experience with stocks. Several times, I plunked down $5,000 or $10,000 in some IPO or low-cap growth stock recommended by an analyst who made a very convincing case for it. Again, the stories were exciting and the projected returns were not only astronomical but seemed inevitable.

How did they do? Well, like most stock investors, I have a poor memory when it comes to losses. But I’m pretty certain that every one of them went bust.

These experiences were exceptions, not the rule – because my usual practice when investing has been, as I said, chicken-shit. I like to put my hard-earned money in the most conservative investments I can find.

My goal has never been to crush the market. I never tried to make double or triple typical returns. My primary goal was to not lose the money I had saved.

Following this chicken-shit strategy, I spent the first 20 years of my investing career doing what Warren Buffett recommends: putting my money into index funds designed to give average stock market returns.

The average return on large-cap stocks over 100 years has been about 10%, and that’s what I got.

Take 10%, Buffett would say, and be happy with it.

But that’s not what most individual investors do. Instead of playing it safe and making long-term profits of 10%, they risk their money on short-term, speculative “story” stocks with huge “potential” that they pick themselves. And they end up making, on average, only 3%.

As it turned out, 10% worked out pretty well for me. It was a whole lot better than my much smaller portfolio of speculative bets. Ten percent better, in fact.

Then, in 2010, with the help of two colleagues, I switched from index funds to a portfolio of individual stocks comprised of large-cap, dividend-giving companies. Those were Warren Buffett type companies – the kind that dominates their industries, have a distinct market advantage (a moat, Buffett calls it), and are so large that there is a 99% chance they will be around for 40 to 50 years.

In addition, because they are so big and so protected and have a history of giving dividends, they gave me the prospect of less volatility. In other words, I was hoping to squeeze out another point or two of ROI while reducing my risk.

It’s been almost 10 years since I started that portfolio, and it has been significantly less volatile than the general market. Plus, it’s given me average returns of more than 12%.

Two points may not sound like much. But if you let that modest advantage accumulate over time, it can be significant.

Let’s look at the math:

Twenty thousand dollars invested in stocks yielding 10% will grow to about $900,000 over 40 years. Over 50 years, it will grow to $2.3 million.

That same $20,000 invested in stocks yielding 12% will grow to about $1.8 million in 40 years and $5.7 million in 50 years!

As you can see, you can do very well with a stock portfolio earning 10%. But you can do much better – more than twice as well – at 12%.

The takeaways:

* It’s foolish to try to crush the market, and arrogant to think you can.

* Don’t risk your money on short-term bets. Set your goals at historically proven market rates.

* A modest increase in ROI over the long term can make a huge difference.

* In this series of essays, I’m trying to make a book about wealth building that is based on the discoveries and observations I’ve made over the years: What wealth is, what it’s not, how it can be acquired, and how it is usually lost. 

“One good thing about music, when it hits you, you feel no pain.”

-Bob Marley

I like sad music. Sometimes I love it. Many of my favorite tunes are melancholy.

I’m listening to one of those now: Bach’s Prelude and Fugue in G Minor.

I’m also reading an interesting essay by Markham Heid:

“Why Listening to Sad Music Makes You Feel Better” 

In the essay, Heid talks about the “science behind the coping benefits of melancholy art.”

Studies on what some researchers call “pleasurable sadness” suggest that different people enjoy sad art for different reasons,” he says. One reason, according to Jonna Vuoskoski, an associate professor in the Department of Musicology at the University of Oslo in Norway, is that it evokes emotions that people enjoy having, such as nostalgia, peacefulness, and wonder.

Another reason, says Heid, is that it can act as a sort of safe therapy for people that have suffered emotional hardship. He quotes Tuomas Eerola, a professor of music cognition at Durham University in the UK: “The fact that the music or art is non-interactive is actually an advantage in situations of loss and sadness since there is no judgment, no probing. An artwork or song that a person can relate to can provide comfort without the baggage of social interaction with another human being.”

Oliver Sacks put it this way in his book Musicophilia: Tales of Music and the Brain.Reflecting on a moment he experienced on the fifth anniversary of the September 11 attacks, he wrote:

“On my morning bike ride to Battery Park, I heard music as I approached the tip of Manhattan, and then saw and joined a silent crowd who sat gazing out to sea and listening to a young man playing Bach’s Chaconne in Don his violin. When the music ended and the crowd quietly dispersed, it was clear that the music had brought them some profound consolation, in a way that no words could ever have done.

“Music, uniquely among the arts, is both completely abstract and profoundly emotional. It has no power to represent anything particular or external, but it has a unique power to express inner states or feelings. Music can pierce the heart directly; it needs no mediation. One does not have to know anything about Dido and Aeneas to be moved by her lament for him; anyone who has ever lost someone knows what Dido is expressing. And there is, finally, a deep and mysterious paradox here, for while such music makes one experience pain and grief more intensely, it brings solace and consolation at the same time.”

This ties into a recent study by the University of South Florida on the musical preferences of people diagnosed with major depressive disorder. Contrary to what many assumed, the researchers concluded that such people do not choose sad music to intensify their negative feelings. They do it to relieve themselves from them. They report feeling “calmed” by melancholy music.

I have no doubt that listening to sad music moves people in positive ways. But despite the many studies that have been done, we still don’t know why. The explanations offered by researchers aren’t wrong, but they don’t feel like revelations. They are more like circular arguments – tautologies. Saying sad music is therapeutic isn’t any more informative than saying sad music makes you feel good.

Here’s my explanation: The most important thing we know – deep down at the bottom of our souls – is that we are temporary, that we are going to die. Everything we do to resist that terrible fact and everything we do to deny it is ultimately futile. Believe what we want about the universe and creation, our DNA  constantly informs us that one day our individual consciousness will cease to be.

Music is not only the universal language, it is the most profound language we have. It connects us not just to other people but to our inner selves. Sad music makes that connection. It helps us relax the egoistic impulse to resist the inevitable and come to peace with it.

And that is why sad music makes us feel better. It lightens the load of our denial and lets us understand that slipping into the unconscious universe may not be so terrible after all.

Want to listen to some sad music right now? Here are 19 suggestions:

* “Requiem Mass in D Minor” by Wolfgang Amadeus Mozart

* “Sono andati?” (from La Bohème) by Giacomo Puccini

* “Hallelujah” by Leonard Cohen

* “Hometown Glory” by Adele

* “Nimrod” (from Enigma Variations) by Edward Elgar

* “Back to Black” by Amy Winehouse

* “May It Be” by Enya

* “Adagio for Strings” (from String Quartet, Op. 11) by Samuel Barber

* “Stay With Me” by Sam Smith

* “Adagio in G Minor” by Tomaso Albinoni

* “I Can’t See Nobody” by Nina Simone

* “Come, Sweet Death” by Johann Sebastian Bach

* “Eleanor Rigby” by The Beatles

* Serenade for Strings in E Minor, Op. 20 (2^ndmovement) by Edward Elgar

* “I Will Remember You” by Sarah McLachlan

* “Dido’s Lament” (from Dido and Aeneas) by Henry Purcell

* “Candle in the Wind” by Elton John

* Symphony No. 6 in B Minor, Op. 74(4^thmovement) by Pyotr Ilyich Tchaikovsky

* “Famous Blue Raincoat” by Leonard Cohen

Sad Stories in an Age of Pity Porn 

 “The only thing that’s the end of the world is the end of the world.”

– Barack Obama

An acquaintance of mine, a bright guy, has created a large Internet following by what I think of as failure porn – telling stories about how he fucked up prior business relationships, lost gobs of money, and ended up in a darkened street crying.

He’s a good writer. His stories are compelling. But I’ve always wondered if he isn’t worried that this never-ending chronicle of screw-ups might diminish his credibility. Would it make his readers question the sagacity of his advice?

Apparently not. These confessionals have built him a big and loyal following. If it ain’t broke, why fix it?

Still, I’m skeptical of this approach.

On the one hand, it takes courage to admit to one’s mistakes and vulnerabilities. On the other hand, it can come off as an appeal for pity, which I see as a form of weakness. There is virtue in keeping a stiff upper lip.

I suppose the difference is in the intent.

When the purpose of confessing your mistakes and shortcomings is to give your audience hope, it is good. But if the purpose is solely to evoke sympathy, I don’t like it.

An example of the former:

One of the most inspiring presentations I ever heard by a fiction writer was given by Amy Tan, who, rather than give us examples of how skillful she was or how successful her novels were, read her first attempt at writing a short story. It was awful and brave and courageous. But most of all, it was kind. It gave us would-be fiction writers permission to feel that we could one day improve.

An example of the latter:

The other day, I read a blog by an up-and-coming guru complaining that his mother used to wash his mouth out with soap when he said bad words. At first, I thought he was being satiric, that he was poking fun at those overly indulgent parents that denounce such time-honored childhood sanctions. In fact, he was serious. He saw his childhood self as abused. Not only did his mother sanitize his dirty mouth, she occasionally spanked him! “I felt like I had no one to protect me,” he said. He grew up feeling “inadequate” and having occasional bouts of imposter syndrome. “It was all her fault,” he explained.

The very same day, I read an essay in the NYT Magazinetitled “I Was a Low-Income College Student. Classes Weren’t the Hard Part.”

In this mini-memoir, the author described his experience as a student at Amherst College. He was there, apparently, on a football scholarship. All his expenses were paid. But once, during school break, when most kids went home, he discovered that the cafeterias were closed. He was “expected” to pay for his own meals, he was shocked to learn. He managed to do so, he said, by working extra shifts as a “gym monitor.”

This wasn’t his first experience with “hardship,” he said. “Back home in Miami,” we knew what to do when money was tight.” They ate the 29-cent burger special at McDonald’s.

“Without that special,” he said, “I’m not sure what we would have done when the week outlasted our reserves before payday. But up at Amherst, there was no McDonald’s special, no quick fix.”

It gets worse.

As a teenager growing up in Coconut Grove, a teacher once yelled at him after he and some friends were fooling around in the parking lot. “She saw black, boisterous boys and deemed us, and me, less than,”he said. “She didn’t see my drive to succeed.” (Note to reader: I have worked in Coconut Grove. As far as I know, it’s all very posh and very artsy.)

And at Amherst, despite living in privileged circumstances for free, there was emotional trauma and financial pressure from his family. He would get calls from them about “bad news” from his old neighborhood. And sometimes they would write to ask for money.

“Neighborhoods are more than a collection of homes and shops, more than uneven sidewalks or winding roads,” he wrote. “Some communities protect us from hurt, harm, and danger. Others provide no respite at all.”

He put all that cruelty and trauma to work for him as a professor at the Harvard Graduate School of Education, teaching a course he titled CREAM (Cash Rules Everything Around Me). In the class, he examines “how poverty shapes the ways in which many students make it to and through college. Admission alone, as it turns out, is not the great equalizer. Just walking through the campus gates unavoidably heightens these students’ awareness and experience of the deep inequalities around them.”

Gee…

My mother didn’t spank us. She used hairbrushes. She used them so well, we didn’t have one that still had a handle. My father didn’t use hairbrushes. He used his belt. The buckle end. The wallpaper behind my bed was shredded from it.

But I don’t talk about that because I don’t want you to feel sorry for me. I don’t feel sorry for myself. I didn’t feel abused then and I don’t feel like I was abused now. I was very lucky to grow up in a family where, one time out of the 10 times I deserved a whooping, I got one.

As far as having to be a “gym monitor”(doesn’t sound too grueling) for extra money? I worked full-time all through college to pay for all my expenses, including tuition and books. I worked three jobs in graduate school. It took me a bit longer to graduate, but I did it… and with honors.

I could only wish I grew up in neighborhood as nice as Coconut Grove where a childhood trauma might consist of being yelled at by a teacher. I got my ass kicked regularly before and after school until I got tough enough to defend myself. I’ve been tied up and thrown in holes. I’ve seen friends die from overdoses and killed in war. I’ve been sexually molested. I’ve had a loaded gun put to my head by a car thief and have been shot at by cops.

As for “surviving” on McDonald’s burgers? I wish I could have been so lucky. Fast food was way above our budget. We ate B&J sandwiches for breakfast and lunch, vegetable soup for dinner, and drank powdered milk. And, yes, I wore hand-me-downs, etc., etc.

And as for helping out the family, check out “Shameless” on Showtime if you want to know how finances in our family worked.

Looking back at all that now, I’m nothing but grateful.

So please, spare me your soft-core pity porn. Unless you’ve got a hard story to tell me, speak to someone else about your oppression.

Even when I’m traveling, I try to get in some sort of Jiu Jitsu practice. When I was in New York a few weeks ago, I took two lessons from Paul Schreiner, one of Marcelo Garcia’s instructors and a great student of the game.

A lesson with Paul is not cheap. It costs as much as three months’ worth of group lessons at your local grappling school. But if you are up for learning, you will have spent your money wisely.

Paul taught me lots of good technique and strategies. But what I came away with are two mistakes I’ve been making more or less consistently for the past 20 years.

These are very basic mistakes. The sort of thing I should have corrected before I got my blue belt. That I’ve been able to perform as well as I have all these years is a miracle. I’ve obviously developed some unconscious compensating movements – but I’ve no doubt that I will be considerably better once I actually correct the mistakes.

I had the same experience when I used to write advertising copy. I’d write a sales letter or space ad that I felt proud of and then test it – only to discover that it didn’t work at all. Analyzing the dismal results, I could see the mistake immediately. It was usually some fundamental rule I broke in writing the headline or the lead.

The same holds true for my personal relationships. Looking back on conversations that went south, I can usually spot a freshman communications error: failing to acknowledge the other person’s perspective or, worse, denigrating it in some way.

It would be interesting to create a series of basic rules for every endeavor – a list of things one knows but often forgets. Let’s see… what would that be for entrepreneurial ventures?

20 Very Basic Business Mistakes That Will Kill Your Start-Up Idea 

1. Starting a business to serve a market need that doesn’t exist
2. Spending good money and time making the product before testing the idea
3. Believing that your great idea is worth a lot of money.
4. Believing that the market is wrong when it doesn’t like your idea rather than understanding that there is something wrong with your idea
5. Believing that being first to the market is the most important thing
6. Hiring MBAs from Harvard and Wharton
7. Spending money and time protecting your idea before proving the concept
8. Spending money and time perfecting your product before proving that it can sell
9. Spending time and money on anything irrelevant to market-testing your idea, such as renting an office, printing business cards, etc.
10. Underpricing your product
11. Overpricing your product
12. Going into retail
13. Having a business plan that’s based on general advertising
14. Having a business plan that’s based on raising millions
15. Having a business plan whose ultimate goal is exiting for big cash
16. Not paying attention to someone in the industry that takes the time to explain to you why your idea can’t work
17. Not moving forward with your idea simply because some expert said it can’t work
18. Believing you have to start with a “vision”
19. Believing that your business has to “touch” a million people
20. Thinking you can hire marketing and sales talent if you don’t have it yourself

It took me about 10 minutes to jot down the above list, but it took 40+ years to fully understand it. I’m tempted to say that if I’d had it when I was young, I’d have arrived at success much sooner and enjoyed much more of it.

It’s unlikely that I’ll be starting any new businesses any time soon. (I’ve promised K I wouldn’t.) But this list might be helpful to you or someone you know.

Last week, Robert Mugabe, the long-time leader of Zimbabwe (formerly Rhodesia) died. He was 95.

Looking Back on Robert Mugabe’s Career:

How to Bankrupt a Country and Keep It Poor for 40 Years 

In 1975, I was teaching English Literature and Philosophy at the University of Chad as a Peace Corps volunteer. That same year, 1000+ miles south in Rhodesia, Robert Mugabe was released from prison.

He had spent 11 years behind bars for his leadership role in the Zimbabwe African National Union, which was working towards peaceful independence from British colonial rule.

When he got out of prison, Mugabe was no longer a pacifist. He soon became one of the main leaders of the Union’s guerrilla forces. When Rhodesia won its independence in 1979 and became the Republic of Zimbabwe, he ran for prime minister. Under the banner of “peace and unity,” he promised to support the country’s white citizens and protect their property while promoting the welfare of the native African population. That position got him elected by an overwhelming majority.

I was writing for a publication called African Business & Tradeat the time. I remember thinking that Mugabe’s vision for Zimbabwe was laudable. Along with most of the international press, I supported him.

That bright promise dimmed several years after the elections. Mugabe became concerned that a faction of his political party (in Matabeleland) did not support him. Working with a crew of handpicked generals, he initiated a campaign against them. It began with public denouncements and moved on to bureaucratic harassment. Then arrests. Then executions. More than 10,000 civilians were killed in the process.

I remember losing some faith in him then, but in Zimbabwe his popularity did not ebb. In 1998, he became president, a position of greater power.

The economy was still strong – mostly because Mugabe had wisely left the country’s wealthy white farmers and businesspeople unmolested. He had, until then, a policy of rewarding his most loyal supporters with land grants for many of the tens of thousands of acres of fertile farmland that were unused.

But a year or two after he became president, Mugabe felt the need to do something more. The country’s population had swelled from 7 million in 1980 to 11 million, and this was stressing the economy. In 2000, he began to publicly denounce the white majority that had, during colonial times, been the country’s ruling class.

Most of them were farmers with large landholdings. He criticized them for having gained their property illegally, even though they had inherited it from their fathers and grandfathers.

Then he instituted a quiet campaign of harassment, accusing them of all sorts of minor violations and assessing penalties. The coup de grace was encouraging the National South Service to act as “green bombers,” a virtual license to invade white-owned farms and loot international food aid. After a year of two of that, the government itself began seizing farms and factories directly.

Not surprisingly, this lead to an exodus of most of the white businesspeople and landowners. It also caused an immediate and severe reduction in foreign investment, and a collapse of the local currency. By 2009, Mugabe’s government was printing 100 trillion Zimbabwean dollar bills!

Fun fact:There were 4,000 white farmers in Zimbabwe in 1980. By the time Mugabe left, there were only 300.

Without the education, experience, or even interest to run their seized assets, most of the new “owners” (many of them former guerillas) quickly failed. As they failed, they sold off their equipment at bargain basement prices.

It didn’t take long for the economy to start falling apart. Unemployment soared. Food shortages became commonplace. Foreign aid was diverted from those needing it to corrupt government officials.

And while all this was going on, Mugabe was spending millions on payments to former guerillas and a war in the Congo. Hyperinflation and defaulting on international loans followed.

As Bill Bonner explained in a recent essay:

“By the end of the ’90s, the inflation rate was already around 30%. Mr. Gideon Gono, head of the central bank, was in an inflation trap. The easiest way out was to print money – to stimulate the economy, of course!

“Mr. Gono added more and more zeros. The inflation rate passed 11 million percent in 2007, when Zimbabwe became the first nation ever to issue a $100 billion note. In nominal, local currency terms, Zimbabwe had the world’s best-performing stock market in 2006.

“Finally, the economy collapsed completely, and Mr. Mugabe was forced into exile. Later, Mr. Gono was asked why in the world he inflated the currency so disastrously. ‘I only did what you are doing,’ he replied, referring to major central banks.”

Fun fact: At its peak, inflation reached an astonishing 500 billion percent, with prices doubling every 24 hours!

And yet, through corruption, intimidation, and sheer force of will, Mugabe remained in power until November 21 of last year, when he was forced to resign in the wake of a military takeover.

Emmerson Mnangagwa, who had been Mugabe’s right-hand man, was sworn in as president, and Zimbabwe’s long-oppressed citizens took to the streets to celebrate.

But so far, little if anything has changed.

It was clear to me, and to pretty much anyone that paid any attention to African affairs, that Mugabe had destroyed his country. Before independence, it had been, along with South Africa, the richest country on the continent. Forty years later, when he was forced out of office, it was among the poorest.

Back when I was writing for African Business & Trade, it was obvious that change was needed in Rhodesia. And when it came, as I said, many of those that were following the story welcomed it.

But Mugabe’s “solution” (extinguishing his opponents, establishing a virtual dictatorship, and then seizing assets and redistributing wealth) did nothing to equalize the wealth gap.

Rather, it made things a hundred times worse. First, because the country lost the lion’s share of the population that was managing the production of wealth. But also, and perhaps more importantly, because new talent and new money – which are necessary for continued growth – disappeared instantly and permanently.

This is not unusual. It is pretty much the story of every Socialist/Communist takeover of third-world countries throughout the 20^thcentury.

It is perhaps the most important economic story of my lifetime. And yet, if you look at what most US college students are learning about global economics and what an ascending faction of the Democratic party in the US is advocating, you’d think none of these things ever happened.

My brother-in-law is an experienced businessman. Intelligent guy, college-educated, etc. We were talking about Bill Gates and Warren Buffett, and he said something like: “Well, those guys give money to charity to save on their taxes.”

This wasn’t the first time that I’ve heard someone who should know better make this mistake. It’s been said about me – to my face and, I’m sure, many more times behind my back. The idea is that when you are wealthy and give money to charity, you come out ahead – i.e., it is a net benefit to you.

But as I explained to my brother-in-law, that’s not how it works. Anyone that cares only about maximizing his wealth would never give a cent to charity. People give to charity for charitable reasons.

Let’s say you earned $2 million and your tax rate for the year (counting state taxes) is 50%. You do not give anything to charity and your tax bill is $1 million (50% of $2 million). You are left with $1 million to spend.

Now let’s say you give away $1 million of that $2 million to an approved (501-C-3) charity and get a “write off” for it. Your taxable income is reduced from $2 million to $1 million. You pay 50% of that in taxes. You are left with $500,000 to spend.

So you see, after the tax deduction is figured in, giving money to charity is not a net positive. You pay less in taxes – but you end up with less money that is yours.

This is one of many myths about “rich people” and taxes. Here are some others:

The 8 Most Common Myths about Wealth and Taxes 

 Myth: The rich get all sorts of income tax breaks that are not available to ordinary people. 

This is simply not true. There are no schemes or strategies to NOT pay the taxes you owe based on your tax bracket. The only way a wealthy person (or anyone) can pay less in income taxes is to make less.

Myth: The rich pay less in income taxes than the middle class does.

Again, this is NOT true. When it comes to the tax code, the IRS does not distinguish between rich and poor. If you make more, you pay more. This misconception arose when Warren Buffett once commented that his housekeeper paid more in taxes than he did. What he meant to do was make a distinction between capital gains tax and ordinary income tax. Ordinary income is taxed according to a scale ranging from nothing to about 38% (on the federal level). Capital gains tax is only 20%. Since more than 95% of Buffett’s income comes as capital gains, his rate, at 20%, is less than the rate at which his housekeeper was charged.

Myth: The rich do not pay their “fair share” of taxes.

Putting aside the question of what “fair share” means… No, wait. Let’s not put that aside. Every time I hear someone say that the rich do not pay their fair share, I ask them, “What would be their fair share?” And the answers I get indicate little to no understanding of the facts. When I tell them the facts, interestingly, they stick to their position. Unless, of course, I ask if they would be willing to pay that percentage of their own income to the government. No, they say, they wouldn’t. It’s “different” for them because they don’t make as much money. So “fair share” turns out to mean: “I don’t know what the rich are paying – but whatever it is, it is not enough.”

Here are the facts:

* The top 20% of income earners pay about 85% of all income taxes and more than 70% of all federal taxes, according to the Congressional Budget Office.

* The top 1% pay, on average, an effective tax rate of 33.4%. The bottom 20% pay, on average, an effective tax rate of 3.6%. The top 1% pay 37% of all taxes, which is more than 25% of all federal income tax revenue.

* The bottom 50% pay only 3% of all tax revenue.

Myth: The rich paid more in taxes in the 1950s than they do now. 

During most of the 1950s, the highest federal income tax rate was 92%. But nobody paid it. There were many exclusions, exceptions, and shelters back then that don’t exist today. The average effective income tax rate for the top 1% was very low – only 16.9%. The top 1% did pay more taxes in other areas, so their total share of all taxes – 42% – was considerably higher. Still, 42% is only a few points higher than it is now.

Myth: The tax system favors the rich over the poor and the working-class poor. 

The bottom 40% of all income earners benefit greatly from the income tax code. They actually pay negative income tax rates because refundable credits, such as the Child Tax Credit and the Earned Income Tax Credit (EITC), wipe out their tax liability and pay out more money to them than they ever paid in.

Because of refundable credits, a family of four in the bottom 20% paid an effective income tax rate of -6.6% in 2006. As a result, such a family received $1,300 through the tax code. A family of four in the second-lowest 20% paid an effective tax rate of -0.8% and received $408 of income through the tax code.

Myth: Illegal activity is not taxable. 

 Income acquired through illegal activity is still taxable. From a tax compliance perspective, the IRS doesn’t care if you’re selling drugs, robbing banks, or defrauding investors of millions. As long as you’re making money, the government is still entitled to its piece of the pie. Remember, no matter how well you cover you tracks when it comes to illegal activities, cheating on your taxes can come back to bite you. (Just ask Al Capone.)

Myth: Your tax bracket is your tax rate.

The United States has a progressive tax system. In other words, the more income you make, the more tax you pay on that higher income.

Using theoretical numbers, if you had taxable income of $30,000 last year, you would pay 10% on the first $15,000 and 15% on the 15,001st dollar through the 30,000th dollar. If you earned $30,001, you’d pay only 25% tax on that one dollar over $30,000. You wouldn’t pay 25% in taxes on all $30,001.

Your marginal tax bracket is the highest bracket that you’re in –  or the one that you are in for the next dollar of income. Unless, of course, you have completely filled a bracket to the last dollar. In that case, the next dollar goes into the next tax bracket.

Myth: You shouldn’t pay off loans that have tax-deductible interest

I’ve heard people argue that you shouldn’t pay off student loans or mortgages early because the interest is tax-deductible. But while there could be other legitimate arguments for not paying off these types of loans quickly, tax-deductibility isn’t one of them.

As discussed above, a tax deduction lowers only your taxable income, not your tax due. So for every dollar in interest you pay, you save just a small portion. It usually comes out to 22 cents or less per dollar of interest you pay. While paying 78 cents is better than paying $1, paying nothing is best in my book. Paying off your loan saves you 100% of the interest you were paying.

The most important factor in the success of your business is people. And that makes the most important decisions you make about people – whom you hire, whom you fire, and what you ask them to do.

Some people will make your business better – even much better. And some will weaken it – even destroy it, if you let them.

In a previous essay,  I wrote about two kinds of employees: growers and tenders.

Growers, I said, are people that are naturally interested in finding ways to grow the business. As managers, they want to ramp up sales, acquire more customers, increase profits, and expand the product line. They often like to increase the number of employees. Growers worship at the altar of more and bigger.

Tenders have a distinctly different personality. They are natural problem solvers. As  managers, they enjoy overcoming obstacles, resolving disputes, and making the machinery of the business run smoothly. Tenders worship at the altar of order and efficiency.

In any normally distributed population of employees, growers are much less common than tenders. And that’s a good thing, because growers – so necessary to growth – tend to stir up turmoil as they create change. It is then up to the tenders to smooth it all out.

To develop a large and healthy business, you absolutely need both growers and tenders. But you must employ them in different ways.

Today, I want to talk about another set of business personalities: givers, takers, and matchers. I took this idea from a TED Talk by Adam Grant, an organizational planner.

Givers, Takers, and Matchers: How They Can Help or Hurt Your Business 

A taker, Grant says, looks at his job, his employer, and his fellow employees from the perspective of “What can you do for me?” For a  giver, it’s all about “What can I do for you?”

He cites a survey of more than 30,000 business people. Twenty-five percent considered themselves to be givers. Nineteen percent admitted to being takers.  (In terms of my own experience, those percentages seem roughly true. When you ask people to assess themselves, they usually rate themselves better than others would rate them. What surprised me about this survey was that so many – nearly a fifth – saw themselves as takers.)

But most participants in the survey, 56%, saw themselves as neither givers nor takers. They described their approach to work as: “I will do something for you if you do something for me.” Grant calls these people “matchers.”

Grant was interested in finding out which approach worked better in business. What he found was that takers rise the fastest, but they also fall the fastest. Matchers rise almost as fast, but also fall almost as fast. And the trajectory for givers is varied. Some are slow to rise, and some rise quickly. But virtually all givers rise eventually. And when they rise, they stay at the top.

More importantly, when givers are put in charge of groups, those groups tend to do better than groups run by takers or matchers. Grant reviewed 38 studies of 3,611 leaders. And in all of them, the groups with the best results were led by givers.

* They produced higher profits.

* Their employee retention was greater.

* They had lower operating expenses.

None of this should be a surprise to anyone who thinks about these sorts of things. Takers and even matchers are ultimately bad for business because they don’t feel comfortable giving. And, ultimately, running a good business is about giving – giving quality products and service to the customer. Givers create value. Matchers do not. And takers reduce it.

He’s Grumpy. He’s Grouchy. But He’s Right. 

One part of Grant’s presentation that was new to me was about another aspect of personality. He talks about agreeableness. Some people are naturally agreeable. Some are not.

You might think that all agreeable people are givers and all disagreeable people are takers. “Not true,” Grant says. “In fact, there there’s no correlation between those traits.”

There are agreeable takers. These are people that are nice to your face, but will stab you in the back. With their superiors, they specialize in kissing ass. But since their focus is always on taking – i.e., on themselves – they prove to be terrible leaders.

There are disagreeable givers. “These people are tough on the exterior,” Grant says. “But they have other people’s best interests at heart.” Disagreeable givers are often undervalued, he points out, but they are much needed. Disagreeable givers are willing to give critical feedback that no one wants to hear… because it’s disagreeable.

I’m naturally skeptical of research studies, because I know how easily they can be skewed. I’m especially skeptical when they are based on participants answering questions, for obvious reasons. And I’m triply suspicious of studies that measure things like the effect of human behaviors, because of the likelihood of morality bias. (I just made that up… but you know what I mean.)

Notwithstanding my reservations, I believe Grant’s findings because they correlate to my experience. I’ve worked with lots of takers and givers, and many matchers too. The takers were, as he suggests, fast at the gate and able to stay ahead when they could shoulder their competition behind them. But once they suffered setbacks, they floundered and then foundered. And for good reason: In taking the lead without giving, they created a host of people taken. Those people were not there to help them get back on their feet. Most of them silently rejoiced. Some even kicked them when they were down.

From Bad to Worst 

Bernie Madoff was a taker – an extreme example. He took as much as he could from everyone that he could, and he climbed fast and high. Until his victims had their day. In losing, he not only lost all his money and his reputation, he lost his family. So what good was his life? He will leave the world with nothing.

There are thousands – no, millions – of takers in the business world. (And in every other world.) Most don’t rise as high as Madoff did, and they meet their demise earlier. Still, they manage to damage the sphere they inhabit.

Takers are bad for business, although they come calling offering gifts (as Madoff did). Cooperating with them is not a smart business strategy, because their goals are antithetical to yours. And even if you can protect yourself from their taking, abetting their goals is morally indefensible. Erasmus said, “He who allows oppression shares in the crime.” Taking is a form of oppression.

Takers are evil. Matchers are not. Matchers are insecure and fearful. They are insecure about their ability to succeed on their own, and recognize that they need to cooperate with others. But they are afraid of being taken – even by the givers. So they will give, but only if they are going to get back something equal in return.

I’ve found that if you are willing to give without expectation of receiving, some matchers will eventually loosen up and stop counting points. Not entirely, but enough to make things work for a while. The cost of dealing with a matcher is that you have to negotiate from their perspective. Which means you will have to compensate them if an arrangement you made works out poorly for them. This is a price I’m sometimes willing to pay.

Givers are easy to identify because they are always giving. Their primary mode is looking out for other people. Their partners, their colleagues, their employees… and even their competition. A giver does not hoard information. If you want to know how his business works, ask him. He’ll be happy to explain. A giver does not ask his employees to sign non-competes. It’s against his nature. He wants the best for his employees and believes that what’s best for them is, in the long run, best for his business.

Grant distinguishes takers from givers this way: Takers are fundamentally paranoid. They think everyone is plotting against them. Givers are pro-noid. They think everyone is plotting to help them succeed.

5 Strategies for Working With Givers and Takers and Matchers 

So what are the rules?

1. Don’t hire takers. They will begin to stink things up the moment they walk in the door. When doing a background check, ask specifically about behavior in this regard. When interviewing, ask them to tell you a story about how someone or some organization has treated them unfairly.
2. If you have takers in your workforce, don’t try to improve them. Taking is an incurable moral sickness. And it’s contagious. Get rid of them. And don’t do business with taker colleagues, vendors, or competitors. In fact, don’t even do business with taker customers.
3. You don’t need to fire or disassociate with matchers immediately. It would be near impossible anyway, since they will constitute about half of the people you work with. Try to educate them on the benefits of giving. Lead by example. Give without expecting something in return.
4. Hire and promote givers. They are the people that are going to make your business succeed.
5. Remember that many givers are “disagreeable” givers. (In my experience, most of the most successful givers are disagreeable.) Don’t let them go. Do everything you can to encourage them to lighten up.

Oh, here’s one more thing: Take an honest look at yourself. Are you a matcher? If so, reread this essay. Understand that you will go much further and you will enjoy the journey much more as a giver. Are you a taker? If so… well, there’s nothing I can tell you. You’ve already dismissed this essay as nonsense. I’ll see you on the other side.