Ever heard of Stephen Schwarzman, David Tepper or Jamie Dimon? Unless you work on Wall Street, you probably haven’t. But in a recent survey by Forbes, they were listed as the top three most powerful people in the world of finance.
Will that bit of information make you remember them now?
We often equate wealth to power. We imagine that people who have lot of money at their disposal have the ability to influence global events and markets. Actually, the opposite is true. And while it appears that these men have amassed great fortunes, you need to look a little deeper.
There’s no doubt that it takes a certain amount of intelligence to become a trader. Financial matters are often too complicated for ordinary people to understand. So only those that dedicate themselves to the study of economics will be able to decipher the jargon used by those in the industry.
They may also understand how business operates on a global scale. How market forces can change the value of a company overnight and when is the best time to buy or sell shares. But at the end of the day, it’s ordinary people who make up the market. And they are responsible for consuming the goods and services that these companies have to offer.
You could say that even with their deep knowledge of fiscal matters, the fortunes of these men are really based on luck. Sometimes they get it right, and other times they get it spectacularly wrong. Take for example, Warren Buffet. Considered as one of the world’s savviest investors, even he has made some serious mistakes.
Among his regrets are the $10 billion he lost on shares in Walmart. He bought $100 million dollars’ worth of shares in the company thinking their value would rise. But it didn’t and he was left with a massive loss on his books. That was in May 2003.
But he’s made other bad decisions before that. Ever heard the saying, ‘to make a small fortune in the airline business, start with a large one’? The airline industry is highly competitive and many have tried and failed to make their fortune here. Buffet was no different and tried his hand at it in 1989 when he bought $350 million of preferred stock in US Airways. Shortly afterwards, South West Airlines appeared on the scene and Buffet realised that US Airways just couldn’t compete. So he cashed out his shares and managed to break even on the deal.
But despite these mistakes he still ranks at number four on the Forbes List. So what does that tell us about rich people and money? For starters, it proves that rich people don’t always make the right decisions when it comes to money. Just like you and I, they make bad investments, wrong choices or take unnecessary risks. And as a result, it means they don’t always have the power to make their financial decisions go the way they want them to.
One thing that rich people may have over others is their appetite for risk. They’re willing to throw their hat in the ring and try something, even when they’re not sure that it will work out. In other words, they’re willing to make a mistake.
This is a philosophy that Ray Dalio has embraced. He runs the world’s biggest hedge fund firm and is ranked at number 9 on on Forbes 2016 list of Highest Earning Hedge Fund Managers & Traders. He started his company in 1975 from a two-bedroom apartment. But today he employs over 1500 people and manages assets worth $150 billion.
He readily admits to making mistakes and even calls himself a ‘professional mistake maker’. But while most people try to avoid mistakes, Dalio realises that they offer one the unique opportunity to learn something. With every mistake he makes, he analyses the process to see where he went wrong. That way he can avoid making the same mistake in the future.
Not only does he learn from them, but it would appear that he doesn’t try to avoid them either. If learning helps you improve, and you can’t learn without making mistakes, then why would you want to avoid them?
If you take anything away from this article it should be that rich or successful people are no different to you. They make mistakes, they take stupid risks and they are at the mercy of market forces beyond their control. So what makes them rise to the top while others struggle?
Firstly, they’re not afraid of failure. They see it as an opportunity to learn. Every mistake is they make gets them one step closer to getting it right the next time. They work through their mistakes and try to understand what went wrong.
Secondly, they know when to cut their losses. When it’s obvious that an investment is not going to work out, they don’t waste more money or their valuable time on it. They get out, learn from it and move on the next opportunity. We’re often reluctant to give up on a project that we’ve invested a lot of time or money in. But giving up doesn’t mean you’re a quitter or a failure. It means you’re smart enough to know when to move on.
Finally, they’re not afraid of taking a risk. They know that at some point they have to stop analysing things and make a decision. The same principles apply when it comes to buying a lottery ticket. If you don’t take a chance, you’ll never win.
