Brief Summary
This podcast episode features Naval Ravikant discussing his tweet storm on getting rich without getting lucky. He explains the differences between wealth, money, and status, and why wealth creation is a positive-sum game. Naval emphasises the importance of building specific knowledge, accountability, and leverage, and provides insights on how to achieve financial freedom through ethical means and long-term thinking.
- Wealth is assets that earn while you sleep, providing freedom.
- Money is a tool for transferring wealth and a social IOU.
- Status is a zero-sum game, unlike wealth creation.
- Everyone can be wealthy through education, desire, and ethical capitalism.
- Luck can be influenced by persistence, skill, and building a unique character.
- Specific knowledge, accountability, and leverage are essential for wealth creation.
- The internet has broadened career possibilities, enabling individuals to find niche audiences.
- Long-term games with long-term people foster trust and compound interest.
- Continuous learning, especially reading foundational texts, is crucial.
- Embrace accountability, take calculated risks, and avoid cynics and pessimists.
- Productise yourself by scaling your unique skills and knowledge.
Intro
This is an introduction to a mega episode that compiles all previous discussions on how to get rich, based on Naval Ravikant's tweet storm. The episode will transition to the topic of happiness in the next instalment. Naval is known for his Twitter account and co-founding AngelList, and is a tech investor. The tweet storm resonated with many, offering principles for solving money problems and achieving wealth.
Wealth, Money and Status
Naval defines wealth as assets that earn while you sleep, such as factories, computer programs, or investments. The purpose of wealth is to buy freedom from soul-less jobs and commuting. Money is described as social credits, an IOU from society for past value creation. There are two games in life: the money game and the status game. Wealth creation is a positive-sum game, where everyone can have a house, while status is a zero-sum game, where one person's gain requires another's loss. Status games can make people angry and combative, so it's better to focus on wealth creation.
Making Money is Evil?
There's a common notion that making money is evil, rooted in the idea that "money is the root of all evil". Throughout history, there's been a predator-prey relationship between makers and takers, with various methods of stealing wealth. True wealth creation involves creating abundance, not taking from others. Everyone can be rich, as seen in the first world where even the poor are wealthier than aristocrats of the past. If everyone had the knowledge of software and hardware engineers, society would achieve massive abundance through technology. Capitalism is good but gets hijacked by corruption and monopolies. It's innate to humans, involving exchange and keeping track of credits and debits.
Getting Rich Without Luck
Making money isn't about luck, but about becoming the kind of person who makes money. There are four kinds of luck: blind luck, luck from persistence, luck from spotting opportunities, and luck from building a unique character. The goal is to be wealthy in 999 out of 1,000 parallel universes, factoring out luck. Building a unique character and reputation allows one to capitalise on opportunities that others miss. Integrity and long-term thinking are important for attracting deals and building trust.
Character and Destiny
The fourth kind of luck is more like destiny, stemming from eccentric ways of doing things. Extreme people get extreme results, and you can't be normal and expect abnormal returns. Avoid social games that win stupid prizes. By pursuing luck, especially the last kind, you essentially run out of unlock or neutralise it, allowing your talents to come into play.
How to Get Rich
You won't get rich renting out your time; you must own equity in a business. Salary jobs closely tie inputs to outputs, limiting earning potential. Doctors who get rich do so by opening practices or creating intellectual property. To make real money, own a piece of a product, business, or IP. Seek jobs where inputs don't directly correlate with outputs, such as software engineering. Avoid upgrading your lifestyle too quickly to maintain freedom. The goal is to make money in discrete lumps over long periods, allowing you to retire and work only on what you want.
Giving Society What It Wants
You get rich by giving society what it wants but doesn't yet know how to get at scale. Money is an IOU from society for past value creation. Entrepreneurs create new things that society wants and figure out how to scale them. The entrepreneur's job is to bring the high-end to the mass market, starting with creation and scaling it for everyone. The internet has broadened career possibilities, connecting everyone and allowing individuals to find an audience for their unique skills.
The Internet and Authenticity
The internet connects everyone, allowing you to find an audience for your product or talent, no matter how niche. Each person is unique, with different skills and interests, making diversity a creative superpower. You can be completely unique, find your audience, build a business, and create wealth by expressing yourself through the internet. Escape competition through authenticity; don't imitate, just do your own thing.
Long-Term Games with Long-Term People
Pick an industry where you can play long-term games with long-term people. All the benefits in life come from compound interest, whether in relationships, money, or learning. Long-term games are good matches for compound interest and trust. In a long-term game, everyone is making each other rich; in a short-term game, everyone is making themselves rich. Pick people to work with who have high intelligence, high energy, and high integrity.
Signals and Optimism
Reading signals is very important; pay attention to what people do, not what they say. Find long-term people who seem irrationally ethical. Self-esteem is a reputation you have with yourself. Don't partner with cynics and pessimists; their beliefs are self-fulfilling. To create things, be a rational optimist, seeing the world as it is but optimistic about your capabilities. Successful people have a strong action bias.
Specific Knowledge
Arm yourself with specific knowledge, accountability, and leverage. Specific knowledge can't be trained; it's learned through innate talents, curiosity, and on-the-job training. It's found by pursuing your genuine curiosity and passion, not by going to school for the hottest job. Specific knowledge tends to be technical and creative, on the bleeding edge of technology and art.
Building and Selling
Learn to sell and learn to build; if you can do both, you will be unstoppable. The Silicon Valley startup model often involves two founders: one world-class at sales and one world-class at building. The ultimate is when one individual can do both. Building is better when starting out, but selling scales better over time.
Continuous Learning
There is no skill called business; avoid business magazines and classes. Study microeconomics, game theory, psychology, persuasion, ethics, mathematics, and computers. The foundation of learning is reading; read what you love until you love to read. Read foundational things and understand the basics. Doing is faster than watching; learn by doing and iterating.
Accountability
Embrace accountability and take business risks under your own name; society will reward you with responsibility, equity, and leverage. Accountability allows you to take credit when things go well and bear the brunt of failure. A well-functioning team is small and has clear accountability for each portion. Taking accountability for your actions is the same as taking an equity position in all of your work.
Leverage
Fortunes require leverage; business leverage comes from capital, people, and products with no marginal costs of replication. The oldest form of leverage is labour, but it's the worst. Capital is a trickier form of leverage. The most interesting form of leverage is products with no marginal cost of replication, such as code and media. The new forms of leverage are permissionless; they don't require someone else's permission to use them or succeed.
Code and Egalitarianism
The robot revolution has already happened; the robots are already here, packed in data centres. Every great software developer has an army of robots working for them at nighttime. Code and media have a positive externality attached to them. If you care about ethics in wealth creation, it is better to create your wealth using code and media as leverage because then those products are equally available to everybody.
Business Models and Leverage
A choice of business model can bring a kind of leverage to it, such as pursuing a business with network effects. The value of a network is proportional to the square of the number of nodes in the network. A network effect is when each additional user adds value to the existing user base. It's a good idea to pick a model where you can benefit from network effects, low marginal costs, and scale economies.
Real Estate Example
A concrete example is the real estate business, where you can start as a day labourer and work your way up to a property developer or a real estate tech company founder. As you layer in more knowledge, accountability, and leverage, you expand the scope of the opportunity.
Judgement
Leverage is a force multiplier for your judgment. In an age of infinite leverage, judgment becomes the most important skill. Demonstrated judgment with high accountability and a clear track record is critical. Judgment is knowing the long-term effects of your decisions. It's hard to build up; it requires both intellect and experience.
Time and Hard Work
No one is going to value you more than you value yourself, so set a very high personal hourly rate and stick to it. If you can outsource something for less than your hourly rate, outsource it or don't do it. If getting wealthy is your goal, it has to be your number one overwhelming desire. Impatience with actions and patience with the results is a good philosophy for life.
Busy Calendar and Authenticity
You should be too busy to do coffee while still keeping an uncluttered calendar. Ruthlessly decline meetings and be respectful of other people's time. Become the best in the world at what you do; keep redefining what you do until this is true. The most important thing for an entrepreneur is to find founder product market fit.
Escaping Competition
Escape competition through authenticity. If you are fundamentally building and marketing something that is just an extension of who you are, no one can compete with you on that. When you're being authentic, you don't really mind competition that much.
Apply Specific Knowledge
Apply specific knowledge with leverage, and eventually, you will get what you deserve. It takes time, even once you have all of these pieces in place. When you're finally wealthy, you'll realise that it wasn't what you were seeking in the first place. A calm mind, a fit body, and a house full of love cannot be bought; they must be earned.
Get-Rich-Quick Schemes
There are no get-rich-quick schemes; that's just someone else getting rich off you. If anyone is giving advice on how to get rich and they're also making money off of it, they should have made their money elsewhere. If you want to be a philosopher-king, first become a king and then become a philosopher. Productise yourself by scaling your unique skills and knowledge.
Productise Yourself
Productise yourself; yourself has uniqueness, and productise has leverage. Making money isn't something you do; it's who you are stamped out a million times. Find three hobbies: one that makes you money, one that keeps you fit, and one that makes you smarter.
Common Failure Modes
A lot of people don't understand what specific knowledge really is or how to obtain it. They don't understand what accountability really entails. The most interesting parts should be the ones that you disagree with. This advice is targeted to anybody who wants to be entrepreneurial, control their own life, and improve their ability to create wealth over time.
The Value Chain
Look at who is getting the leverage off of the work that you're doing; look up the value chain. You will do better in a smaller organisation than a larger one. The goal long term is that we're all working for ourselves, and the people who are working for us are essentially robots.
Study Ethics
Study ethics; it's not necessarily something you study, it's something you think about and do. Being ethical turns out to be a selfish imperative; you want to be ethical because it attracts the other long-term players in the network.
Early Jobs
There was one point where I was washing dishes in the school cafeteria, and I said F this I hate this I can't do this anymore. I ended up working for an Indian food catering company and I ended up having to serve at a birthday party for a kid who it was actually in my school so I saw my classmates and I was out there serving food and drinks to them and that was incredibly embarrassing.
Principal-Agent Problem
The principal-agent problem is when the principal's incentives are different from the agent's incentives. If you are a principal, you want to spend a lot of your time thinking about this problem. If you're an agent, your most important job is to think like a principal.
Kelly Criterion
The Kelly criterion is a mathematical formulation of the simple concept: don't risk everything; stay out of jail. The Kelly criterion helps you avoid ruin.
Shelling Point
The shelling point is a game theory concept about how to get people who cannot communicate with each other to coordinate. You can use social norms to converge onto a shelling point.
Pareto Optimal
Pareto optimal is when the solution is the best that it can possibly be; then you can't change it without making it worse in at least one dimension. Negotiations are won by whoever cares less.
Compounding
Relationships are a good example of compound interest. Most of the benefits of compounding come at the end of the compounding. It's better to have a few deep compounding relationships with people instead of a large amount of non-compounding relationships.
Micro Economic Concepts
Price discrimination is when you can charge people different things based on their propensity to pay. Consumer surplus is the excess value that somebody gets even though they were willing to pay more. NPV is the net present value of something.
Mispriced Externality
A mispriced externality is when there is an additional cost that is imposed by whatever product is being produced or consumed that is not accounted for in the price of the product. Properly pricing externalities can save resources in a tremendous way.
Renting Your Time
You will need to rent your time to get started; this is only acceptable when you are learning and saving, preferably in a business society does not yet know how to train people. Apprenticeship is the only model. If you're working a job, you can apply a lot of the principles of the tweet storm inside the job.
