Why the ultra-rich get rich, explained in two charts | Brian Klaas
//Summary - Level-C2//
The prevailing myth that extreme wealth signifies superior intelligence is debunked through a detailed analysis showing luck, rather than talent, plays a crucial role in accumulating wealth. Wealth distribution is not expected but has a long tail, with a few individuals holding disproportionate amounts. Studies and examples suggest that being slightly above average in talent but highly lucky can lead to immense wealth, challenging the notion that financial success always correlates with genius.
1)
One of the great myths that our society perpetuates is that if you are super rich, you must be a super genius—and that is not true.
There are a couple of reasons why it's not true. When you look at the dynamics of the correlation between wealth and talent, the whole idea breaks down, and luck plays a much more significant role than we're told.
2)
So, the first thing to understand is that some human traits have a bell curve, and some are not normally distributed.
So, if you think about height, for example, height will be clustered around a relatively narrow band. You're not going to find a person who's 1 metre tall, and you're not going to find a person who's 200 feet tall. And so you have a normal distribution around a relative average - but wealth is not like that.
3)
Wealth is distributed in a way that has a long tail. This extended distribution is at the top, and many people are clustered at the bottom.
So you've got a large number of people who have average incomes. Then you've got a few people who might be a hundred or a thousand or even a million times richer than anybody else on the planet, and that creates an imbalance because you have to be lucky to have that long tail.
4)
My favourite study shows this was a collaboration between physicists and an economist, who developed a sort of fake world with some crude relationships between wealth and talent.
Talent is normally distributed. You have people who are clustered around a kind of normal range, the average of human society. Then, you have a small number of people who are talented and a small number of people who are not so gifted.
5)
But nobody in the world is a billion times more talented than anybody else, and what that means is that when you introduce luck into the equation, when you have these sorts of lightning strikes that we can think of as luck, they're going to hit where most people are.
If you imagine a kind of bell curve where most people are on the talent spectrum, the idea that lightning is going to strike the one person who's the most talented in the world or the one who's the least talented in the world.
6)
It's just highly, highly unlikely. So what will happen instead is that lightning will strike someone in the middle of the talent scale. If that happens, it will increase the chance they will get rich.
If they get struck twice by lightning, their chances of becoming extremely wealthy increase, right? So what happens in these simulations they run is that the wealthiest person in their fake world is not someone with extreme talent, time and time again.
7)
It's somebody who's slightly above average in talent who happens to be lucky - and I think that's how the world works. I believe we have a lot of complex dynamics that produce these results.
Not to mention, by the way, all the things that we can't control, like whether you were born rich, which is highly correlated with being rich in the future, and also whether you had a network that supported you through connections and so on, and a lot of people who are super, super rich, you know, act like they earned it all,
8)
They deserve their wealth and are the most talented, but that is a myth. It's impossible to become highly wealthy without talent.
But as long as you have some and are lucky, you're likelier to end up on those long tails of high wealth. Our modern world implies backwards that genius is permanently associated with wealthy people.
9)
And sometimes, they were just the accident of lightning striking them and not somebody else. Elon Musk, I think, is one of those great examples of somebody who has a certain amount of talent but maybe not as much as everybody thinks. What happened with Elon Musk is that he got lucky.
10)
I think he got super rich, and as a result, he inferred that he must be a genius and that his skills are transferable to anything else he could throw himself into, which was not the case.
So you look at some areas where he's been financially successful and then assume, "Well, you're successful because you're a genius."
Of course, geniuses believe they can control their future and that their talent will get them through.
11)
No matter what field they enter. Now, Elon Musk has had some success with cars, rocket ships, and so on, and some of that is probably due to his talent.
Still, some of it is down to the talent of the people who work for him, the scientists who make the breakthroughs, the funding mechanisms that allow him to get government grants and so on.
12)
And when he was on his own, which is when he bought Twitter, for example, he lit tens of billions of dollars on fire and made that social media site worth a fraction of what it was before because his so-called "genius" didn't transfer to the social media realm.
13)
And I think that one of the big problems in society is that there are many things about billionaires that aren't down to luck or talent; they're down to greed. So, one of the things that I think about is a certain amount of overconfidence and greed that you have to have to become a billionaire.
14)
So, with the thirst for money, for example, if somebody gave me $2 billion, I would not first say, "Oh my God, how can I get $3 billion?"
Billionaire People look at the $2 billion and say, "How can I have $3 billion?" And then they get $3 billion and say, "How can I have $4 billion ?"
So what's happened is you've got a self-selection of specific traits that make these people more likely to become super rich.
15)
And so, you know, I think a lot of the mythology around billionaires and a lot of the mythology around people like Elon Musk infer this straight line between talent and wealth, and there's so much more going on.
I think the immediate assumption that genius must be embedded in the person who is financially successful in an industry is a massive misunderstanding of how our world works and the arbitrary nature and sometimes unfairness.
Talent and wealth are not strictly correlated.
Why the ultra-rich get rich, explained in two charts | Brian Klaas
https://www.youtube.com/watch?v=_pUxqKqnMlQ
Political scientist Braren'taas explains why most billionaires aren't geniuses, and most geniuses aren't billionaires.
• three-game theory tactics explained
Not all rich people are geniuses – most of them are just lucky.
Professor and author Brian Klass joins us in debunking a common misconception about wealth—that all those with it are smarter than average. Klass uses probability to explain that though this is an easy assumption, it's technically incorrect.
He points to Elon Musk as a case study, noting that while Musk's skills have contributed to his achievements, his success also depends on his pre-existing resources and collaboration. In situations where Musk has worked individually (such as during his acquisition of Twitter), he has seen less success and, ultimately, less profit.
The key takeaway here is that wealth is not directly correlated with wealth is not directly correlated with brain power. Thinking more competent and working harder does not always make you wealthy; most of the time, it's just about being positive at the luckiest spot on the bell curve.
About Brian Klaas:
Brian Klaas grew up in Minnesota, earned his DPhil at Oxford, and is now a professor of global politics at University College London. He is a contributing writer for The Atlantic, host of the award-winning Power Corrupts podcast, and frequent guest on national television. Klaas has conducted field research globally and advised prominent politicians and organizations, including NATO and the European Union.
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What are the ultra-wealthy? Understanding the ultra-wealthy is essential for economic revitalization.
https://ifa-leading.com/ifalt/tyouhuyuusoutoha/
(1) How is the wealthy class defined?
How is the ultra-wealthy group we have heard so much about today defined? At Nomura Research Institute, assets held (net financial assets) of 500 million yen or more are classified as ultra-high-net-worth individuals, those with 100 million yen or more but less than 500 million yen are classified as high-net-worth individuals, and those with 50 million yen or more and less than 100 million yen are classified as semi-high-net-worth individuals. Defined. There are likely to be quite a few households with net financial assets of 100 million yen or more, especially those who have served as executives or worked on building assets at a company. However, defining these people as "wealthy " is strange."
On the other hand, the definition of wealthy by the national tax authorities is 1) Annual dividends from securities of 40 million yen or more, 2) Ownership of 8 million or more shares of stock, 3) Loan principal of 100 million yen or more, and 4) Real estate income such as rental houses of 100 million yen. (5) Total income is 100 million yen or more, 6) Income from capital gains and forestry income is 1 billion yen or more, 7) Acquired assets are 400 million yen or more, 8) Acquired assets such as inheritance are 500 million yen or more, 9) Income from transfer of unlisted stocks Those who have earned 1 billion yen or more, or gained 100 million yen or more from the transfer of listed stocks, and are 45 years of age or older. Both definitions refer to the wealthy, but if anything, I think the national tax authority's definition is closer to the image of the wealthy ≒ ultra-rich. Even if you have 500 million yen in financial funds, if the annual yield is 3%, your interest and dividend income will be around 15 million yen yearly. After deducting taxes and social insurance, your monthly take-home pay will be 1 million yen. May fall below. As expected, I can't proudly say, ``I am a super wealthy person.''
(2) Who are the ultra-rich?
It would make more sense to replace the wealthy class, defined by the national tax authorities, with the super-wealthy class. If the annual dividend of securities is 40 million yen or more, and the annual yield is 3%, the securities held will be 1.2 billion yen or more. Additionally, if the real estate income is 100 million yen or more, the market value of the rental property will be 2 billion yen, assuming an annual yield of 5%. It is estimated that there are approximately 30,000 people in Japan with an income of 100 million yen or more. It isn't easy to define whether these people can be defined as ultra-wealthy. By the way, only 16 people in Japan have an income of over 10 billion yen, so there is no problem calling these people the ultra-rich (based on 2021).
On the other hand, globally, those with assets of $30 million or more are said to be ultra-high net worth. If converted at 150 yen to the dollar, it would be 4.5 billion yen. As expected, there is no resistance to being called the ultra-rich at this level. The ultra-wealthy can be broadly divided into entrepreneurs, corporate executives, heirs, etc. In Japan, even executives of large companies receive a large proportion of their compensation in cash, so they are at the ultra-wealthy level. It may be challenging to own. Of course, the founders of companies such as Fast Retailing, Keyence, Softbank, Suntory, Unicharm, Nitori, and Nidec have assets ranging from hundreds of billions of yen to trillions of yen and are called the ultra-rich. I don't think there is any objection to that. These ultra-wealthy people commonly took their founding companies public, and the stock value rose, leading to their assets' formation. As expected, it isn't easy to accumulate large amounts of assets solely from cash compensation related to business, which seems to be the same in Western countries (see Figure 1).
(3) What is essential to the ultra-rich
Now, let's consider what the ultra-wealthy group places importance on. Ultra-high net worth individuals value 1) their health, 2) inheritance of assets, and 3) human relationships. Of course, emphasising these three things is familiar to everyone, regardless of their wealth. Still, I get the impression that ultra-high-net-worth individuals emphasise these things. In addition, he is passionate about his children's education, and he does everything he can to spare money and time, such as providing them with competent private tutors, sending them to piano, swimming, and calligraphy classes, and sending them to study abroad. It has become a feature. Rather than emphasising academic background, I would say that we are focusing on nurturing human resources who can go out into society and play an active role.
The ultra-wealthy are also passionate about asset management. However, you do not often buy and sell individual stocks alone. In Japan, statistics show that cash and deposits account for approximately 55% of financial assets. Still, the ultra-wealthy's ratio of money and deposits to financial assets is relatively small. Financial assets include diversified investments in stocks, bonds, investment trusts, insurance products, etc.; in many cases, they also hold tangible assets such as real estate. Ultra-high-net-worth individuals don't have the time to devote to asset management, so they generally entrust management and operation to experts in many cases. Also, some ultra-wealthy people own private jets, but this is because they are buying values such as "time" and "safety" with money. It may mean that waiting time during a trip or business trip is wasted, and you can't waste a second. I think this lifestyle genuinely puts ``time is money'' into practice.
(4) Positioning of the ultra-rich in Japan
Looking at the world's ultra-rich people ranking, Japan ranks 4th in terms of countries, and Tokyo ranks 9th in cities. The amount of assets per person is around 100 million dollars, which at an exchange rate of 150 yen to the dollar is about 15 billion yen. By country, one in three of the world's ultra-wealthy people live in the United States, and in recent years, the number of ultra-wealthy people in Asian regions such as China and Japan has been increasing. Additionally, the number of ultra-rich people in emerging countries such as India appears to grow in recent years. By city, New York was previously the top city in the world, but according to 2023 data, Hong Kong is now the top city. In terms of cities, it is noteworthy that 5 American cities are ranked in the top 10. Does this mean the world's super-wealthy are concentrating in the United States?
(5) Behavioral patterns of the ultra-wealthy
You may think that ultra-wealthy people indulge in luxury and splurge, but that is untrue. I'm sure many people thoroughly manage their assets, value health management, and try eating healthy food and exercising. Entrepreneurs, especially among the ultra-wealthy, work diligently to gather information and build relationships. In some cases, they are actively engaged in social contribution activities through donations and other means. When it comes to the ultra-wealthy, they may be more conscious of using their money for the economy rather than using it for themselves. And will the ultra-wealthy own professional sports teams, buy companies, or run schools and hospitals? Leaving their name behind for future generations may be their most incredible honour.
