About 8 months ago, a friend and former student of mine got in contact about collaborating on some investment research. He sold a successful company years ago and has invested in just about everything since then, and the idea was that he would walk me through his ideas and strategies, and I'd in turn use my math background to help him where possible.
That experience led me to give a lot of thought to non-poker investments, and the question of how some people end up getting rich. I believe there are three basic ways:
Gift. Straightforward -- your parents are rich and you inherit $50 million. Ship the trust fund!
Select the right career and get lucky. In certain jobs, you're very unlikely to get rich. For instance, if you're a dentist or an accountant, you'll likely have a very stable income, but are very unlikely to end up rich. If you're an aspiring actor or athlete though, you have the potential to become rich if you reach the top of your profession.
Philosopher/investor Nasim Taleb labels the dentist-type jobs as being from extremistan and the athlete jobs as being from mediocristan. Despite the cooler name for the extreme jobs, they have a major disadvantage too. In particular, the people who don't succeed often end up earning very little. Getting rich in them requires the odds majorly going your way. For every Michael Jordan or George Clooney, there are countless aspiring actors/athletes who will never get rich due lack of talent or genetics for success at the very top levels, not getting noticed/casted, etc.
Find large edges and bet big. Suppose you're investing in stocks. While diversifying will help limit your losses, you're also very unlikely to get rich that way. Earning say 10% a year on your money, even compounded, is great but won't take someone without much money and make them rich. You need to find significant outperformers and bet big on them. If you're able to select a couple investments a year that return 70% a year, now you're on the path to getting rich.
This last category (finding edges and betting big) is kind of a subset of finding the right career, i.e. you're choosing to be an investor and if you're one of the most successful you have the potential to be rich. In fact you can do it part-time and without a lot of money. Start with $5k and average 50% a year, and in 20 years you've got yourself well over $10 million. The only catch of course is that it's an incredibly elite feat to accomplish, but Warren Buffett famously guaranteed he could manage it if he had a smaller portfolio.
There's a parallel between poker and investing with the goal of getting rich. Many of the players who make it to the top buyins have managed their bankroll aggressively (with that description putting it mildly in cases) at least at times, such as playing in a cash game that represents 25% of their bankroll because of a weak opponent. Find an edge, bet big.
I'm definitely not saying this hyper-aggressive approach is the right thing to do, either in poker or investing. If you always take the conservative route, such as investing in a diversified portfolio, you'll probably never get rich but you'll also have much lower swings. There's also nothing that says that getting rich is the ultimate goal -- for many it may not be.
If there's interest I'll talk in future blogs about my experience following the investments of my friend, and the types of non-poker investments that interest me at this point.