What lessons can we learn from successful entrepreneurs?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 661.5 million views in recent years.

In the answers below I focused on the following topics and issues:

• What lessons can we learn from successful entrepreneurs?
• Why don’t billionaires invest in real estate?
• What is the future of Africa economically?
• If 98% of funds don’t beat the market, why do people still give their money to financial advisors and money managers? Why doesn’t everyone just invest in a low cost index fund that follows the S&P 500?
• What is your opinion on this statement- “You don’t need to work hard for your money if your money works hard for you. If you have enough capital, you don’t need to work at all.”?
• Why does the government insure bank accounts?
• What groups (or individuals) actually profited from the 2008 financial crisis?
• Do billionaires see any point in saving money?
• Why is everyone so afraid of AI?
• Around 90% of millionaires make their wealth from real estate. What else are they investing in?

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What lessons can we learn from successful entrepreneurs?

Who, not, how

This guy explains it best

If you focus on how you will need to:

• Do your own research
• Learn new skills

In other words, spend a lot of time on the task, when you are already busy.

It seldom works unless you are very young and finding your way in the world, with a lot of time to build new skills.

We all only have 24 hours in a day.

Almost all of us are only very good at one or two things.

Far better to focus on our strengths, and outsource our weaknesses, rather than spend time on improving all our weak parts.

That means getting advice and guidance from experts, joining masterminds, forming partnerships, mutually helping others who can then help you in your weak spots etc.

Consider this. Roger Federer didn’t need to do anything when he played tennis. His team, including his wife, who used to be a professional player, did everything for him.

So, he didn’t need to worry about visas, hotels and all the other elements. He just focused on tennis.

The issue is, most people are frugal about things that save them time but are more than happy to spend thousands on gadgets and holidays.

What is more efficient? Partnering with a company, or paying for legal or financial advice, or doing it all yourself?

The answer in many situations is obvious.

This links to a wider point. The way entrepreneurs think about risk is different.

Many people are terrified of “losing” anything.

You see it in statements like:

• I don’t want to quit my job and work really hard working for myself if I will end up earning less
• I don’t want to invest if there is a chance that I could lose money

Ultimately, in certain situations, taking no risk is the biggest risk.

Putting money in the bank is losing to inflation.

And never adapting your business might mean that the competition overtakes you.

Most of my friends think I am a risk-taker, but looking back, I wish I had taken even more big (but calculated) risks.

The above obviously doesn’t mean you should be silly about taking unneeded risks, or automatically pay for everything when it saves you time.

Things should be done on a case-by-case basis.

Yet often it is easy to store up hidden risks and lose out on gains.

That is because psychologists often say that most people don’t take action until the pain of standing still is too big.

So, all too often people wait until they are older to invest for retirement, or change a diet after a heart attack.

Why don’t billionaires invest in real estate?

They do.

Merely a lot of research shows that ultra-high net worth individuals have a lower allocation to real estate than the general population:

The main reasons are likely to be liquidity and familiarity.

Ultimately, many ultra-wealthy people got wealthy by starting a business.

So, it is only rational also to want to buy a collection of business (stocks).

In comparison, many average investors prefer property as it feels more familiar, as we all grew up in a house, and wrongly feel that the stock market is something for wealthy people only.

What is the future of Africa economically?

I am optimistic.

The demographics are incredible, as per this graph from Statista:

Countless countries are fighting to invest in maybe the last frontier, as traditional emerging markets in Asia slow.

There are challenges, though.

The political situation is still unstable even if it has improved in some countries.

We only have to look at the current situation in Niger and Ethiopia, the world’s fastest-growing economy a few years ago, to see how quickly things can change.

I also don’t think African stock markets will necessarily outperform global ones, even if higher GDP growth exists.

But overall, I am optimistic, as I explained in the Forbes article below:

If 98% of funds don’t beat the market, why do people still give their money to financial advisors and money managers? Why doesn’t everyone just invest in a low cost index fund that follows the S&P 500?

Considering what I do, I am in an excellent position to answer this question.

The main reasons are

1. Behavior.

Do you know how to get a six-pack, or at least stay healthy? Almost everybody does. That doesn’t mean nutritionists and gym trainers are useless because “I can do it myself”.

The key is implementation. I know I am more likely to meet my fitness goals if I set an appointment to meet my trainer two or three times a week.

The same is true with finance. Some people can control their emotions and invest by themselves.

However, extensive studies have shown that advised investors who invest in the same ETFs do better than do-it-yourself ones (DIY).

How can this be possible if the fees are higher? After all, if the S&P500 does 10% per year in the next decade, and your advisor takes 1%, your returns will be below the market, right?

Yes, but studies by Vanguard and others show that DIY investors tend to panic sell when the markets are crashing and buy more when they are skyrocketing.

Even if they don’t panic sell, they “wait and see” until the clouds clear – in other words, they might not sell their existing investments when markets are crashing, unlike many people, but they don’t add more.

You might think this is unusual and won’t affect you, but remember this:

• 35% of over 65-year-olds completely sold everything during the 2020 market crash
• Many others sold something
• Despite the fact that Cathy Woods’ fund made a lot of money for a few years, most DIY investors lost money, as I explained below. They bought high when everybody else bought, and then panic sold when it fell.

We do have to remember that every time there is a crash, the media is hysterical and say, “this time is different”. That influences DIY investor’s behaviour.

2. Wealth protection

Many advisors are used for trusts, insurance, financial planning and other things besides money management.

Risk management is more critical for most wealthier investors than beating the market.

3. More sophisticated investments

Some investors want institutional access to downside-protected investments and professional asset classes.

Again, the main reason is diversification and risk management, not beating the market.

4. Specialism

I help expats and high-net-worth investors. Expat investors have particular financial needs.

Other advisors help in specialisms which go beyond the vanilla as well.

That isn’t to mention time. There is no point in spending loads of time setting up suitable investments, trusts, etc.

We must remember that wealthier people are likelier to use advisors, which tells you something.

Why does the government insure bank accounts?

It is a great question.

It gets to the heart of a big misconception people have.

Firstly, many think a bank or investment provider is safer because it has government insurance or protection.

However, what is the core reason why governments offer it?

It is because the banking system operates on fractional reserves. In simple language, banks only keep a percentage of the assets you deposit in cash.

They can invest it or lend it out (depending on the rules in different jurisdictions).

This means there is a banking run if too many people ask to take their money out simultaneously.

It happened just before the banking crisis with Northern Rock in the UK.

People lined up for hours to get their money.

So, the fact that government need to offer some protection shows that having a lot of money in banks isn’t safe.

Let’s put this another way. Governments wouldn’t need to offer such protections if all banks had a no-debt policy.

In Puerto Rico last year, Euro Pacific Bank was closed down by regulators.

Yet everybody will be reunited with their money.

The reason is simple. The bank didn’t have debt or loan out money. They made money from fees, not leverage/debt.

This brings me to my more significant point. If an investor is looking for safety, they should look for things like:

• No debt or low-debt banks
• Invest with investment platforms or insurance companies that don’t use debts. Many of these companies don’t have any debt.

A-ratings and government guarantees aren’t worth the paper. They aren’t worth the paper they are written on half the time anyway.

A guarantee is only as good as the entity making the promise. The Egyptian Government guarantees 100% of bank deposits, and the Zimbabwean government also has a protection scheme.

Would you put your money there? Obviously not.

If loads of banks in the EU or UK collapsed, all that would happen is that the currency would inflate.

So, people would get back their deposits but indirectly lose out.

Around 90% of millionaires make their wealth from real estate. What else are they investing in?

Firstly, being a millionaire in isolation isn’t that useful, as I will explain later.

Second, the 90% figure is very misleading for the following reasons:

• A house is most people’s biggest purchase
• A millionaire is just somebody who has a million dollar or more in assets.

Simple example. If somebody bought a 400k home twenty five years ago, they would have invested close to half a million into that house in the last quarter of a century.

If the house is now worth over $1million, it would have performed worse than the S&P500 and several investments.

So, if that person says “I made my first million from real estate”, it is misleading, as 400k came from a job and most of the 600k came from inflation, and that 400k would be worth millions invested elsewhere.

A better measurement is liquid millionaires.

How is a high-net-worth individual defined in finance? It is somebody who has $1million liquid as per this definition from Investopedia

That means:

• Cash
• Shares
• ETFs
• Funds

In other words, anything which can be sold instantly or within a week or two.

Not land, pensions (unless you are already older), real estate and private businesses.

There is a reason why the finance industry considers somebody who has $2million in ETFs to be a high-net-worth individual but not somebody with 1.8m in a primary residence and 200k in cash or ETFs.

It is more useful to have the money liquid. I have ran out of the number of occasions where people have failed to sell assets like land and property.

So, to answer your question, most millionaire who meet the high-net-worth criteria (which excludes most millionaires) made money from owning a primary business, having ETFs and stocks and yes sometimes real estate if they sold out and then focused on more liquid wealth.

What groups (or individuals) actually profited from the 2008 financial crisis?

John Paulson

The hedge fund manager made $2.5 billion by betting against the US housing market:

Besides that, the irony about the 2008 Financial Crisis is that many individuals benefited.

As asset prices were so low in 2009–2012, and the central banks lowered interest rates and did QE, asset prices were pushed up dramatically from the lows.

The stimulus’ in China also resulted in more Chinese people parking money in Canada and Australia.

I know some sensible people who realized this wasn’t sustainable forever and was historically abnormal regarding housing prices, so they sold or downsized and semi-retired.

We also have to remember that challenger banks benefitted from 2008.

Wise and Revolut wouldn’t be what they are today if it wasn’t for the crisis.

Do billionaires see any point in saving money?

Having advised, and met countless wealthy people, I can say it is about mentality.

I watched an interview with the lady below, who summarized it well.

Barbara Corcoran is a Shark Tank judge worth over $100 million.

She doesn’t come from a wealthy family.

Yet she says she has never saved.

Her mum installed that in her even though she didn’t have money.

She invests money, which is different to saving.

Investments don’t just mean traditional investments such as private businesses and public ones (stocks), which are important, but also unconventional ones.

Often if you spend money, it comes back to you.

If golf is your hobby and you play golf every week, you might make more money from improving your network as a private business owner, even if in-person networking isn’t as scalable as online networking.

If you invest in your network, team and others, the money will often come back to you, even if that wasn’t the initial intention.

Reading and improving your knowledge can be a great investment, even if the initial intention is to pursue a hobby (reading in this case).

That doesn’t mean all spending comes back to you.

Many wealthy people are frugal about consumer spending, at least early on in their careers, when growing a business at the early stages.

Studies have also shown that middle-income consumers are more likely to purchase certain designer clothes than the wealthy.

I am also not saying that saving never makes sense. You might have specific short-term goals that require cash, and cash can also be used for particular specific business objectives.

The broader point is this. Wealthy people, or people who are on track to become wealthy, see money as something abundant.

Most people, even those above average, see money as scarce. With that mentality, it is best to hold onto it and take “no risks”, even though saving is also risky due to inflation.

Simple example

The abundant mindset says, “You can take my money, but not my time, as I can’t get time back. I can get money back”.

Or “Let me start small with this idea/investment/project. If it works, I will increase the investment”.

The scarcity mindset says things like “money doesn’t just grow on trees” and “better be safe than sorry”, even if they are very young and have nothing to lose!

So, it isn’t just billionaires who don’t see the point in saving money forever (hoarding).

Money needs to be put to use for:

• Cash flow. If you have cash flow from investments, it is easier to buy even luxury items without just spending money you don’t have. Ideally, you want to buy more things with unearned income not earned income.
• Creating more opportunities

In other words, not just sitting in a bank account forever.

What is your opinion on this statement- “You don’t need to work hard for your money if your money works hard for you. If you have enough capital, you don’t need to work at all.”?

It is a statement of fact.

Why don’t retirees need to work?

They live from pensions, stocks, funds, ETFs and real estate assets.

Moreover, if you already have a lot of resources, extra income becomes easier to obtain.

Top lawyers, doctors, advisors and consultants get more client referrals the longer they are in business.

However, unless you get lucky or inherit wealth, you still need to work hard at the start.

That person who is semi or fully retired at forty often worked very hard earlier on.

Why is everyone so afraid of AI?

Firstly, anybody who is reading this who is middle-aged or older would have heard these stories again and again.

Larry Summers mentioned that as far back as the 1970s, when he was a student, some professors were fear-mongering about automation.

Over a hundred years ago, Henry Ford “threatened” to replace workers with technology and robots.

Technology has always destroyed jobs but created more than it has destroyed.

So, unemployment in the US, UK and many other advanced countries is close to record lows.

But millions of jobs have been lost to automation. Look at manufacturing.

There are fewer jobs in manufacturing than before, but millions of jobs have been created in finance, sports and entertainment, legal and other service jobs.

This brings me to AI. Many people believe that “this time is different”.

In investing, this is very dangerous, as per this quote from Pinterest.

Just as every time there is a market crash, there are people who say, “this time is different”, the markets won’t recover this time; the same thing happens when technology gets better.

So, the first reason people fear AI is that they always fear technological change.

There is a second reason people are afraid.

Who writes articles? Journalists. Who could get replaced by AI? Jobs like journalism are more at risk than, say, plumbers.

So, whilst the most recent technological changes in the 1980s and 1990s have affected the working class jobs the most, this time could indeed be different, in that some middle-class jobs could be affected.

That doesn’t mean this time will automatically be different, and we will see 30% unemployment.

It is merely the cases that the educated classes might suffer a bit.

EQ could also become much more important than IQ.

Studying maths, in future, might be less critical than studying human behaviour and other soft skills.

Machines might know more than us, but they don’t have wisdom or soft skills, and won’t anytime soon.

These kinds of trends make people afraid.

As a final comment, it has to be remembered that not everybody is afraid.

Many people are excited about the potential of investing in AI and realize that new efficiencies could push up stock markets.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 669.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.