The wealth-building thread

[levimax]

It's more of an indicator of my mood

You are not alone.... amazing the change in market sentiment since the begining of the year. Sentiment is actually more of a "trend following" indicator rather than a predictive one but some people try to trade off of it.

 

[12Many]

I don't follow your reasoning for villianizing those who own property and rent it out. As others note, it allows those that can only afford to rent to do so. If it's wrong to own real property for profit, what should we do about the people that grow and/or produce food for profit? I assume they are just as evil, if not more so. What about the home appliances you mention? Those should be the product of non-profit industry? Furniture, kitchenware, toys and the "what not," too? Let us know where profit is acceptable and where it isn't so we can avoid this moral cliff.

If you think socialism is a dirty word, then don't deal in it.

Do you think anything in an economy should not be profit based (he cost more closely reflect the cost of the goods) or should it be a pure free market, unregulated price. I think about this all the time. We are fortunate that food is abundant in the US. What if one company owned all the food production and could raise the rates? Same with water? Where I live, water is not for profit it - price is based on cost plus a regulated profit. When I was young, most all the utilities were cost plus a small profit set by the PUC. Health care is another tricky area. Pay the 200% profit or no treatment. Very tricky issues and the answers will determine what society looks like and maybe how history will judge us.

 

[PatentLawyer]

Do you think anything in an economy should not be profit based (he cost more closely reflect the cost of the goods) or should it be a pure free market, unregulated price. I think about this all the time. We are fortunate that food is abundant in the US. What if one company owned all the food production and could raise the rates? Same with water? Where I live, water is not for profit it - price is based on cost plus a regulated profit. When I was young, most all the utilities were cost plus a small profit set by the PUC. Health care is another tricky area. Pay the 200% profit or no treatment. Very tricky issues and the answers will determine what society looks like and maybe how history will judge us.

Free market, constrained by existing (and very mature) antitrust law.

 

[12Many]

Free market, constrained by existing (and very mature) antitrust law.

Interesting. We don't have that currently in the U.S. It is very, very, regulated, well beyond antitrust rules. It would be interesting to see what a true free market would be like. True, unregulated capitalism is brutally effective.

 

[PatentLawyer]

Interesting. We don't have that currently in the U.S. It is very, very, regulated, well beyond antitrust rules. It would be interesting to see what a true free market would be like. True, unregulated capitalism is brutally effective.

I know, and there are usually unintended consequences when the government picks winners and losers.

Want to hear something scary: talk to some doctors in the US and see how many are encouraging their kids to become doctors. In my circle (lots of doctors), the answer is zero. The system has encouraged big brains to do something more lucrative. And I don’t blame them, but there’s a day of reckoning. This isn’t just anecdotal; the data is out there.

 

[12Many]

I know, and there are usually unintended consequences when the government picks winners and losers.

Want to hear something scary: talk to some doctors in the US and see how many are encouraging their kids to become doctors. In my circle (lots of doctors), the answer is zero. The system has encouraged big brains to do something more lucrative. And I don’t blame them, but there’s a day of reckoning. This isn’t just anecdotal; the data is out there.

Agreed. Healthcare in the US is a mess. I know a few doctors and they all say they lost control when the corporations came in an started owning medical practices - they are employees now and just get paid a fixed salary. Specialist still do well. They all complain that they don't get enough time with patients. But if they don't team up, they get rolled by the insurance companies and hospitals (more mega corps). I often see a trade off between profit and quality and access and I don't know how best to balance it all out.

 

[Chromatischism]

My understanding was never sell (unless the stock is doomed) or something. right?

I just let my money ride the waves.

That understanding changed when I realized that we are all just providing liquidity for the more sophisticated, and bigger, players to make money from. The game is now to try not to get left holding the bag.

The days of retiring off of lazy index investing might be over.

 

[Chromatischism]

Is this thread a contrary indicator? Thread started Sept 2021 within a few months of all time high. Thread went silent October 2022 right at the bottom. Thread revived June 2023 after huge rally off October 2022 low......

Good observation. The big players know this and are always one step ahead. They are buying after everyone has given up, and selling when the FOMO returns.

 

[Chromatischism]

Interesting. We don't have that currently in the U.S. It is very, very, regulated, well beyond antitrust rules. It would be interesting to see what a true free market would be like. True, unregulated capitalism is brutally effective.

Unfortunately it's not that well-regulated.

Our "free market" is ripe with externalities, many of them negative, from letting actors do whatever they want. As long as they don't have to pay for all of the costs of their business (pollution, wage theft, etc), we'll never have a great system that isn't based on race-to-the-bottom business models and creating bagholders out of everyone else.

 

[A Surfer]

Wealth generation is always the riskiest for those who aren't truly wealthy. The truly wealthy let you at risk people fill in the chunk of the marketplace they need so as to have the extra capital that is risked. They already have enough that the weathering of the storms is almost certainly never going to change their long-term positive (slow and steady) rise. The portion of the market where the risks really exist is with those people who aren't truly wealthy. It is simply gambling, educated gambling, but gambling nonetheless and the house always wins and the house is made up of the truly wealthy.

I am not saying that people who aren't wealthy can't and don't have success in the markets, clearly many do, but they also bear the greatest risk. I once read what seemed like great advice to me and it went something like if you can't afford to lose it, don't put it into the markets.

 

[sdrichard]

Wealth generation is always the riskiest for those who aren't truly wealthy. The truly wealthy let you at risk people fill in the chunk of the marketplace they need so as to have the extra capital that is risked. They already have enough that the weathering of the storms is almost certainly never going to change their long-term positive (slow and steady) rise. The portion of the market where the risks really exist is with those people who aren't truly wealthy. It is simply gambling, educated gambling, but gambling nonetheless and the house always wins and the house is made up of the truly wealthy.

I am not saying that people who aren't wealthy can't and don't have success in the markets, clearly many do, but they also bear the greatest risk. I once read what seemed like great advice to me and it went something like if you can't afford to lose it, don't put it into the markets.

The thread is about how to generate wealth, presumably from no wealth or not a lot of wealth. So the above generalization is not very helpful in answering that question.

To me there are three general approaches to wealth generation:

1. Work hard to obtain a high paying job. Live below your means and invest the leftover wisely. This is what most people do, and is the most slow and steady approach. It takes hard work, discipline and time.
2. Work to achieve a position where you can leverage other people's money to make more money. Many people do that by buying real estate using mortgages (a form of leverage). Some people become general partners in a law firm (leveraging junior employees' work). Even fewer become general partners in a venture capital firm (leveraging limited partners' money).
3. Start your own company. Find investors to allow you to grow the company to significant scale and profitability. Then sell it.

I suspect OP's original question focused on #1. In order to achieve significant wealth (say, more than $15M) from no wealth, you have to do #2 or #3. I'm curious, what is your idea of being wealthy?

 

[EJ3]

No point in working too hard here, the pinkos and/or politicians will take it away via a dazzling amount of taxes, direct or indirect. Anyway, am I the only one completely disgusted with the concept of "finance" aka playing around with money? Even if this can be a great boon, as your post explain, I just don't want to have anything to do with it; nor the worry I'm sure it'd bring me.

I did not invest in any 401K's or any of the other things companies, banks & credit unions say that working people should invest in during my career. However, I have 4 domiciles that are paid off (1 on James Island SC [3/4 acre on deep water, 2400 SQ FT house, both the land & built the house {I was a contractor & this was done with contracting friends} for $44K}]). A lady 2 doors away sold her slightly larger house 2 weeks ago for $1.8 million, although mine won't sell for quite that much, I suspect that it would sell for more than 2/3ds of that. The other home is 12 miles away and was bought for $35K & is on 1/2 an acre. I have put about $60K into it & Zillow says that it is worth $420K (maybe they are right, I guess $390). This one has generated rental income to me for many years. My other 2 are condos, one on a Tropical Island Island, bought for $170K, put in about $15K & currently generates rental income for me. The other is a large condo in a golden location (can walk to damn near anything you need within 20 minutes), including light rail (2 blocks away) in a city of 38 million, that my wife owned already when we were married. This is used for family when they (or we are visiting). All cars, a small boat, & $76K in credit card debt are paid off. But no investments
I will receive $56K in retirement + whatever I rent, lease or sell my properties for.
On your primary home taxes are not that high. On secondary homes, the taxes are higher but there are various deductions on taxes on both your primary homes and your secondary homes on maintenance & improvements (picking the right improvements can seriously jump what your home is worth in both rental income or if you decide to sell it.
This is one of the other ways than playing the stock market. But, just like the stock market, there are booms & busts. But if you pay for it quickly & rent/lease it out & hold on to it, then you have income & usually, after few years, the busts become OK or Booms. A reason that I invested in property in other parts of the world (places that I wouldn't mind having my last years in). That gives me the option to sell all but the last place I want to be and to be able to live a decent life to the end.
None of this was planned, serendipity just happened, as I have a tendency to keep what I have bought (hence my mostly vintage stereo, a 2000 pickup truck & a 2007 riding mower, 1997 weed eater & 1997 backpack blower (also, I don't by things that are likely to be something that I will through away soon, I focus on quality & longevity).
What was planned started happening when I was 48 years old & finally got married. At that point, I decided to pay everything off.
Now I am 66 & 4 months old, 6 months from retiring and everything that my wife & I own, are owned by us. Not us & the bank, credit union, credit card company or any other entity (except the governments involved, if you think that you actually own anything, try not paying your taxes on it, you will soon find out that a government entity will take it from you and sell it for back taxes. This means the that government agency is the actual owner & you are only the virtual owner. But, follow the rules (that they don't fully disclose, so it will take some research) & you can come out ahead with something to leave someone when you leave this current form that we are in.

 

[Snoopy]

you can come out ahead with something to leave someone when you leave this current form that we are in.

Not so easy these days when U barely make it from paycheck to paycheck. Condo prices went up like 50% in the last 10 years for the condo that I'm renting, and when I got offered to buy the condo recently the bank was laughing in face basically that I don't qualify for such a credit.

So now I pay more in rent than what I would pay back to the bank

So now I'm looking into other things to have some money for retirement (ETFs? ). A second job?

Well at least I get to work another 30 years (37 yo soon). That should be plenty of time.

 

[Blumlein 88]

Not so easy these days when U barely make it from paycheck to paycheck. Condo prices went up like 50% in the last 10 years for the condo that I'm renting, and when I got offered to buy the condo recently the bank was laughing in face basically that I don't qualify for such a credit.

So now I pay more in rent than what I would pay back to the bank

So now I'm looking into other things to have some money for retirement (ETFs? ). A second job?

Well at least I get to work another 30 years (37 yo soon). That should be plenty of time.

ETF's are not bad for something you don't need to know much about nor have time/inclination to manage yourself. Safe easy investment relative to some things. Basically a buy and hold strategy over 20 years or more in the past has done pretty well. Probably do fine to invest in a basic ETF that mimics the S&P 500 index. Something like SPY, VOO, or IVV which all track the same index and have the same holdings. VOO and IVV have slightly lower expense ratios.

You can add a handful of others if you wish. Like most things those that might do better than the S&P500 have a bit more risk and are more volatile. Putting at least some money in a Roth IRA lets you buy those and grow without taxes, but you cannot get the money back without issues until you are older. So you might want to split it up.

I personally did well with various rental property and real estate (not that it made me really rich). Investing in something like the ETF's wouldn't have been much worse and boy it would have saved a huge amount of headaches. I felt the real estate was more under my control instead of relying on something out of my control altogether. In reality, the investment in broad funds like ETF's is something I would have done instead knowing now what I didn't know then.

 

[Snoopy]

ETF's are not bad for something you don't need to know much about nor have time/inclination to manage yourself. Safe easy investment relative to some things. Basically a buy and hold strategy over 20 years or more in the past has done pretty well. Probably do fine to invest in a basic ETF that mimics the S&P 500 index. Something like SPY, VOO, or IVV which all track the same index and have the same holdings. VOO and IVV have slightly lower expense ratios.

You can add a handful of others if you wish. Like most things those that might do better than the S&P500 have a bit more risk and are more volatile. Putting at least some money in a Roth IRA lets you buy those and grow without taxes, but you cannot get the money back without issues until you are older. So you might want to split it up.

I personally did well with various rental property and real estate (not that it made me really rich). Investing in something like the ETF's wouldn't have been much worse and boy it would have saved a huge amount of headaches. I felt the real estate was more under my control instead of relying on something out of my control altogether. In reality, the investment in broad funds like ETF's is something I would have done instead knowing now what I didn't know then.

That's good to know. I looked already a bit into the whole ETF thing.. but will have to save up some funds first. Don't want to go into that while paying off creditcard installments.

Prices for everything just ballooned. Paycheck increases by 5% and at the same time prices for everything else goes up 20%..

 

[A Surfer]

The thread is about how to generate wealth, presumably from no wealth or not a lot of wealth. So the above generalization is not very helpful in answering that question.

To me there are three general approaches to wealth generation:

1. Work hard to obtain a high paying job. Live below your means and invest the leftover wisely. This is what most people do, and is the most slow and steady approach. It takes hard work, discipline and time.
2. Work to achieve a position where you can leverage other people's money to make more money. Many people do that by buying real estate using mortgages (a form of leverage). Some people become general partners in a law firm (leveraging junior employees' work). Even fewer become general partners in a venture capital firm (leveraging limited partners' money).
3. Start your own company. Find investors to allow you to grow the company to significant scale and profitability. Then sell it.

I suspect OP's original question focused on #1. In order to achieve significant wealth (say, more than $15M) from no wealth, you have to do #2 or #3. I'm curious, what is your idea of being wealthy?

Thanks for your very civil reply, that was appreciated. My definition of wealth is not likely to be germane to the discussion so I'll refrain from providing it as I'm sure it would be irrelevant. Cheers though.

 

[kemmler3D]

Free market, constrained by existing (and very mature) antitrust law.

Antitrust law in the US is mature in the sense of being antiquated, and apparently innocent of actual economic theory. Enforcement would be called a bad joke, but jokes are at least funny. The state of antitrust enforcement in the US is beyond sad, it's tragic.

A few trivial examples off the top of my head:

Amazon Echo Dots were sold below cost for years. (A single chip in one of those things costs 80% of the retail price, no need to really do the math here.) This put out of business or prevented market entry by numerous competitors. This AFAIK is the textbook definition of predatory pricing, but to this day, it's unclear if there are going to be any consequences.

Most ISPs have effective monopolies with very obvious harms to the consumer, nothing really being done there, either.

Duopolies with plenty of room for collusion (online advertising) are considered just peachy keen by most regulators over the past 20 years or so. Neat. I'm sure nobody can think of anything bad that happened by allowing FB and Google to run wild here.


In the long run, there's no such thing as a "free market" without (IMO) much heavier regulation than we've seen in my lifetime. The point of a "free" market is to stimulate competition for the benefit of the consumer, not to provide profit-taking opportunities for investors. To me, it seems we've forgotten the basic justification for our economic system entirely.

 

[blueone]

Since crypto mining is a shrinking GPU business, and the client GPU business has a lot of competition (though Nvidia still dominates the high end, at least for now), Nvidia is becoming more and more of a supercomputing company. The problem with supercomputing is that it isn't granular enough, meaning most of the business is dependent on relatively few huge supercomputers. This means Nvidia's business is going to become more uneven over time, which the stock market dislikes. Name a supercomputer company with a stock the market likes. Yup, you can't.

(Crypto mining is a declining GPU business for two reasons. One, GPUs are good, but custom mining ASICs are far more power efficient, and they're not as difficult to design as general purpose GPUs. Second, the emergence of Proof of Stake processing as opposed to Proof of Work for crypto mining dramatically reduces the computing power necessary. Etherium has already made the leap, and I think political pressures will push Bitcoin and others in that direction. The outlook for crypto mining on GPUs is dim, IMO.)

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Wow, did I call NVDA wrong! I was correct about crypto mining and the impact on NVDA, but I didn't predict the impact of generative AI at all, and missed out on one of the big stock run-ups of the last decade. NVDA just always looks overpriced to me, and it still does.

 

[PatentLawyer]

Antitrust law in the US is mature in the sense of being antiquated, and apparently innocent of actual economic theory. Enforcement would be called a bad joke, but jokes are at least funny. The state of antitrust enforcement in the US is beyond sad, it's tragic.

A few trivial examples off the top of my head:

Amazon Echo Dots were sold below cost for years. (A single chip in one of those things costs 80% of the retail price, no need to really do the math here.) This put out of business or prevented market entry by numerous competitors. This AFAIK is the textbook definition of predatory pricing, but to this day, it's unclear if there are going to be any consequences.

Most ISPs have effective monopolies with very obvious harms to the consumer, nothing really being done there, either.

Duopolies with plenty of room for collusion (online advertising) are considered just peachy keen by most regulators over the past 20 years or so. Neat. I'm sure nobody can think of anything bad that happened by allowing FB and Google to run wild here.


In the long run, there's no such thing as a "free market" without (IMO) much heavier regulation than we've seen in my lifetime. The point of a "free" market is to stimulate competition for the benefit of the consumer, not to provide profit-taking opportunities for investors. To me, it seems we've forgotten the basic justification for our economic system entirely.

Antitrust isn't my primary area of practice, but those examples don't really resonate with me. Brooke said what it said, so predatory pricing is definitely a tough issue to prove out. I am suspicious that it is as pervasive as you suggest, though. Your last point about the "point" of a free market is certainly one formulation; other, more neutral, formulations I've heard refer to the promotion of the most efficient production and distribution of scarce resources. Your seeming denigration of "profit-taking opportunities for investors" seems to dismiss the profit/loss incentives that underlie the market, which encourage efficient capital investment.

Maybe you mean something else by "profit-taking opportunities" (like, e.g., speculation on used Rolexes or G-wagens or Birkin bags where no value is added along the way)?

 

[napfkuchen]

Wow, did I call NVDA wrong! I was correct about crypto mining and the impact on NVDA, but I didn't predict the impact of generative AI at all, and missed out on one of the big stock run-ups of the last decade. NVDA just always looks overpriced to me, and it still does.

I was very "angry" about gas prices and gpu shortage in 2020 and bought options for BP and also nvidia stocks to make up for the inflating prices. Unfortunately the stocks had to be sold by the end of last year to help finance the purchase of a new apartment... I agree with @Blumlein 88 that ETFs are the way to go if you don't want to put in much effort and keep risk reasonable. My goal is to invest as much as possible into diversified ETFs over the next 20 years to be able to reduce working hours before retirement. "Thanksfully" I am a public servant so pension will most likely be higher than for ordinary-law employees. But that's guesswork, all we know is that Germany's pension scheme is about to collapse.