How To Get Rich Without Getting Lucky

Read Naval’s original post here.

Seek Wealth, Not Money or Status

Wealth is assets that earn while you sleep.
The purpose of wealth is freedom; it’s nothing more than that.
Money is how we transfer wealth. Money is social credits; it’s the ability to have credits and debits of other people’s time.
Having wealth means not having to be any place you don’t want to be, or not having to do anything you don’t want to do.
Wealth is a very positive-sum game. Status is a zero-sum game.
People creating wealth will always be attacked by people playing status games.

Make Abundance for the World

Everyone can be rich. Everyone is now basically richer than almost anyone who was alive 200 years ago.
Capitalism is actually good. It’s just that it gets hijacked by improper pricing of externalities.

Free Markets Are Intrinsic to Humans

We cooperate so we can keep track of debits and credits. Who put in how much work? Who contributed how much?

Making Money Isn’t About Luck

Making money isn’t about luck. It’s about becoming the kind of person that makes money.
The four kinds of luck: a) dumb luck, b) luck from hustle, c) luck from preparation and d) luck from your own character.
Luck from your own character is the most important: it’s when you create a reputation or a brand so that people will want to pay you to “do your thing”.
Wealth stacks up one chip at a time, not all at once.

Make Luck Your Destiny

You build your character in a certain way and then your character becomes your destiny.
Build your character so opportunity finds you (i.e. Warren Buffett)
You can’t be normal and expect abnormal returns.

You Won’t Get Rich Renting Out Your Time

You must own equity, a piece of the business to gain your financial freedom.
Working for somebody else, that person is taking on the risk, has the accountability, the intellectual property, and the brand so they’re just not gonna pay you enough to get rich.
Renting out your time means you’re essentially replaceable.
If your role can be taught (like in a school) then eventually you’re gonna be competing with someone who’s got more recent knowledge, who’s been taught, or a robot, and they will replace you.
You must own equity to gain your financial freedom.
You want a career where your inputs don’t match your outputs (look for things that are leveraged).

Live Below Your Means for Freedom

Once you make a little bit of money, you still want to be living like your old self. Don’t run out to upgrade your lifestyle.

Give Society What It Doesn’t Know How to Get-At Scale

Society will pay you for creating things that it wants. Then, you’ve got to build thousands, or hundreds of thousands, or millions, or billions of them. So, everybody can have one.
The entrepreneur’s job is to try to bring the high end to the mass market.

The Internet Has Massively Broadened Career Possibilities

The Internet allows you to scale any niche obsession.
People are completely unique. Each person has different skillsets, different interests, different obsessions. And it’s that diversity that becomes a creative superpower. So, each person can be creatively superb at their own unique thing.
Escape competition through authenticity.
The internet enables any niche interest, as long as you’re the best at it to scale out. And the great news is because every human is different, everyone is the best at something. Being themselves.

Play Long-Term Games With Long-Term People

All returns in life come from compound interest over many turns of the game.
all the benefits in life come from compound interests. Whether it’s in relationships, or making money, or in learning.
When you switch industries, you’re starting over from scratch (you lose the compound effect). You’re not going to have trust.
Play iterated games. All returns in life, whether in wealth, relationships, or knowledge come from compound interest.

Pick Partners With Intelligence, Energy and Integrity

Look for signals in people: signals are what people do, not what they say.
Motivation has to come intrinsically (from within).
Work only with people that are really “into” what you want them to do.
There’s this idea that you could sell someone into doing something. But you can’t. You can’t keep them motivated if they are not “into” that thing.
Integrity is what someone does, despite what they say they do: if someone treats a waitress badly, it’s only a matter of time until they treat you badly.
Self-esteem is the reputation that you have with yourself.
If somebody overtly talks about being high status, that is a low status signal. If somebody openly talks about how honest, reliable, and trustworthy they are, they’re probably not that honest and trustworthy.

Partner With Rational Optimists

Rational to see the world for what it really is. Optimistic about your own capabilities to get things done.
Don’t partner with cynics, and pessimists. Their beliefs are self-fulfilling.
We descended from pessimists (the caveman’s survival instinct). We need to evolve from that.
The one thing you have to avoid is the risk of ruin. Ruin means stay out of jail. So, don’t do anything that’s illegal.

Arm Yourself With Specific Knowledge

Specific knowledge is something you can’t be trained on, but you can find it by pursuing your genuine curiosity and your innate talents.
Arm yourself with specific knowledge, accountability, leverage and judgment, so you can be paid at scale.
It’s not true that everything can be taught. In fact, the most interesting things cannot be taught.
if you’re not 100% into something, and there is leverage involved, somebody else who is 100% into it will outperform you exponentially.
Building specific knowledge will feel like play to you.
Find out what is the combination of things you’re good at and enjoy doing that can be combined to build your specific knowledge.
If you’re not already good at something or if you’re not really into it, maybe it’s not your thing.

Specific Knowledge Is Highly Creative or Technical

The only way specific knowledge can be taught is through apprenticeships (where you actually “do” what you’re trying to learn).
For very valuable apprenticeships (like Warren Buffett under Benjamin Graham) you should be willing to work for free (or even pay).
Instead of trying to be the best at one thing, you just try to be very, very good at three or more things-and be the best in the world at the intersection (Scott Adams).

Learn to Sell, Learn to Build

In every business, there is a builder and there is a seller. If you can do both you’ll be unstoppable.
It’s easier to teach an engineer marketing than to teach a marketer engineering.
Writing can be learned more easily than in-person selling. You can cultivate writing skills until you become a good online communicator and then use that to sell.

Read What You Love Until You Love to Read

I don’t know a smart person who doesn’t read and read all the time.
it is important that you read foundational things.
Start from the beginning, and make sure everything makes sense, and continues to make sense. Don’t get lost and start memorizing.
You should be able to derive concepts from first principles without memorizing things. So the foundations are ultra important.
The means of learning are abundant; the desire to learn is scarce.

The Foundations Are Math and Logic

If you understand logic and mathematics, then you have the basis for understanding the scientific method.
If you understand the scientific method, then you can understand how to separate truth from falsehood
Be careful when reading facts because so-called facts are often just opinions with a veneer of pseudoscience around them.
It’s better to read a great book slowly than to fly through a hundred books quickly.
You are looking for algorithms. You are looking for understanding.
Bruce Lee said, “I don’t fear the man who knows a thousand kicks and a thousand punches, I fear the man who’s practiced one punch ten thousand times or one kick ten thousand times.”
Learn persuasion and programming.
The five most important skills are reading, writing, arithmetic, persuasion (talking, explaining) and computer programming.

There’s No Actual Skill Called ‘Business’

The basic concepts from game theory, psychology, ethics, mathematics, computers, and logic will serve you much, much better.
Tit-for-tat iterated prisoner’s dilemma is the piece of game theory that is worth knowing the most.
The best way to learn game theory is to play lots of games.
On learning by doing: don’t confuse 10 years of experience with one year of experience repeated 10 times.

Embrace Accountability to Get Leverage

Embrace accountability and take business risks under your own name. Society will reward you with responsibility, equity, and leverage. Think Kanye, Oprah, Trump or Elon.
A well-functioning team has clear accountability for each position.
People who can fail in public have a lot of power.

Take Accountability to Earn Equity

The decision of how to compensate you will be based on how replaceable you are. If you have high accountability, that makes you less replaceable.
If you have accountability they will give you equity. Equity is a piece of the upside.
Essentially, taking accountability for your actions is the same as taking an equity position in a company. You’re taking greater downside risk for greater upside.
Accountability is reputational skin in the game.

Labor and Capital Are Old Leverage

Labor and capital are older forms of leverage that everyone is fighting over.
New forms of leverage are product and media.
You want to stay away from labor-based leverage. It is messy and competitive.
You want the minimum amount of people working with you that are going to allow you to use the other forms of leverage.
Capital is a powerful form of leverage. It can be converted to labor. The problem is how do you obtain it?
You need specific knowledge and accountability to obtain capital.

Product and Media Are New Leverage

We’re talking about products that have no marginal cost of duplication (like software or podcasts).
Product leverage is where the new fortunes are made.
Product and media leverage are permissionless.
Coding, writing books, recording podcasts, tweeting, YouTubing, these kinds of things, these are permissionless.
The robot army is already here—code lets you tell them what to do.
An army of robots is already here. It’s very cheaply available. The bottleneck is just figuring out intelligent and interesting things for them to do.
Coding is such a great superpower because now you can speak the language of the robot armies and you can tell them what to do.

Product Leverage is Egalitarian

Labor and capital are limited to the people who control those resources but products reach global markets.
Labor and capital are much more difficult to scale (and less egalitarian). For example, if I need a haircut I need a human to do it.
The nature of code and media output is that the same product is accessible to everybody (egalitarian).
Status goods are limited to a few people (e.g. Rolex).
The best products tend to be targeted at the middle class
Rich people don’t have better cars. They just have weirder cars (Lamborghini vs. Corolla).
Creating wealth with product leads to more ethical wealth.
You want to use the product that is used by the most people.
The one that’s used by the most people ends up having the largest budget.
Even capital and labor are starting to become a little more permissionless. Instead of labor we now have community. Instead of capital we have crowdfunding.

Pick a Business Model with Leverage

Ideally, you should pick a business model with network effects, low marginal costs and scale economies.
Ultimate scale: zero marginal cost of reproduction (producing more is free)
Network effects: value grows at the square of the number of customers.
In a network effect each new user adds value to existing users.
Network effect businesses are natural monopolies.
The classic example of network effect is language.

Example: From Laborer to Entrepreneur

The continuum from laborer to real estate tech company goes from low to high specific knowledge, accountability and leverage.
Laborers get paid hourly and have low skill and accountability.
General contractors get equity, but they’re also taking risk.
Property developers pocket the profit by applying capital leverage.
Architects, large developers and REITs are even higher in the stack.
Real estate tech companies apply the maximum leverage (Zillow or Trulia).

Judgment Is the Decisive Skill

In an age of infinite leverage, judgment becomes the most important skill.
Once you have the leverage, then you wanna slow down a bit, because your judgment really matters.
Everything else you do is setting you up to apply judgment.
Certain CEOs definitely earn their keep because their judgment is better.
Judgment is knowing the long-term consequences of your actions.
Without experience, judgment is often less than useless.
The people with the best judgment are among the least emotional.
You’re accountable for your judgment. Judgment is the exercise of wisdom. Wisdom comes from experience; and experience can be accelerated through short iterations.

Set an Aspirational Hourly Rate

Set and enforce an aspirational hourly rate.
If outsourcing a task will cost less than your hourly rate, outsource it.
Your hourly rate should seem absurdly high.

Work As Hard As You Can

Work as hard as you can, even though what you work on and who you work with are more important.
Nobody really works 80 hours a week.
The most efficient way to work is in sprints as hard as you can while you’re being inspired and are passionate; then take long breaks.
Inspiration is perishable. When you have your inspiration, do it right then and there.
Impatience with actions, patience with results.
Do things as quickly and as well as you can. Then give up on the results (you just can control the effort you put into things).

Be Too Busy to ‘Do Coffee’

Be too busy to ‘do coffee’ while keeping an uncluttered calendar.
Doing coffee and building relationships is OK early in your career when you’re still exploring. Later in life, focus on building.
Interesting people will meet with you when you have proof of work.
Your calling card has to be, “Hey, here’s what I’ve done. Here’s what I can show you. Let’s meet and I’ll be respectful of your time if this is useful to you.”
The first thing investors usually want to see is some evidence of product progress.
Networking is overrated, even early in your career. You can get serendipitous with meetings, but the odds are pretty low.
A busy calendar and a busy mind will destroy your ability to do great things in this world.

Keep Redefining What You Do

Become the best in the world at what you do; keep redefining what you do until this is true.
Keep changing your objective until it arrives to your specific knowledge, skills sets, position, capabilities, location, and interests. And then converges to making you number one.
Keep at it until you arrive at a comfortable place where you’re like, “Yes this is something I can be amazing at while still being authentic to who I am.”

Escape Competition Through Authenticity

Competition can make you play the wrong game—no one can compete with you on being you.
We want to copy what everybody else is doing around us.
Don’t get caught up in these status games, you end up competing over things that aren’t worth competing over.
No one can compete with you on being you. *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.
In entrepreneurship (or investing) the masses are never right.
If the masses knew how to build great things and create great wealth we’d all already be done.
Combine your vocation and avocation: what you love to do and what you do.
People are multivariate. They have a lot of skills. Everyone’s going to have their various niches and you’re going to have multiple niches, it’s not going to be just one.

Eventually You Will Get What You Deserve

Apply specific knowledge with leverage and eventually, on a long enough time scale you will get paid.
Everybody wants immediate results but the world is an efficient place, immediate doesn’t work.
It can easily take 10 or 20 years. And for every winner there’s multiple failures.

Reject Most Advice

Most advice is people giving you their winning lottery ticket numbers.
Listen to everyone but make up your own mind.

A Calm Mind, a Fit Body, a House Full of Love

When you’re wealthy, you’ll realize it wasn’t what you were seeking.
The first thing you realize when you’ve made a bunch of money is that you’re still the same person.
A calm mind, a fit body and a house full of love. These things can not be bought. They must be earned.

There Are No Get Rich Quick Schemes

Get rich quick schemes are just someone else getting rich off you.
Anyone giving advice on how to get rich should have made their money elsewhere.

Productize Yourself

Figure out what you’re uniquely good at and apply as much leverage as possible.
Ask yourself, “Is this authentic to me? Is it myself that I am projecting?” And then, “Am I productizing it? Am I scaling it? Am I scaling with labor or with capital or with code or with media?”
Who you are, stamped out a million times.

Accountability Means Letting People Criticize You

Accountability means you have to stick your neck out and fail publicly. You have to be willing to let people criticize you.
Get the free leverage that’s available in tech.

We Should Eventually Be Working for Ourselves

The goal is that we are eventually wealthy and working for ourselves.
In your 30s, 40s or 50s, it may be the most difficult pivot: You have a 9-to-5 job; you have a family relying on you.
Apply it in sections of your life: roles you take in your current company, courses you take at night, that get you closer to what you want.
Look up the value chain to find leverage: who’s above you and who’s above them—and see how they are taking advantage of the time and work you’re doing and how they’re applying leverage.
You will do better in a small organization.
The long-term goal is that we are all wealthy and working for ourselves. The people working for us are essentially robots.

Being Ethical Is Long-Term Greedy

If you cut fair deals, you will get paid in the long run.
Ethics isn’t something you study; it’s something you do.
Trust leads to compounding relationships.
Being ethical attracts other long-term players.

Envy Can Be Useful, or It Can Eat You Alive

Sometimes it takes suffering through the wrong thing (like washing dishes or other menial jobs) to motivate you to find the right thing.

Principal-Agent Problem: Act Like an Owner

A principal is an owner; an agent is an employee.
If you think and act like the owner, it’s only a matter of time until you become the owner.
A principal’s incentives are different than an agent’s incentives.
If you can work on incentives, don’t work on anything else.
As a business owner you’re always going to be trying to figure out: How do I make this person think like me? How do I incentivize them? How do I give them founder mentality?
When you do deals, it’s better to have the same incentives.
If you’re an employee, your most important job is to think like a principal.
Work with boutiques. My ideal law firm is a law firm of one. My ideal banker is a solo banker. The accountability is very high.
If you are an agent, the best way to operate is to ask, “What would the founder (owner) do?”

Kelly Criterion: Avoid Ruin

Don’t ruin your reputation or get wiped to zero.
Don’t bet everything on one big gamble.
Ruining your reputation is the same as getting wiped to zero

Schelling Point: Cooperating Without Communicating

People who can’t communicate can cooperate by anticipating the other person’s actions.
You can use social norms to converge on a Schelling point.

Negotiations Are Won by Whoever Cares Less

If you want something too badly, the other person can extract more value from you.
If someone is taking advantage of you in a negotiation, your best option is to turn it from a short-term game into a long-term game.
Give the other person something to lose (my quote)
Try to make it a repeat game. Try to bring reputation into the negotiation. Try to include other people who may want to play games with this person in the future.
An example of a high-cost, low-information single-move game is having your house renovated.

Compounding Relationships Make Life Easier

Mutual trust makes it easy to do business.
It’s better to have a few compounding relationships than many shallow ones.
It takes just as much effort to create a small business as a large one so think big.

Price Discrimination: Charge Some People More

You can charge people more for extras based on their propensity to pay.
Rich people and large enterprises are willing to pay more.
You just need to provide extra little things or extra level of confort they need to signal they’re rich (e.g. first class seats)

Consumer Surplus: Getting More Than You Paid For

A lot of people are willing to pay more than what companies charge.
Consumer surplus is the extra value you get when you pay less than you were willing to pay (e.g. I would pay $5 to use the express lanes instead of just the $1.50 they charge)

Net Present Value: What Future Income Is Worth Today

Calculate what future income is worth today by applying a discount to its future value.
Figure out what future income is worth today by applying a discount rate.
One way to value a company is to see what a venture capitalist would pay today in the company (see the example he makes).

Externalities: Calculating the Hidden Costs of Products

Externalities let you account for the true cost of products by including hidden costs like environmental damage.
Because the environment is finite and precious, we have to price it properly and fold that back into the cost of products and services.
If you raise the price high enough, you’ll knock out pollution. That’s much better than feel-good measures like banning plastic bags or restricting showers during a drought.
Properly pricing externalities can save resources in a tremendous way.

Concepts Definitions and Futher Reading

Reversion to the Mean
Pattern Matching
Mental models
Principal-Agent problem
Prisoners Dilemma
Black Swans
Corner Cases (similar to “perfect storm”)
Skin in The Game
Metcalf Law
Second and third order consequences
Cognitive cost
Proof of Work (crypto term)
Multi-Variate Problems