Thomas Stanley

Lots of Wealth, Lots of Discipline

Tue, 21 May 2013 00:00:00 -0500

As stated in The Millionaire Mind, a distinguished scholar told me just before I graduated:

If you don't publish you may not get tenure at a good school. But you will have a lot of friends. Publish a lot and you will not be real popular among your colleagues.

I was reminded of this when I received an email from Dr. F.O., formerly a college professor:

. . . read The Millionaire Mind. . . just a few years after I resigned a full professor position at the university to begin my own . . . business. . . . I was 51 years old and virtually all of my colleagues thought I had lost my mind to give up the security of tenured university life, but it turned out to be the best thing I have ever done.

Nine years after he started his own business he reached near decamillionaire status. He is now retired and has had the time to reread The Millionaire Mind.

Many things in the book describe my experiences from the living beneath our means [I was worth more than $1M before the business], to taking risks, the frustrations of working for others [in this case university administrators and tenured colleagues], to a supportive wife of 42 years, to my religious beliefs, to believing in myself, to finding a business niche. . . .

Some of his "friends" as he calls them told Dr. F.O. that he was just lucky, and he pointed out that he was "very insulted" by their comments. In the survey of 733 multimillionaires that was the base for The Millionaire Mind, luck was rated among the least important success factors while being well disciplined was at the very top along with integrity.

I come from very humble beginnings, and from educational institutions at the bottom of the university food chain. Like the findings in the book, I was rejected by top tier institutions, but out published all of my colleagues. The idea of luck denigrates the hard work and preparation I put into everything I have ever done. Even though many of them [colleagues] come from elite educational institutions, none of them ever worked as hard or as smart as I did for many years, and they would never have jumped at the opportunity like I did if it came their way. In fact, they never even looked for any such opportunities. I have been blessed in many ways, but luck had very little to do with my success. . . . I want you to know just how true I think your research findings are. I made this money in my 50's. It can still be done in America with the right attitudes, beliefs, and hard work. Unfortunately, this is not the message society is sending to our young people.

You: The Mentor

Thu, 16 May 2013 00:00:00 -0500

A few weeks ago, readers of my blog and AMI panelists were asked to recount their "ah-ha!" moments as part an ongoing research effort examining wealth building in America. We appreciate the honesty and courage that many of you exhibited in sharing your stories and how they changed your lives.

Nearly 250 of you participated in this effort, and we are now reviewing each story. Some of these stories we will be sharing in the next months on the blog. Others may be included in upcoming publications that are currently underway. Ultimately, in some way, your stories will help others who are facing financial decisions, challenges and other life experiences. You will be mentoring to others through your effort.

In exchange for your stories, you've helped raise $250 for the Salvation Army. In addition to that amount, AMI donated another $250 to its cause, hopefully playing another small role in helping others. Thank you!

Fantasies of Wealth; Misinterpreting the Data

Tue, 14 May 2013 00:00:00 -0500

A couple recently asked me about the relationship between home ownership and net worth. They are contemplating buying their first home. "In your books, Tom, you mention that nearly all millionaires are homeowners . . . approximately 95%." Most homeowners, however, are not millionaires. And no one is going to hand you a check for seven figures when you close on your first home. However, there is some correlation between home ownership and net worth. According to government statistics, the median household net worth for renters has hovered around the $4,000 to $5,000 level during the last 15 years. For the same period, the median net worth for homeowners has been 30 to 45 times greater. I estimate that the net worth for homeowners today is about $180,000. But don't count on the appreciation of your home to make you wealthy. In Stop Acting Rich, I mention that if all costs are accounted for in real terms homes appreciate very little, if at all. One of the keys to building wealth is to live in a home that you can easily afford.

The above mentioned couple plans on buying a house that would require annual mortgage payments of about 15% of their household income. In a crude way, making house payments can be viewed as "forced savings." Most people with mortgages put enough money aside to make the payments. Yet most of these same people do not have the self discipline that millionaires have, i.e. investing 15% of their income annually.

Two previous blogs, Wealth is not Income, Income is Not Wealth and Average Rich or Median Poor discuss another misconception about wealth: that most Americans are wealthy. Given the recent upswing in the stock market, there have been several reports about the increasing level of household net worth. The average American household has an estimated net worth of $575K. This may sound like a lot of money to you and to millions of prospective immigrants.

Yes we are a rich nation overall if you believe in averages. But averages do not send children or grandchildren to college or pay for a year or two stay in a nursing home.

However, there is no such thing as the "average" household. A much better figure is the median household net worth which I estimate today to be less than $85K. Why is it that the upswing in the average net worth is more pronounced than the median figure? About one half of all households in America do not own stock, and most of those are on the light side of the median.

College Freshmen. . . Tomorrow's Winners Associate with Today's Achievers

Tue, 07 May 2013 00:00:00 -0500

There are more than flowers blooming at this time of the year around Atlanta. Graduation banners are popping up in nearly every subdivision in my community.

CONGRATULATIONS TO THE CLASS OF 2013 they read, followed by a list of the graduates and their prospective colleges. What advice would I give to these students, if asked?

Many freshmen are probably uncertain about their choice of major. Ideally most students would prefer a major for which they have affection or an affinity. But they should also give consideration to selecting a major that will result in job opportunities after graduation.

I would recommend that they study more than the traditional college curriculum. They should also begin to research and develop their own list of "Who's Who" on their colleges' faculty. The so-called elite universities are not the only schools that have profoessor who are eminent scholars and leaders in their disciploines. Yet it is amazing to me how few students graduate without ever understanding or appreciating who the stars are among their faculty.

A case example may help illuminate my point. Robert phoned me with worry in his voice. He was 35, had quit his "cushy corporate job", and had landed a position as a financial advisor with one of the premier annuity and insurance companies in America. The company specialized in serving high net worth clients. He persuaded his employer to allow him to open an office in the town where he had attended college, a state university with over 40,000 students and 2,500 faculty members. He initially did well by recruiting clients from his list of relatives, former fraternity brothers, etc. Then he his a brick wall. At the same time, he was placed on straight commission.

There's just no money in this town. I guess I was wrong in thinking I could ever make a living here.

I told him that if he really believed that he should leave immediately. I added, however, that he should stop prospecting the "usual suspects" such as doctors and lawyers and focus on a different segment.

Your alma mater has over 2,500 full time professors, many of whom are of the balance sheet variety. I want you to go directly to the university bookstore and ask for a list of the books that have been written by the university's distinguished faculty.

I told him how to cull the "superproducers', including academic entrepreneurs, from the list.

A few days later Robert called me and exclaimed:

You will not believe it! The first professor I prospected during his office hours told me it was good timing since he had just received his royalty check [over $700,000] for the second 6 months of sales. He is the author of the best selling [hard science] textbook in the world.

Robert was stunned by this experience. Yes, he had landed a major league client but what was equally or more impressive was that his alma mater had 100s of scholars and writers among the faculty. There were over 800 books on the list Robert got from the bookstore. And to think that he had spent four years on a college campus and did not have a clue about its faculty's accomplishments.

It is very easy for college freshmen to become disoriented and confused when they arrive on campus. Yet there is a predictable harmony, a pattern of academic hierarchy to discern. All else being equal it is better to select a major where the faculty in that discipline are highly productive and respected scholars. Most state universities have a significant number of these types of professors. Imagine the impact of a letter of recommendation from the foremost authority and reknown scholar in one's major?

The Millionaire Next Door: a J.C. Penney Fan

Tue, 30 Apr 2013 00:00:00 -0500

During the past two years J.C. Penney has implemented a dramatic change in its marketing strategy. It called for greatly reducing the number of coupon/special on sale pricing and related promotional methods. Its old method was replaced with the so-called stable, every day price point method. And, according to The Wall Street Journal, this new strategy called for an abrupt reduction in the design and marketing for Penney's private label offerings. Historically, however, one half of the company's sales came from its private label merchandise. And often these offerings have received high praise from consumer experts.

When these changes began to unfold, I thought back to my first J.C. Penney experience. During my early days of teaching, I was invited to attend J.C. Penney's week long "consumer trends conference" at its headquarters. Each day I had lunch with one of its senior executives, including its chairman. During a conversation with the senior vice president for human resources, I learned something from him that has stuck in my head every since. He asked me what brand of shirt I was wearing. I replied that it was a Hathaway shirt. He pointed to his shirt and said, "J.C. Penney's Stafford." He explained that the Stafford shirt was comparable to my name brand shirt in every way, fiber content, durability, 7 buttons, etc. - all of this at a significantly lower price. I took his advice and bought several of the shirts when I returned home. I was not disappointed.

A significant number of the arch type millionaire next doors patronize Penney's. In fact, as I discussed in Stop Acting Rich, fully 36% of millionaires who live in homes valued at under $400,000 are apparel patrons of J.C. Penney. In The Millionaire Next Door, "about 30.4% of the respondents who are millionaires hold J.C. Penney credit cards. Penney's private-brand Stafford executive suits were recently given top scores for durability, cut, and fit by a leading consumer publication." Also in The Millionaire Next Door I quoted from an article published in The Wall Street Journal:

J. C. Penney . . . now subjects garments to tough tests for color matching, fabric shrinkage, filling . . . . When it comes to quality control Penney's is more demanding than any of the department stores.

Among the 944 millionaires profiled in Stop Acting Rich, those who became millionaires with the smallest number of income dollars were more than 3 times as likely than those big income producers to say that their most recently purchased suit was a J.C. Penney private label one. Note that Joseph A. Bank and Sears were also popular brands.

What was my first reaction after reading about these changes in strategy and about the new chairman Penney's had hired from Apple to lead this campaign? The chairman was previously in charge of Apple's retail operation. But Apple and Penney's are as different as an apple and underwear! And if you have followed the recent news reports about Penney's, you know that what I call the "Apple" oriented strategy was a miserable failure. Ah but there is hope. Penney's just replaced "Mr. Apple" with its former CEO, Myron Ullman. From what I know about the value, value, value orientation of the millionaire next door types I'll bet my drawerful of J.C. Penney Stafford undershirts that the company will once again prosper!

Your Ah-ha! Moment

Thu, 25 Apr 2013 00:00:00 -0500

In an earlier blog post, we discussed how career experiences, both successes and failures, can lead to moments of clarity (Working for those Ah-ha! Career Moments, August 2012). This post highlighted the fact that many successful millionaires have a wide range of experiences that help them determine a successful career path.

Of course, a life-changing experience may not be one that you encountered while working. Continuing on the theme of ah-ha! moments, we invite you to share an event or experience that changed your life in a substantial way, and we will be donating to a noble cause in exchange for your participation!

Please click here to share your story with us. Between now and April 30th, 2013 at 11:59 p.m. Eastern time, we will be donating $1.00 to The Salvation Army for each complete response we receive.

The questionnaire should take you approximately 10 minutes to complete, and your responses will be confidential. After the survey closes, we will update the blog with our final donation amount. We hope you will share your story and help this worthwhile cause at the same time.

Sarah S. Fallaw, Ph.D.

Director of Research, AMI

Stocks: Not the Only Bull Market

Tue, 23 Apr 2013 00:00:00 -0500

A recent newspaper headline proposed that "the best way to get rich is the stock market." Building wealth via stocks or other investments is akin to growing trees. You can't grow oak trees if you don't have enough money to buy acorns. So, suggesting that the stock market leads to wealth is putting the cart before the horse. It is not just about being frugal. Frugality has its limits. Some people misread the material in The Millionaire Next Door. In the book, I mention that most Americans are not wealthy. This is especially interesting among those who earn incomes in the good to great categories: "many of these people live from paycheck to paycheck. These are the people who will benefit the most from this book." So in essence the book is designed to help those who make better than an average living.

The probability of becoming a millionaire is quite low for those who generate low levels of income. The median household income in America is about $50,000. With this level of income, a married couple with 3 childlren would have an extremely difficult time becoming a millionaire. Remember that 90% of millionaires are college graduates, and there is a high correlation between income and education. Of the thousands of interviews that I have poured over during my career, one of the most interesting is about a multi decamillionaire who expressed how most millionaire next door types feel. He admitted making money in stocks, commercial real estate, cattle, oil fields, even high grade antiques and precious metals. Yet he eloquently summed up what most millionaire next door types believe:

. . . hard to be knowledgeable on a great many [investment] topics. The best thing that I have done has been my own business and to be as good as I can in that. That's the mother lode that supports everything else.

In other words, the major league revenue generated from his business funded all of his other investments. The self employed in America have 4 to 5 times the net worth of those who work for others. But self employment does not automatically translate into big income and wealth. Consider the following. Of the more than 23 million small business owners who are self employed sole proprietors, their average annual net income was only $11,637.

Of course income varies considerably across industries. For the 95,369 dental offices that income was $100,603. Contrast this with the nearly 400,000 people who own restaurants and/or drinking establishments. Their net income was only $3,814 from a gross of $111,075. Selecting the right business is a major factor in explaining profitability and ultimately wealth.

In both The Millionaire Next Door and The Millionaire Mind, I list the types of businesses owned by the millionaires surveyed. These businesses run from the "dull normal" to the very unique. As an example, on p. 256 of The Millionaire Next Door, column 1, item 29 under Businesses of Self Employed Millionaires, you will find '"bovine semen distributor." Interestingly this business category was recently mentioned in a Wall Street Journal article:

. . . Julio Moreno, of Oakdale, Calif., has a freezer full of the bull's semen that sells for at least $3,000 per unit.

If asked how he became wealthy, would Mr. Moreno say stocks or bull semen?

The Millionaire Next Door. . . An Academic Entrepreneur

Tue, 16 Apr 2013 00:00:00 -0500

Two recently published articles caught my attention. And, bear with me, they are related! In the first one, Bob Dudley, the well respected CEO of BP, is quoted:

Employment is difficult in many places. But anybody who goes through petroleum engineering, chemical engineering there will be jobs for them. . . . . . . they will have phenomenal opportunities.

In past blogs, as well as in Stop Acting Rich, I have mentioned that engineers in general are quite productive in transforming income into wealth. Even more productive are professors who teach petroleum engineering, chemical engineering, mining engineering, etc.

The second article deals with the concept of substituting computer software for humans in grading essay exams. After reading this, I had a hollow feeling in my gut because my choice of becoming a professor was initially stimulated by my experiences grading essay exams. During my first year in a master's program a senior faculty asked me: "Do you want to make some extra money? I need you to grade some midterm exams." I accepted the offer, and I was delighted with my new task. Part of the job description was to read the textbook thoroughly in order to evaluate the essays. Essentially I was paid to improve my knowledge and understanding of the subject matter in my chosen field. It is the same way with teaching. Later, as a professor, I was compensated for constantly learning and disseminating knowledge via lectures, published papers and books.

Some in education complain about "the agony and hard work associated with publishing." But publishing is a way to prove to yourself and others that you are a scholar. Publishing enhances your reputation as an expert and leading authority. By doing so you, your university and your students all benefit from such achievements.

A good number of professors can be classified as academic entrepreneurs. As an example, consider Dr. David Schwartz, one of my early mentors. His book, The Magic of Thinking Big, sold over 3 million copies, the audio version over 11 million. He also wrote two successful textbooks. Dave received more than 200 offers per year to give speeches and training seminars independent of the university. Yet he never made a sales call; he never had to.

In Selling to the Affluent, I mentioned that

There is a significant number of David types in our academic communities. In fact, according to the National Science Foundation, more than 3,000 engineering and science professors . . . own companies independent of their respective universities.

There are tremendous employment opportunities for those have a degree in petroleum and chemical engineering. But I also think there is a greater opportunitity for those who teach these subjects. It's not easy to spend 3 more years earning a Ph.D. But those among them who become academic entrepreneurs can write their own ticket to success. This assumes that professors will not be replaced with software driven robots!

At What Age? Gifted, Talented or Just Well Prepped

Tue, 09 Apr 2013 00:00:00 -0500

At what age do you think a child's trajectory of future achievements (or lack of) is defined? Some people think that it is at age 4. It must be since some of them spend considerable dollars having their 4 year-olds "prepared" for acing "the new gifted and talented test." If the child scores big he will qualify "for gifted and talented kindergarten seats in New York City public schools." It may be that the tutoring has done so well that, as the title of a recent New York Times article states, "Schools Ask: Gifted or Just Well-Prepared?"

Natalie . . . 4, spent an hour and a half each week for six months at Bright Kids NYC, a tutoring company, working on skills like spatial visualization and serial reasoning which are part of the . . . new gifted and talented test.

Why are some people allocating so much time, energy, money and emotional capital to training a 4 year-old to do a "better job" clustering spheres and cubes? These parents believe that gaining admission to an elite kindergarten program is mandatory in order to succeed in life. And being labeled as "talented and gifted" in kindergarten opens the doors to future gifted programs in elementary, middle, and high school, college and beyond.

However, being admitted to a kindergarten program for the talented and gifted does not automatically translate into success in life. Of course some of this depends upon how one defines success. One of my current research files in entitled "Noble Prize Winners." Not all of the recipients of the medal are profiled. Only those who attended a non-elite, public university and/or who teach or have taught at one of those schools qualify for inclusion in my file. Too many people think that all medalists attended top tier, private colleges located somewhere geographically between Georgtown in DC and Bates in Maine. Really? The New York Times frequently publishes the bios of Noble Prize winners. Read them and you will find plenty of people like Dr. James M. Buchanan, "economic scholar and Noble Laureate. . . " He earned his BA degree from Middle Tennessee State University. Dr. Robert C. Richardson, whose Nobel Prize was in Physics, received his bachelor's degree at a state university, Virginia Tech. Nobel Laureate, Dr. E. Donnall Thomas, perfected bone marrow transplant treatments for leukemia. He was a Chemistry major at The Unveristy of Texas and served for many years on the faculty of another public institution, The University of Washington. And while on the topic of chemistry note that Dr. Dan Shechtman won the 2011 Noble Prize in that category; he's on the faculty of Iowa State University. How far is Ames, Iowa from the elite academic corridor of the Northeast?

Today public universities are filled with scholars, both faculty and students. As parents you should critically analyze before taking as gospel those many periodicals that supposedly define "a top rated college." And here is what the decamillionaires profiled in The Millionaire Mind believed: only 11% felt that "attending a top rated college" was very important in explaining economic success. More than five times that number (60%) reported that "being well disciplined" was the key to achieving.

The race called "career building and achievement" is a marathon that begins after one receives a degree.

An Isle for The Millionaire Next Door!

Tue, 02 Apr 2013 00:00:00 -0500

We just spent 5 days chilling out on a Florida barrier island on the Gulf coast. It was our first visit to St. George Island . After 2 days there it became evident to me that this laid back environment is well suited for the millionaire next door types I have known. It is quiet, reasonable [$8.50/dozen Apalachicola oysters] and unpretentious. Plus I was pleasantly surprised to find that it is the most "dog friendly" vacation spot I have encountered. Every listed rental property that allowed dogs had a paw print next to each description.

There are no gourmet restaurants on the island, and if you are looking for a Jimmy Buffett ambiance, you'll find it everywhere! Seating at most restaurants consisted of picnic tables for inside, patio and deck dining. Most welcome dogs. I stopped at one spot for lunch where a woman asked if she could "pet my dog." She immediately asked one of the waiters to bring out a bowl of fresh water for the dog. Yes, this woman was the owner who had started a successful business 23 years ago.

You will not find the glitz that is prevalent at many vacation spots today. St. George Island has no outlet stores, no putt-putts and no high rises. Nor does it have the traffic congestion of many island retreats.

In all the time I was there, I only saw a handful of prestige makes of motor vehicles- a couple of Audis and BMWs and only one Jaguar! Conversely, there were many Toyotas and Hondas in the form of mini van and crossover variety. Full size GM and Ford SUVs and pick-up trucks were also well represented.

If you enjoy outstanding seafood, relaxing on a beautiful beach, and interacting with pleasant, unassuming people, this may be the place for you. Special thanks to the wait staff and cooks at BJs, the Blue Parrott, and Eddy Teach's.

Pastor and His Wife, A Teacher, on Building Character and Wealth

Mon, 01 Apr 2013 00:00:00 -0500

My wife (public school teacher) and I (pastor) have become millionaires (yes, without even figuring equity in our home) in our mid-late 40s while being salaried workers and with her taking nine years off from teaching/salary to stay at home with kids. We've had no inheritance or windfall. Moreover, we have consistently given about 20% of our income back to our church. We have simply delayed gratification by consistently living on less than we make while contributing heavily to our 403B. We now have over $700,000 in those retirement accounts. We also own a second home that is a lake house free of any debt. We've also done this by avoiding consumer debt- always buying good reliable used cars and paying cash for them, NEVER having credit card debt, etc. One other decision helped us achieve a level of financial freedom. Early in our marriage, when we built our first home in the suburbs, we built it with a full unfinished basement. After living in the home for two years we finished the basement (with cash) making it what most would term an in-law suite. We ONLY did this because we had decided that we could live down there and rent out the upstairs. We did that for several years (most of them were the years my wife stopped teaching to stay home with the kids). The rent and utilities that were paid to us basically allowed us to pay the mortgage and live with very little housing cost during those years. When we sold that house we reaped a large amount of sweat equity, which we eventually used to buy the aforementioned lake house without debt. We are currently cash flowing our oldest child in a major university and will soon be doing the same with the other. We continue to contribute about 15% to our retirement. After getting the first two kids through college we will both be over 50 and able to increase our contributions. We anticipate retiring with a 3-5 million dollars in assets. We do not, however, consider this to define who we are. If the value of our retirement accounts go down it will not change our identity. No one around us has any idea what our total net worth is, which is the way we like it!

Car Buying from The Millionaire Next Door

Tue, 26 Mar 2013 00:00:00 -0500

Toyota did very well on my acid test, i.e. the home cooking index. I learned about the acid test from millionaires whom I interviewed. Before buying my first Toyota 17 years ago, I did a lot of research. Plus I drove through the employee parking lots of several Toyota dealerships. I found that nearly all the employees drove, you guessed it, Toyotas. Sure, employees have incentives to consume "home cooking." They get discounts. But not all dealers of brands X, Y and Z cars have their employee parking lots filled with the home team brands. Not eating one's own home cooking is telling to me.

And here is some more home cooking. My wife drives a Z71 Chevrolet Tahoe that sits next to my Toyota 4 Runner. I purchased it and the one before that at the largest Chevrolet dealer in America. And, yes, I did drive through its employees' parking lot . . . many times. Nearly all of its employees drove Chevys. And perhaps most important, all the more than two dozen mechanics did the same, mostly full size pickups and SUVs .

The Tahoe is very reliable, big, heavy and protective. I have believed for quite some time that the full size GM SUVs and full size pickups are the best of their class worldwide. Note that Chevrolet Tahoe was given the top grade in the most recent J.D. Powers "Most Reliable Models" study of the population of 3-year old vehicles. USA Today praised it as "General Motors makes the most reliable [full size] pickups and SUVs." The 2010 4 Runner was listed as the most reliable midsize SUV.

We have never considered owning a European luxury motor vehicle. Most are of high qualitiy, but dollar for dollar our Tahoe and 4 Runner are much better values. You may find it interesting that "Mercedes-Benz USA. . . 359 dealerships . . . survey of dealership employees . . . 15,000 participated. . . discovered that 70 percent of dealership employees had never driven one of the brand's vehicles." (Diana T. Kurylko, "Mercedes' Cannon: Customer service is our top priority, Automotive News, January 21, 2013, p.29)

And what about a Porsche? Yes, it is the ultimate in engineering and performance but very, very expensive. Porsche ranked 2nd just behind Lexus (a Toyota make) in the same J.D. Powers study. Yet I believe that even this is somehow related to Toyota. I recall years back that Forbes published an article about how Porsche completely modernized the way it produces cars. The same theme was more recently echoed in The New York Times:

. . . Porsche bet the farm on the Boxster. But to have any chance at making money on a $40,000 sports car, Porsche had to hire former Toyota engineers - again, almost unfathomable - to tear down, revamp and modernize the entire company.

Everytime I see a Porsche drive by I do a word association, i.e. Porsche! Toyota!

Tax Cheats in Super Cars?

Tue, 19 Mar 2013 00:00:00 -0500

This respondent edited the printed screener, wrote outside the boxes:

"I don't own a Ferrari, I own three! . . . Rolex? I have three plus . . .Breitling, Cartier, Movado, Omega, Tag Heuer . . . (wine collection) 2,000 bottles."

Mr. Multiplinski, aka Mr. M, was first profiled in Stop Acting Rich. But it is time for an update. Mr. M is a member of the glittering rich club, extremely wealthy with a net worth that exceeds $100 million, and a taxable income in the multimillions.

He is not shy about communicating his financial achievement. . . has a very strong need . . . to separate himself from his dirt poor working class family background. . . . those who travel the longest distance along the wealth scale in one generation (tend to) hyperspend on status symbols.

Mr. M's first full time job was in sales. He was an instant success. He paid 100% of his college expenses via "commissions. . . solely on commissions." He purchased his first home at the age of 21 and crossed the $1 million net worth threshold when he was 32. He was not yet 30 when he was offered an equity position by his employer.

Mr. M is 100% self made. But he is also a big spender. To spend big one must earn big. And if you earn big you pay big bucks to the tax man. As an example, consider Mr. M's cash purchase of a $330,000 Ferrari. Given what he allocates to federal, state and local income taxes how much earned equivalent income did he have to generate to make this purchase? He had to make $600,000 just to pay (cash in this case) for this Ferrari. ($600,000 X his share 55% = $330,000. The balance of $270,000 goes to Uncle Same and his relatives. The glittering rich as I wrote in The Millionaire Next Door:

Real patriots . . . big incomes (huge tax bills) mint a new medal for this type of patriotism.

Too many people in this country don't understand the important role played by the members of the glittering rich population. Some think that the Mr. Ms of our nation don't pay their fair share of taxes. Some even believe that none of the glittering rich got that way on their own. Rather it was via hook, crook and/or inheritance. It is this belief that can be ammunition for some ambitious politicans.

For a moment, consider the following scenario. Imagine that a glittering rich couple decide on day to spend a long weekend at a plush mountain retreat. It is a great drive in their top of the line Ferrari. Just as the couple approaches the resort their car and several other "high-end cars" are pulled over, and the drivers are asked to sit tight while the home office checks tax records! One in six- 42 vehicles in total- were being driven by someone who had reported a mediocre annual income insufficient for super car ownership. (Elsewhere) tax cops set up checkpoints . . . and even dropped in on a Ferrari owners' club together. It was a PR win for a government under fire for cutting social services. . . . (Now) the government is initiating an automated check of tax records for anyone making large purchases. (Justin Berkowitz, "Checkpoint Carlo," Car and Driver, April, 2013, p. 14).

This actually happened last year in Italy. There class envy was leveraged politically as the subtitle indicates, "How Tax Cops Killled Italy's Super Car Market." What if this system is adopted in America? Not only will we lose markets for "super brands." Tired of being hounded the Mr. Ms may stop buying multiple $330,000 sports cars, etc. As a result, they won't feel the need to continue generating high levels of taxable incomes to pay for these symbols of success.

Let's salute the glittering rich. Don't hate them. Many pay the equivalent of 50% of their earned income in tax. Interestingly about 50% of American households pay 0% of their income to the tax man. But what about those 6 out of 42 drivers found by the Italian police to have too little income to pay for their super cars? Could it be that most or all are just living off of their considerable capital?

Part-time Hobby, Full-time Wealth

Tue, 12 Mar 2013 00:00:00 -0500

Wall Street recently lost one of its greatest investment gurus, Dr. Martin Zweig. His obituaries were published prominently in both The Wall Street Journal and The New York Times. His accomplishments were many. On the Friday before the Monday stock market crash of 1987 he predicted "crash" on TV's Wall Street Week program. Also The Zweig Forecast ranked 1st among newsletters that predicted performance, according to Mark Hulbert.

People have a great advantage in life if they can select their ideal vocation early. Zweig was no exception. He "began his investing career at age 13 when his uncle Mort gave him six shares of General Motors stock."

But investing in publicly traded stocks is certainly not the only way people become wealthy. Let us look back 40 years ago. A professor of business is asking a group of college seniors, "Where are you going after graduation?" Most indicated that they were going to work for large corporations; a smaller group said they were going to get MBAs. T.C. [pseudonym] was the last to respond. "I already own a business collecting antique firearms." Then laughter broke out. Perhaps if these students understood something about T.C.'s background they would have given him more respect.

At that time he already had 12 years of training by his mentor, his grandfather, who was an amateur gun collector. At the age of 21, T.C. had a nice collection which included early model Colt revolvers and Winchester rifles. That collection alone in a good market today would be worth more than $2M. From the start, T.C. enjoyed reading and researching guns, buying and trading guns, and visiting gun shows with his grandfather. He loved American history which related well to his interest in gun collecting. Among his high school terms papers were biographies of Samuel Colt and John Browning.

T.C. was lucky. He turned a great love into his vocation. It was a hobby of affection. Never was it the drudgery of "just a job."

Ask a national sample of self made millionaires the following question: In terms of net market value, what is your number one most valuable asset? About 5% will answer: tangible collectibles (TC). In other words, these people are collectors of certain types of tangible and/or collectible assets. These include everything from antique firearms to coins, gems to precious metals, and stamps to artwork. Most, 6 in 10, of these millionaires are part-time collectors who have other full-time occupations.

5 Stars-NO EASY DAY: THE AUTOBIOGRAPHY OF A NAVY SEAL

Tue, 05 Mar 2013 00:00:00 -0600

The subtitle of No Easy Day by Mark Owen [pseudonym] is very revealing, "the firsthand account of the mission that killed Osama bin Laden." I rate this book 5 out of 5 stars! The very best autobiographies consistently give the reader the impression that he/she is there throughout the subject's life. While reading this book, you will feel that you are a part of SEAL Team Six.

Mr. Owen was raised in a loving, caring home environment in frontier Alaska. His parents were missionaires. He learned early to use firearms and respect them. He was always mentally and physically strong. Throughout the book, he talks about how he overcame obstacles, especially during his "qualifying exams" in the military. These ran the gamut from physical and mental endurance. Members of the SEAL Team were selected as the best of the best commando type personnel in our military.

Successful people, like Mark Owen, share many similar characteristics and experiences. They come from a stable family background, they are well disciplined, and they are goal oriented. Also they have a propensity to overcome large obstacles by dissecting them into small pieces. For example, as Mr. Owen revealed, when he was confronted with an endurance track and was feeling exhausted he would focus on just making one more stride, not the more than 1,000 that were required to finish. This is somewhat analogous to building wealth. In most cases, a 7-figure net worth begins with the first dollar saved, and then another and another, etc.

Mr. Owen gives much of the credit for locating bin Laden to "Jen", a young CIA analyst. Hired right out of college, she worked tirelessly for more than 5 years hunting down the target.

When reading about "Jen," it occurred to me that she has a great deal of creative intellect. She saw what countless others within the intelligence community did not see. There are many businesses in this country that are one person operations. Certainly "Jen" could easily become one of them in civilian life. I have had the pleasure of knowing many outstanding market researchers who ran one person operations. They were the "intelligence" that many leading corporations purchased. Like "Jen" they had vision, great interpretation and insight into success in the market place. Even with all of the billions of dollars spent today on the technology of information gathering from computer generated weather forecasts to financial analyses, there is no substitute for human intellect and intuition.