Friday, February 23, 2018

Luck, Skill, Smarts, or Hard Work?

"I find the harder I work, the more my luck improves" -- Thomas Jefferson

"Luck Favors the Prepared, Darling!" -- Edna Mode

These two quotes are illustrative, although the first is attributed to a man who owned (and slept with) slaves, so a lot of the "hard work" was not on his part.  The second is attributed to a fictional character.

A reader writes, am I just plain lucky to be where I am in life?   Well of course I am.   I never said otherwise.  However, luck can be quickly squandered - as I did for much of my life.   You can have the greatest opportunities in life and screw them up through depression, drug use, low-self-esteem, poor life choices, and so forth.

But when it comes to luck, what sort of luck am I talking about?

1.  Where you were born:   Being born in the United States of America was the first piece of luck I had.   The same would be true for most Western Countries, and some non-Western countries as well.  If you are born in a country where people are well-fed, the drinking water isn't deadly, and there is some modicum of health care, you are doing better than 50% of the planet.  Immigrants from the other half of the world come here and thrive, because they know a good thing when they see it.  Native-born Americans whine and complain about how awful things are, but they don't realize the most basic things in their lives - such as a sufficient calorie intake for the day - are rare luxuries for most of the planet.

2.  When you were born:  Being born in China today isn't such a bad deal.  Being born in China in 1950 would suck.  The country was poor and isolated, and Mao's policies lead to mass-starvation, not to mention the "cultural revolution".   Timing is everything.   I missed out on all the fun of the great depression, World War II, Korea, and Vietnam.  Too young for the draft, too old for Desert Storm. While I came of age during a pretty major recession, I was in my prime working years during some of the biggest boom times of the late 20th Century.

3.  Cultural Values:  My parents valued education and I was raised in a house full of books.  As a child, my brother and I would amuse ourselves reading the encyclopedia.  We were expected to do well in school and go to college.  It was not even a question.   This, more than anything, was the greatest legacy my parents left me.   Because it is what made me who I am.

4.  Wealth:   I list this one last, as it is important, but less important than the first three.   You can be born into a wealthy family and still end up broke - or depressed, or suicidal, or just plain stupid.   And I've seen it all. Both of my parents were one or two generations removed from poverty.  My Father's Dad was a ne'er-do-well alcoholic who squandered every penny he made.   My Dad had to crawl his way up the socioeconomic ladder, one rung at a time.   My Mother's Dad worked his way through law school - because his Father committed suicide at age 30.   So while my parents were comfortably "middle class" they were hardly wealthy or from wealthy families.

So yes, luck factors into it.   But it is less a matter of being in the "lucky sperm club" as my reader puts it, than being born in the right place, time, and having the right cultural values.   Having enough money to get by helps, too.  But often lack of money is also a motivator.

I had the privilege of working for two excellent attorneys who were senior partners in their respective firms.  Both came from poverty and worked their way to the top. When my Dad lost his job in Rochester, we lived briefly in Old Greenwich, Connecticut, while he took a contract job in New York.  It was the second time my parents lived in that tony Connecticut suburb, as an upwardly-mobile middle-class executive family.

My boss at the time, who was not much older than I am, lived above the Italian grocery store that his parents ran.  They were hardly poor, but they were not the upper-middle-class suburbanites that populated that small town.   He came from poverty, and I ended up working for him.  No doubt, my Mother bought salami from his Dad.  He thought the irony was hilarious.

Later on, we moved to upscale Lake Forest, Illinois.  And while I was going to school there - and my brother to the tony Lake Forest Academy - my next boss was growing up on the South Side of Chicago.   He got beat up every day on his way to technical high school.  His Father ran a television repair shop - not exactly poor, but not wealthy by any means, either.   Again, the contrast in our lives is telling.  He ended up my boss, while it is likely my Mom had her TV repaired by his Dad.  Again, he relished the irony.

And I find this a pattern in America - which is one reason being born here is a big lucky break.  People born into poverty or at least lower-middle-class are often the most motivated to strike it rich, though education and hard work.  And in the case of both of my bosses, their families valued education and hard work - driving it into their children's heads that they had to get ahead on their own or else.

Others, well, maybe less so.  In many subcultures in America - urban and rural - seeking an education is seen as elitist or worse.   You are literally punished for doing well in school.   And the end result is, well, about what you'd expect.  Generation after generation of poverty - a lack of "luck" because of poor cultural norms above all else.

And I wonder if my reader is trying to argue (or troll me) that I am just "lucky in life" and thus he can discount whatever it is I have to say.   After all, if becoming successful is just a matter of luck, then why bother trying?  Pass the bong, please.

But getting back to "lucky sperm" there is a flip-side to your inherited DNA.   Again, I tend to think genealogy is bunk, and that your life is determined, to a large extent, by what you do and how you decide to think.  But your immediate DNA from your parents does make a difference in your life.  And as I noted, my Mother's family had a history of mental illness and suicide.  My Father's family a history of substance abuse.

My Mother was bi-polar and an alcoholic - who would get drunk, get into fugue states and start attacking people with kitchen knives.   Some fun.   My Dad liked to drink as well, and as a result, he and Mom got into a lot of loud and violent arguments when I was growing up (and before and after as well!).   Sadly, this DNA seems to have been passed on to some of my family members, who struggle with mental illness.  And I am sure it affects me as well.

As I noted before, I squandered most of my teenage years and 20's through drug and alcohol use, as well as depression and feeling sorry for myself.   It was a lost decade - nearly a decade-and-a-half.   Is this part of my "lucky sperm" as well?   What it does illustrate is that you can have all the luck in the world and throw it away in a fit of pique.   My older siblings, being born in the 1950's and raised in the 1960's, (that timing thing, again) fell for that whole "materialism is evil, man!" bullshit, which was probably promulgated by the 1960's equivalent of the Russian troll farms of today.

As a result, they sort of squandered their legacy by being underachievers - again a lost decade, or two, or maybe three.   You can have all the "lucky sperm" in the world and it doesn't make much difference if you don't take advantage of it.   And again, as I noted before, growing up in fairly wealthy communities (where my parents desperately tried to fit in, but being strivers were never really accepted) I saw the children of the rich descend into the hell of drug abuse, alcoholism, depression, mental illness, and suicide.

I think perhaps my reader is under some misapprehension that my blog is aimed at the poor - giving out hints on how to strike it rich by saving bottle caps.  Or maybe one of these "extreme retirement" gigs that promises you can retire at age 30 on $7,000 a year.  It is neither.  And I never said it was either of those things.

Rather, as I have noted before, I am just trying to figure out how I got to where I am today.   When I started this blog - whose ten-year anniversary will be this year - I was pretty clueless with money.   I had managed to pull myself out of the nosedive I was in when I was in my 20's by giving up pot (and even beer, for nearly a decade!) and going back to school, finishing my Engineering degree, working my way through law school, and starting my own law practice.   I took my greatest asset - my parents' valuation of education - and put it to work.   14 years of night school later, it paid off.

I was doing well - making a six-figure income - and spending it as fast as I made it.   I had all the toys and accessories of a "wealthy person" in the United States, but also a lot of debt.  And I could sense that the day would come - and come soon - that I would be forced to retire early, much as my Dad was, at age 55, when he was forced out of his job.

So I started examining my life and my financial habits.  And at first, I started chipping away at the edges - saving a buck here, two bucks there.   Finally, I slew the scared cows - the collection of cars, boats, and other depreciating assets that I would "never sell" as well as the vacation home.  Once I got rid of "stuff" I realized I actually had some wealth.   Not only that, I didn't have to work so hard - or maybe not at all.

There is a pattern here - luck followed by squandering of luck.   I was very fortunate to make money in my law practice - and in real estate (where the bulk of my wealth came from) - but almost managed to squander all of it by spending it on stupid things.  Well, they weren't all stupid, but maybe we just spent too much.  In retrospect, some of the best things we had were the ones we spent the least on - another painful lesson I have learned.

I never expected an inheritance - and learned early on never to rely on one.   I was shocked when my Dad died a year ago, that he hadn't spent all of the money my Grandfather had left to my Mother.  It wasn't a lot of dough - not enough to retire on - but it was a welcome addition to the money I had already saved for retirement.  I presumed my Dad would have already spent this, as he had to retire early, and as a result, his need for money in retirement was greater.   Although I had already made my retirement plans at this point, it certainly made things a little easier, adding another 5% to our portfolio.

Similarly, when Mark's parents died, he did get a small inheritance.  But this was not so much a "legacy" of wealth handed down from generation to generation, but rather the amount of money they had for retirement but had not yet spent.   The idea of "money batons" is somewhat flawed, at least for the middle-class.  If a "money baton" is to have any value, it should be handed to you at the beginning of the race, not when you are very near the end yourself.  What the middle-class is inheriting isn't legacy wealth, but what their parents' had left-over when they died.  For my Dad, this was a 1938 Buick, that need a ring-job.   He always seemed a little bitter about that.

Today, many in the middle-class are finding their parents are leaving them with insolvent estates - not only not having anything "left over" but being heavily in debt as well!

Luck is a big factor in life - but not the only factor.   Hard work, native intelligence, cultural values, education, opportunities (and the ability to perceive them and act on them) are also important. I would argue that no one factor is really indicative of success.  If you use a lack of luck as an excuse not to try, your destiny is preordained.   If you squander the luck that you have - as I did and many in the middle-class still do today - the outcome is also predictable.

The most successful people in the world today are not successful because of good luck, but often in spite of bad luck.  And in that manner, good luck can be a bit of a curse - in that is discourages people from trying.   Not because the children of the wealthy are lazy and indolent, only because they often are making a rational decision-matrix choice.

If you stand to inherit enough money to never work again - as some friends of mine have - you can either double-down that bet by investing it and trying to leverage it to make more money - as two of the Koch brothers did.  It is risky, as you could lose it all.   Or, you could be like the other two Koch brothers and simply spend a quiet life spending that money and being a "philanthropist" of some sort - which is the safe bet.  Most choose the safe bet.  I know my wealthy friends all did.  And it makes sense, logically.

For those of us in the middle-class, however, that decision matrix doesn't apply.  We don't stand to inherit enough to live on, and thus have to build up our own estates - this is not optional.  In a 401(k) world, you have to spend less and save more, if you want to get ahead.    Luck or no luck, that is pretty much how it works.