Books promising the secrets to untold riches have been around for decades, but studies looking to substantiate their often outlandish claims are a more recent phenomenon. Now, a new book offers a chance to test some of the assertions made by a classic of the genre. So what, if anything, can investors learn from self-improvement literature?
The books we read
Think and Grow Rich, Napoleon Hill (1937)
The Wealth Elite: A groundbreaking study of the psychology of the super rich, Rainer Zitelmann (2018)
The release of Napoleon Hill’s Think and Grow Rich in 1937 was a significant early chapter in the history of the self-improvement industry. Today, that industry has itself grown rich: motivation and self-improvement books, courses and seminars have created publishers, celebrities (and celebrity devotees) worth billions of dollars a year.
As a genre, self-improvement inspires as much opprobrium as it does devotion, as many of the prescriptions for achieving wealth can seem somewhat dubious. One of the chief criticisms levelled at its exponents is that its students are offered little more than how to be self-improvement gurus themselves; a pyramid scheme of ineffectual, if bright-eyed and motivated, individuals.
However, The Wealth Elite, a recent release from German entrepreneur and historian Rainer Zitelmann, offers accountability for the myriad claims about what is needed to become financially successful. For the book, Mr Zitelmann interviewed 45 ultra-high-net-worth individuals (‘ultra high’ here referring to a range of the tens of millions to billions of euros) in an effort to ascertain with some academic rigour what characteristics – if any – they shared.
His efforts are of course vulnerable to the same criticisms of survivorship bias found in so many books about the successful; namely that similar efforts are not made to understand those who have not succeeded. So many characteristics may appear to permeate the best of the best, when in fact they are just as common among the rest. That said, the book does offer some surprising conclusions, and suggests there is plenty that investors can learn from those at the top.
Know where you’re going
To a sceptical reader, one of the more eyebrow-raising ideas in Mr Hill’s work happens to be the central thesis: that one’s goals can be subconsciously coaxed into existence through deep focus and visualisation. Admittedly, it is not quite as simple as that. Mr Hill also advocates deliberate planning, continuous education and persistence in the face of setbacks, but of the 13 steps to riches he outlines, six relate directly to building zealous faith that the desired level of riches can be achieved. He goes so far as to say that only one whose “mind has become so thoroughly saturated with the desire for money, that one sees one’s self already in possession of it” will ever accumulate great wealth.
On that, Mr Zitelmann’s findings fly in the face of Hill’s claims. Mr Zitelmann dedicated a chapter in The Wealth Elite to goal-setting, referencing Hill directly numerous times. However, the findings were that many of those interviewed “stated categorically that goal setting never played a role in their lives”. Some claimed to have had no desire to be rich at all. The most powerful drivers were allegedly those for success, greatness and recognition rather than the fixed financial target espoused by Mr Hill.
However, this is not to say goal-setting has no value. Forty per cent of Mr Zitelmann’s interviewees strongly asserted that they regularly set goals in all areas of their lives, not just financial, and many regularly employed the exact goal setting and visualisation process outlined by Mr Hill.
For investors, the parallel is clear. The need for goals is well understood, as an investment strategy stands little chance of being well conceived unless its objective is clearly understood. A growth-focused approach is unlikely to give an investor desiring income what they need and so, to borrow from another self-improvement titan Stephen R Covey, it helps to begin with the end in mind.
Don’t follow the crowd
The value of building belief in goals and oneself, Mr Hill says, is that it allows people to carry on in spite of failures and setbacks. Faith plasters over doubts, fears and many of the things that either cause people to give up or prevents them from beginning in the first place, he argues. Self belief feeds into many aspects of Hill’s process for success, and indeed shows up prominently in those interviewed by Zitelmann, albeit in a number of forms.
The first of these is optimism. As Hill says in his characteristic way: “A mind dominated by positive emotions becomes a favourable abode for the state of mind known as faith.” Mr Zitelmann puts it slightly differently, defining optimism as the strength of a person’s belief in their ability to master situations, even extremely challenging ones. What both agree on is that optimism is crucial. The interviewees were a positive bunch, with 88 per cent describing themselves as extremely optimistic. For most, this fed into an increased risk appetite.
It also manifested as a pronounced leaning towards for nonconformism. Mr Zitelmann notes that of all the questions in a personality test he set his interviewees, few were met with as much agreement as the statement “I would describe myself as someone who prefers to forge my own path”.
A willingness to be contrarian was also widely praised as a deciding factor in the accumulation of great wealth. Interestingly, nonconformism came in two forms. Some followed their own beliefs and analysis, indifferent to the opinions of wider society, while others displayed a pronounced antipathy towards common opinion and seemed to enjoy being on the side of the minority.
This is where the dangers of only examining the winners comes into play – it is likely that for all those whose risk taking has paid off, there are many who crashed out spectacularly. While a number of the wealthy interviewees said their risk appetite had declined as their businesses and investments had moved from the start-up or growth phase into one of stability and consolidation – a tendency likely shared by many investors – relatively few reflected on the danger of over-optimism. The self-belief and willingness to take responsibility for their lives and goals – what psychologists approvingly refer to as an ‘internal locus of control’ – risked becoming the illusion of control, where self belief blinded them to their inability to control variables. This is especially important for investors’ chances of spotting opportunities that go against conventional wisdom. Given the relative lack of options individual investors have to influence the prospects of their holdings, they face arguably less risk than entrepreneurs of falling foul of the illusion of control. Often many factors contributing to the performance of their portfolios are simply out of their hands and at some point they have to let go.
Trust the process – or your gut
In one of the most esoteric chapters in Think and Grow Rich, Mr Hill talks about the subconscious mind and its usefulness as “a broadcasting and receiving station for thought”. While the scientific evidence for his assertion is scant, he raises an interesting point about the role of gut instinct, claiming “man has depended too much upon his physical senses, and has limited his knowledge to physical things” and that the subconscious mind has far greater power than is typically understood.
It’s an idea that has been repeated by accomplished people in a range of fields. Chess champions such as Josh Waitzkin speak of being aware of a potential play before they consciously formulate it, while LinkedIn cofounder and venture capitalist Reid Hoffman writes out questions for his subconscious mind to work on before going to bed. In the case of the wealthy interviewees, 25 of the 45 said their decision making was dominated by gut instinct, versus 15 who said they relied more on conscious analysis. Only one said gut feeling had no bearing on their process, and many expressed regret over decisions they made after allowing analysis to overrule their intuition. There also appears to be little difference between industries, either, with equal numbers of interviewees in the property sector citing sober analysis and instinct as the source of their advantage over peers.
The answer seems to lie somewhere in the middle, and is determined by both personality and experience. Many of the interviewees described their decision-making process as beginning with rigorous analysis of the figures, with any that do not add up simply being discarded. For those that remain, however, gut instinct is used to dictate the rest of the process – a somewhat unnerving prospect for many investors.
Honing your instincts
The entrepreneurs and investors Mr Zitelmann spoke to were from largely unspectacular middle-class backgrounds, leading the author to note that “while the parents of senior executives in large corporations…mainly come from the grand bourgeoisie, and habitus plays an important role in their careers, the selection processes to join the wealth elite are quite different”. Neither school nor university plays a decisive role. For those surveyed, what was important was whether their parents were self-employed – 60 per cent of the subjects’ parents worked for themselves, 10 times the average level in Germany – and whether they had run their own ventures or played competitive sport when young. This raised an interesting question about how the knowledge and competence for gathering wealth is learned.
Mr Zitelmann concludes – citing studies done by Gerd Gigerenzer on implicit learning and gut decisions – that intuition is developed implicitly in informal learning environments such as early entrepreneurial ventures, competitive sporting environments or role models in or outside the home. Hill concurs, mentioning the importance of “close association with one who refuses to compromise with circumstances”.
Mr Hill talks about the importance of continuous self-education over formal education as a means of developing both specialised knowledge and self discipline. Mr Zitelmann makes little mention of ongoing education and its forms, although personality testing revealed conscientiousness – the tendency towards devotion, discipline and precision – as the dominant trait among the successful. Both authors also highlight the importance of a supportive network of peers and mentors.
Investors will be familiar with the need to read widely and continually self-educate, but they may also benefit from discussing ideas with peers, in order to form differing opinions and a wider range of expertise.
Execution, execution, execution
Another of the most highly prized characteristics laid out by Mr Hill is a propensity towards action and persistence, especially in response to setbacks. Knowledge is useless, Mr Hill argues, “unless it is organised and intelligently directed, through practical plans of action”. The importance of hard work and persistence has always been associated with accomplishment – one need only look at Frederick Douglass’s Self-Made Men for an example that predates both of our authors. More recently, science has added further credence to the value of perseverance, with Angela Duckworth’s research on “grit” winning her a MacArthur genius grant. Unsurprisingly, then, Mr Zitelmann’s interviewees demonstrated high levels of not just conscientiousness, but also an orientation for action after failure. Here the internal locus of control is on full display, with Zitelmann saying it is “striking” that so many share “the fundamental attitude that the blame for setbacks and crises is not to be sought in external circumstances or in other people, but in themselves”.
Beyond this, many of the interviewees seemed to actively view setbacks as a positive, noting crises were an opportunity to improve their situation. As such they demonstrated a tendency to move on from negative emotions and self-admonishment quickly, accepting what is outside of their control. What this can highlight for investors is the importance of focusing on process and execution, rather than outcome. Losses are inevitable, but by revisiting and interrogating the reasons for those losses, investors can make improvements to their overall process.
Perhaps the reason the popularity of Think and Grow Rich has endured as long as it has is that behind the quirky pseudoscience, it contains solid advice that can be useful to entrepreneurs and investors alike. The Wealth Elite touches on areas not covered in depth by Mr Hill – for example, the common view that sales and negotiation skills are a fundamental plank of business success – but investors who set specific goals, plan thoroughly, continuously build their specialised knowledge and persist in the face of conventional opinion and short-term setbacks will have a solid base on which to grow their portfolio.