Can You Really Handle What It Takes To Get Rich?

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Ever wonder what the pursuit of wealth might do to you?

Not too long ago, a friend asked me to talk to his daughter…

Having recently graduated college, she’d developed a jones for the financial world, with a focus on hedge funds. In my past life, I was a securities and hedge-fund lawyer, so knowing that I knew how it works from the inside out, I was tapped as the go to guy for information about how to break in.

I know what your saying…

“Dude, now is not the time to be looking for a job on Wall Street.”

Which was one of the first things I said to her. Not so much to truly dissuade her, but to throw up a very simple to dismantle barrier and see if she’d knock it down or back away. She knocked it down.

So, I asked her, “what is it about hedge funds that makes you want to work there?” Her answer, “honestly, it’s the money!”

For those not in the know, here’s how “the money” in hedge funds work…

Hedge fund managers put in 0.25% of the money in a fund (sometimes more), then get other people to entrust them with the other 99.75% to invest on their behalves. So, if you raise a $100 million fund, you might put in $250,000, and take in another $99,750,000 from other investors.

Now, as the managers, you take a yearly management fee, anywhere from 1 to 5%, so that’s $1-$5 million a year, regardless of how the fund does. Then, you take 20% of the gains on the entire amount, that’s called the “carry.”

So, if you manage $100 million, the fund generates an average 20% return/year (which is the expectation in many funds) and the fund is in place for 10 years, before it’s fully liquidated, the net gain is $200 million. You get 20% of the $200 million gain or $40 million.

If the fund was a $1 billion (many are), you’d get $10-$50 million management fee and $400 million.

Is the carry guaranteed? Of course not, but, you can see pretty quickly why, for so many people, becoming a hedge fund manager has been the holy grail of Wall Street jobs (barring the last few months).

The only people that make anywhere near the same level of income are movie stars and pro athletes.

But, here’s the problem…

Along with the opportunity for extraordinary wealth comes often gut-shredding, never-relenting levels of stress, anxiety, non-stop work and a whole lot of sleepless nights. Because, you are the final word on hundreds of millions, if not billions of other peoples’ money. You are putting their money, their pension funds, their savings, their investment portfolios at risk…a lot of risk. If things go South, it’s all on you.

And, that’s a whole lotta stress to live with.

Because of this, most of the hedge fund principals and managers that I’ve known have been hardcore cowboys. Not all, but most.

They not only can handle, but thrive on extreme stress. They are huge risk takers, because the greatest rewards very often go to the those who take the greatest risks. And, very often, they are completely and utterly defined and consumed by their businesses.

So, after sharing this with my friend’s daughter, I asked her four questions…

  • Are you ready to handle that?
  • Are you the type of person I just described?
  • Do you WANT to be that person? And,
  • Do you have a genuine passion for that type of work, beyond the money?”

Her answer…”theoretically, yes.”

Why “theoretically?” Because, she was 22 years old, fresh out of college with a degree in business. Whether she could handle it was largely a giant guess. And, for her, the only way to really know, was to try it (again, getting a hedge fund job is a whole different discussion).

But, what about the rest of us who may be a bit further down the career and life path?

Whether you launch your own business or work for someone else, fact is, most business adventures that offer the promise of extraordinary wealth, from hedge funds to entrepreneurship, require risk.

Generally, the bigger the potential payout, the bigger the risk.

And, the bigger the risk, the longer you have to live with it, the greater the toll it can take on your health, your sanity, your body, your relationships and your life. I’ve learned this the hard way, blowing through my “healthy” risk tolerance levels and suffering everything from anxiety and sleeplessness to hospitalization.

Over the years, though, largely through trial and error, I’ve gotten better at structuring my business ventures and various professional pursuits around not only what I want out of life, but around what I know I can handle from a risk/stress standpoint.

I wonder, though…

How many people pursue financial wealth or a particular field without ever really considering the toll success in that field will likely take on every other aspect of their lives?

I’m not actually suggesting that you NOT go into a particular field or pursue something deeply desired.

What I AM wondering, though, is how many of us do it without opening our eyes to and consciously choosing to accept the pound of flesh it’ll take to get what we want.

Dunno, as usual, just thinking out loud here.

So, what do you think?

What am I missing?

Let’s discuss…

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25 responses

25 responses to “Can You Really Handle What It Takes To Get Rich?”

  1. Andrea Szakall says:

    An American investment banker was at the pier of a small coastal Greek village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna.
    The American complimented the Greek on the quality of his fish and asked, “How long does it take to catch them?” The Greek replied: “Only a little while.”

    The American then asked why didn’t he stay out longer and catch more fish? The Greek said he had enough to support his family’s immediate needs. The American then asked, “But what do you do with the rest of your time?”

    The Greek fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play cards with my friends, I have a full and busy life.”

    The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats.

    Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution.

    You would need to leave this small coastal fishing village and move to Athens, then London and eventually New York where you will run your expanding enterprise.”

    The Greek fisherman asked, “But, how long will this all take?” To which the American replied, “15-25 years.”

    “But what then?” The American laughed and said that’s the best part. “When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions.”

    “Millions … Then what?” The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play cards with your friends.”

    Unless ofcourse that world is your coastal village…

  2. Jonathan,
    Hedge fund manager is probably at the extreme end, but your four questions are good ones to ask about any field. This is especially true of entrepreneurs and small business owners.The common thread seems to be — the decisions are yours. Whether you let them become stress or thrive on them is also up to you. I like that you’re talking about “the toll of success” while the rest of the world is talking about “the toll of failure.”
    Thanks!
    ahg3

  3. I don’t have a ton to add to the discussion… but I’ve always sort of wondered about how a hedge fund works. Thanks, Jonathan, for handing to me without any work on my part whatsoever, other than my reader picking up your feed. 🙂

  4. Dean says:

    After going through an experience recently where I did not adequately do my work up front and just made what in retrospect was an off-the-cuff decision and then having to live with it for several years, I have had some time to think about your topic.

    I have come to think about decisions like this in terms of tribes (a social division in a traditional society consisting of families or communities linked by social, economic, religious, or blood ties, with a common culture and dialect, typically having a recognized leader) … that is, am I like the tribe I propose to join and will I fit in if I join this particular tribe? There is a lot a person can do to find out about a tribe and whether that tribe’s characteristics fit. One of those things is just what you have done for your friend – provide the inside story from your perspective. There is other due diligence and reconnaissance that can be done,too. Knowing a lot about yourself is a super critical matter and for a lot of people this just isn’t in the cards in the way or depth that it needs to be in my judgment.

    Still with all the front end work you cannot really know in a lot of cases whether you fit in the tribe or not until you try it. Awareness of all of these things builds up the kind of wisdom you allude to when you talk about your own background and how you got to where you are today. There is no other way to get that wisdom than by trial and error.

    As a final matter, making a decision for money is ok as long as you realistically size up what is involved. Even so, I found it really difficult to continue long term doing something just for the money. There has to be something more than just the money.

    In the case of your friend, just out of college, and with no real experience in the work world, this could be a true learning experience and I’d be careful to label it as that so the expectations are set for whatever comes along, particularly since most things unfold in ways other than what we expect.

  5. Excellent stuff, Jonathan. Everybody says they want wealth, but few are willing to do what it takes. If you sacrifice your family to all that work and stress for wealth, though, why bother? What did you really gain?

  6. Jonathan Fields says:

    @ Andrea – I’d heard that story before and forgotten it, thanks for sharing it again!

    @ Arthur – no doubt hedge fund manager are on the extreme end of the range, but, as you noted, too, the moment you become an entrepreneur, these same issues become relevant. And, if you decide to take on investors, you end up in a very similar situation. Not that it’s a bad place to be, just that the decision should be made with an awareness of it’s potential positive and negative impact

    @ Elisa – no problemo, I remember the first time I learned about the economics of private equity/hedge funds, I was blown away

    @ Dean – Great point! Some adventures are easier to assess what the pound of flesh will most likely be, while others are far tougher to try to figure out. Sometimes, you have to just make your best guess, then respond as things unfold. In that situation, I think it’s critical to set up a regular feedback and evaluation system to keep you true to your broader values and vision

  7. Oy, where to begin? First reaction: what does she really mean by “It’s the money!” Is it the money she’d be making, or is it what the money has the potential to do, or is it the fascination with exponents? What?

    Without going into a “when I was your age” or “these kids today” kind of rant, I’ll just say Dean is right. While you may last for quite some time with making money as your sole or primary motivator, it’ll cost you in the end. I’ll just quote my dad, as I did in a recent post: “Think about what you’ll remember. Hey, you can’t tell me that on your deathbed you’ll be thinking about some business deal you did. That’s crap. If that’s the way you wind up, well, I’m sorry for ya.”

  8. Jonathan Fields says:

    @ Betsy – Totally agree. Last year, I ran across a study of pentamillionaires (people who earn more than 5 million) that asked how much of a motivator the money was. And, most said the money has very little to do with either their success or what kept them working so hard. Rather, it was the challenge of creating something and/or solving a pervasive problem.

    FYI – Interestingly, too, of the pentamillionaires in the study, most were new money, they’d made their fortunes themselves, rather than inherited them.

  9. Todd Smith says:

    Thanks for bringing up a great concept, Jonathan. I think it happens to all of us, to some degree. We desire great things but we underestimate the effort needed to achieve them sometimes. Our drive is good, in that it gets us moving, but the next great challenge is to find a way to keep life in balance. For me, the hardest part is letting go of perfection. I was an A student in school, but I’m learning that it’s not always healthy to get an “A” for every business project.

  10. […] Can You Really Handle What It Takes To Get Rich? – Really, can you? […]

  11. Pamela says:

    A really great book that provides a frank (and funny!) look at the reality of what it takes to build great wealth is “How to Get Rich” by Felix Dennis. He does not sugarcoat the hard realities, and really makes you think twice (and again) before casually embarking on the road to riches. Tell your friend’s daughter to read it!

  12. I’ve worked at a Wall Street firm, and I can definitely back up what you’re saying about stress. After working there, I realized that money wasn’t worth that amount of stress. After all, we’re here to live, not to ruin our health and become shells of our old selves.

    Thanks for this post, it’s very nice to hear other people talking about this subject. By the way, I’m 23 and just graduated as well, so this is very timely. 😉

  13. Karen Putz says:

    I think a lot of people go into jobs “for the money.” I always encourage people to shadow others for a day or two to get a feel for a job before deciding on a major in college. Money may be exciting for a while, but if your heart isn’t in the job, it will take a toll on you down the road.

  14. CV says:

    Jonathan, this is something I often wondered about when I was teaching MBA students…as a leadership professor (not a finance professor–). Many of the students going into finance for the money seemed to me to be rather underdeveloped young people…narrow educations, little life experience, etc. Sometimes I wondered if they had any idea what else there might be in life besides ‘success defined as money’. They go into these jobs, meet mostly others with the same monofocus, don’t have outside lives, and rarely see what they are missing… and their world just reinforces the ‘success as money’ worldview. Worse, even the students that said “I’ll just do it till I get married/hit 10 million/hit 35 etc.” find it hard to break out. And they don’t get a lot of help from our culture either. I suppose there are those who really do like the work…but I think that we lose a lot of potentially really wonderful community members to careers that focus on money to the exclusion of other valuable things.

  15. Marelisa says:

    Hi Jonathan:

    In the past people used to “apprentice” with someone who was already established in the occupation of their choice. So people actually got to experience what it was like to hold that job and learned by doing rather than by just taking in knowledge. Law schools have “clinics” to help law students get real life experience, but it’s still not the same thing. I think we need to put more real life experiences into schools because the disparity between what people think a job is like and what it actually entails is enormous.

  16. Jonathan – as always I enjoy your posts.

    This one struck home for me – I had my career ‘epiphany’ about 2 years ago. I was working as a high level consultant making great money and hating every single day of it.

    I chose to totally change what I was doing (in some ways start over) knowing that the money wasn’t going to be the same and deciding that I didn’t care.

    Having said that, I had the advantage of having saved and living within my means for a long time – I don’t know if I could have made the same choice when I was younger.

    Shawn

  17. Glee Girl says:

    Hmmm. This may have been said before but I don’t have time to read all the comments (lunch break nearly over!)

    I think it’s risky to choose a career for the money, although I suppose there is a distinction between someone who sees money and what it can buy as an end in itself (someone who wants to buy a big fancy house, flash cars and designer handbags to impress all their fiends) and someone who sees it as a means to an end – perhaps pursuing an expensive hobby.

    But even if the money is a means to an end, as you suggest Jonathan, the sacrifices (of time, energy, emotional equillibrium) required to earn the means could very likely put the end out of reach – or at least tarnish your enjoyment of it.

    Money’s great but it won’t make you happy. The things that do make us happy – solid, supportive relationships – don’t always thrive when people are working their butt off to make money.

    But your friend’s daughter is young. If she’s going to do this, now is probably the best time.

  18. Personally I never went only for the money. I went for ideals, and tried to keep it practical. That did not work for me either. In the end having a business seems to be what fits my personality best and gives me the freedom I need to do other things.

  19. […] Can You Really Handle What It Takes To Get Rich? | Awake At The Wheel | Personal Growth | careers | …. Digg, Share, Stumble… […]

  20. Jonathan Fields says:

    Love the wonderful insights and stories, gang. One more thought.

    Actually, it’s a questions, which is how much money is enough?

    Eh, never mind, I feel a post coming on! 😉

  21. […] I’ve been reading Awake at the Wheel for a while now and most posts are just excellent. I really had a difficult time picking the most interesting recent one, so I just went with yesterday’s: Can you really handle what it takes to get rich? […]

  22. nick says:

    Choosing a job or career path for the money is a huge problem that our society has created. Too many people get stuck on how the money will buy them happiness rather then what makes them happy. A lot of the time the pursuit of the money takes up all the time they could be spending doing what they love.

  23. […] longer clear.  One example of this is the difference in the “rules of the game” that hedge fund managers or venture capitalists play under to make money versus what the rules that the general public is […]

  24. misanthropope says:

    you’ve been drinking the kool-aid. 20% is “expected” for hedge funds? 20% is what is _projected_ for a fledgling hedge fund, by the marketers, excuse me, management.

    i love hedge funds, they are one of the few meritocratic institutions in the country. rich stupid people get turned into poor stupid people with gratifying regularity by those things.

  25. Chris says:

    Hi,

    I just stumbled on this site looking for ways to get financial security when I come out of university (in the UK) and ways I can get my Lamborghini 🙂

    Anyway, after reading the opening post, I’m thinking the stress and health concerns may not be worth the money, especially if the job ‘takes over every other aspect of your life’.

    Do you think its better to do a job that you love rather than one that will harm your health, yet pay well?