Ep 599 | The Wealth Illusion: Why Money Doesn’t Grow Steadily (REPLAY)

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off Podcast, where we believe that every single day brings a new opportunity to get better. And today I want to get better at wealth. I want to talk about wealth building, a favorite topic here at the No Days Off Podcast. I mean, so many entrepreneurs, so many of you building big businesses, big lives, and of course, We want to create massive wealth for ourselves, for our families, for generations. I assume that's part of the reason you're here. On that note, I want to talk about wealth, and what I'm about to share might sound like it goes against different things that we've talked about here at No Days Off. I promise you, if you stick with me, it does not. But the initial statement I'm about to make, it may throw you off. The statement I'm going to make is that investors, those looking to build wealth, do not make money steadily over time. They actually make that money in spurts. Believe it or not, the data shows that money is made in spurts more so than it's made over time steadily. Now, I understand that sounds strange and, uh, it's a little tongue-in-cheek because of course, with compounding returns. Wealth of— wealth grows over time. You put money into an account, you remain patient like we've talked about so much here at No Days Off, you let that money compound over time, and of course wealth is going to grow over time. However, the actual big jumps in your net worth usually happen in concentrated periods due to a handful of reasons. And when you study the, the wealthy, what you find is, yes, they've accumulated wealth over time— it goes without saying— and yes, it, it appears to have been steadily built over time. However, there are big jumps at different moments in net worth, and it's a result of what I'm about to talk about here. Number 1: asymmetric returns. A few big wins drive most wealth. The majority of a lot of investors' wealth oftentimes comes from just a handful of key investments, and it's not always this steady linear progression. So for example, um, early investors in Amazon or in Tesla or in Bitcoin, they had years of slow-mo movement, years where many of them were second-guessing, why do I own shares in Amazon or in Tesla. And then with each of those companies, there was a moment or a period of, of explosive growth in relatively short periods of time. And those big wins drove immediate net worth jump— jumps for the investors in these, in these companies. So early investors in companies like that see a big jump, then they monetize that big jump invest those dollars, and maybe it appears to be a bit more linear before their next big jump. Venture capitalists, real estate investors, business owners— they also tend to see long periods of little to no gain, and then there's sudden breakthroughs. So when you study a lot of individuals who have accumulated wealth, what you find is not this perfect linear chart, but instead these, you know, these flat lines and even these regressions, and then skyrocket and flatline and maybe a little regression, skyrocket again. The wealth is more so built in big spurts than it is steady over time. Now, another reason why, why we, we see big jumps in net worth concentrated in, in smaller periods of time: market cycles create nonlinear growth. The stock market does not grow at a steady rate, contrary to maybe what we've been experiencing as of late. The stock market does not grow at a steady rate. It experiences booms and busts. We can go back just a handful of years ago during the COVID time when we saw things come down pretty aggressively. And those that stayed in the market or those that got in the market rode the, rode the wave up. And now, hell, the past couple years we've seen 3 or 4x typical returns on the S&P over just the past 2 years. I can tell you for me personally, my stock holdings have grown at a faster clip over the past 2 years than they had in all years prior as a percentage. And that's, that's just an example of a spurt. So the well-positioned investor can endure years of flat returns or even losses before a bull market rapidly increases their net worth. See, you've— again, you've seen a lot of that over the past couple years. Warren Buffett's fortune grew steadily, steadily for decades. But the majority of his net worth, the net worth increase, happened in the last few decades due to compounding and due to market expansion. Another reason you see spurts in real estate and business, they both sometimes have what I would call lumpy payoffs. Like, real estate investors might buy properties that appreciate pretty slowly for years, and then they experience a market surge that significantly increases their value. If you look at, like, if you were buying real estate in '02, '03, and then you had the opportunity to ride that wave in '04, '05, '06, and maybe you were out before the market crashed, you saw a surge. Now, you may have saw it crash, but you stayed in. What you then saw, if you kept holding those properties, call it 15 years later, you saw another market surge. And today We'd all— if you look at the math on real estate, we'd all be ahead if we just held on to what we had during the last market crash. Again, patience, absolutely. But to say that that wealth was steady over time, it was not. In business, entrepreneurs grind for years with little financial return, and then they suddenly sell a company or scale, you know, profits quickly, and that spurt jumpstarts their, their wealth building. The next thing I would say around, you know, why, why is big jumps in net worth, uh, happen in concentrated periods of time? It's because wealth is built through patience and positioning. So investors who chase steady linear returns often end up with lower upside because they avoid the risks that lead to outsized gains. And that's a philosophy, right? Like, to be patient maybe go after things that have lower upside, but you're playing the long game. There's nothing wrong with that. It's the mentality I, I, I, you know, tell everyone to take. But those who stay patient, well positioned during slow periods, are the ones who benefit when opportunities arise. So you can be ready to pounce and hit that spur. At the end of the day, I think the key is to stay in the game, and that's the biggest takeaway here. If you, if you, if you follow what I'm saying, that wealth is really built more so in spurts and it's not always built steadily over time. Yes, in the grand scheme, if you keep your money in indefinitely, it, it appears that it was built over time. Yes, but saying it was steady, not necessarily. But if you know, or if you believe what I'm saying around things being built in spurts, then the key here is what? It's to stay in the game. Investors who understand that wealth comes in spurts don't panic during slow periods. They actually position themselves for the big moments. You don't have to make money every year. You just have to make money at the right times. And again, in order to do that, in order to do that, you got to be in the game. There are so many people for us to look at. From Elon, you know, who sold his first company for, gosh, I don't even remember what it was, what he sold it for. Zip2, I think was the name of it. Sold it in '99 for, I think, $22 million is what he got from that sale. And that was his first big financial win. But then he, you know, he lost a whole bunch of it. And then he built X.com and PayPal acquired it. And he made $176 million and he ran that all the way down. To his last payroll at SpaceX. And then of course, you know, the, the rest of the story, things skyrocketed in the past couple years. He's basically doubled or tripled his worth. My point is those things happen in spurts. Bezos at Amazon, how many years did he put in? And once he founded Amazon in '94 and he was working out of the garage, we've all seen the famous picture, the company did not, uh, did not IPO until '97. And in '97, he raised, I think, $54 million, of which he had like a 40% stake. That pretty much increased his net worth, and it was a pivotal financial milestone in his, in his rather early career. By point, though, again, spurt. And you can look at Zuckerberg. There's so many people you can look at where this shows up. So what do you do about this now that you have this knowledge? You make sure that you're in the game and you make sure you stay in the game so that you can take advantage of spurts. I am not telling you to time the market. That would be a fool's errand. Instead, I'm saying get in the game and wait, as opposed to wait to getting in the game. That's all I have for you today, the No Days Off Podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better. So let's get after it.