John Bogle, the Vanguard founder who passed away in 2019, once told a story about money that highlights something we don’t think about enough:
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have … enough.”
Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate.
For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails.
It’s so smart, and so powerful.
Let me offer two examples of the dangers of not having enough, and what they can teach us.
Rajat Gupta was born in Kolkata and orphaned as a teenager. People talk about the privileged few who begin life on third base. Gupta couldn’t even see the baseball stadium.
What he went on to achieve from those beginnings was simply phenomenal.
By his mid 40s Gupta was CEO of McKinsey, the world’s most prestigious consulting firm. He retired in 2007 to take on roles with the United Nations and the World Economic Forum. He partnered on philanthropic work with Bill Gates. He sat on the board of directors of five public companies. From the slums of Kolkata, Gupta had quite literally become one of the most successful businessmen alive.
With his success came enormous wealth. By 2008 Gupta was reportedly worth $100 million.¹¹ It’s an unfathomable sum of money to most. A five percent annual return on that much money generates almost $600 an hour, 24 hours a day.
He could have done anything he wanted in life.
And what he wanted, by all accounts, wasn’t to be a mere centa-millionaire. Rajat Gupta wanted to be a billionaire. And he wanted it badly.
Gupta sat on the board of directors of Goldman Sachs, which surrounded him with some of the wealthiest investors in the world. One investor, citing the paydays of private equity tycoons, described Gupta like this: “I think he wants to be in that circle. That’s a billionaire circle, right? Goldman is like the hundreds of millions circle, right?”¹²
Right. So Gupta found a lucrative side hustle.
In 2008, as Goldman Sachs stared at the wrath of the financial crisis, Warren Buffett planned to invest $5 billion into the bank to help it survive. As a Goldman board member Gupta learned of this transaction before the public. It was valuable information. Goldman’s survival was in doubt and Buffett’s backing would surely send its stock soaring.
Sixteen seconds after learning of the pending deal Gupta, who was dialed into the Goldman board meeting, hung up the phone and called a hedge fund manager named Raj Rajaratnam. The call wasn’t recorded, but Rajaratnam immediately bought 175,000 shares of Goldman Sachs, so you can guess what was discussed. The Buffett-Goldman deal was announced to the public hours later. Goldman stock surged. Rajaratnam made a quick $1 million.
That was just one example of an alleged trend. The SEC claims Gupta’s insider tips led to $17 million in profits.
It was easy money. And, for prosecutors, it was an even easier case.
Gupta and Rajaratnam both went to prison for insider trading, their careers and reputations irrevocably ruined.
Now consider Bernie Madoff. His crime is well known. Madoff is the most notorious Ponzi schemer since Charles Ponzi himself. Madoff swindled investors for two decades before his crime was revealed—ironically just weeks after Gupta’s endeavor.
What’s overlooked is that Madoff, like Gupta, was more than a fraudster. Before the Ponzi scheme that made Madoff famous he was a wildly successful and legitimate businessman.
Madoff was a market maker, a job that matches buyers and sellers of stocks. He was very good at it. Here’s how The Wall Street Journal described Madoff’s market-making firm in 1992:
He has built a highly profitable securities firm, Bernard L. Madoff Investment Securities, which siphons a huge volume of stock trades away from the Big Board. The $740 million average daily volume of trades executed electronically by the Madoff firm off the exchange equals 9% of the New York exchange’s. Mr. Madoff’s firm can execute trades so quickly and cheaply that it actually pays other brokerage firms a penny a share to execute their customers’ orders, profiting from the spread between bid and ask prices that most stocks trade for.
This is not a journalist inaccurately describing a fraud yet to be uncovered; Madoff’s market-making business was legitimate. A former staffer said the market-making arm of Madoff’s business made between $25 million and $50 million per year.
Bernie Madoff’s legitimate, non-fraudulent business was by any measure a huge success. It made him hugely—and legitimately—wealthy.
And yet, the fraud.
The question we should ask of both Gupta and Madoff is why someone worth hundreds of millions of dollars would be so desperate for more money that they risked everything in pursuit of even more.
Crime committed by those living on the edge of survival is one thing. A Nigerian scam artist once told The New York Times that he felt guilty for hurting others, but “poverty will not make you feel the pain.”¹³
What Gupta and Madoff did is something different. They already had everything: unimaginable wealth, prestige, power, freedom. And they threw it all away because they wanted more.
They had no sense of enough.
They are extreme examples. But there are non-criminal versions of this behavior.
The hedge fund Long-Term Capital Management was staffed with traders personally worth tens and hundreds of millions of dollars each, with most of their wealth invested in their own funds. Then they took so much risk in the quest for more that they managed to lose everything—in 1998, in the middle of the greatest bull market and strongest economy in history. Warren Buffett later put it:
To make money they didn’t have and didn’t need, they risked what they did have and did need. And that’s foolish. It is just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense.
There is no reason to risk what you have and need for what you don’t have and don’t need.
It’s one of those things that’s as obvious as it is overlooked.
Few of us will ever have $100 million, as Gupta or Madoff did. But a measurable percentage of those reading this book will, at some point in their life, earn a salary or have a sum of money sufficient to cover every reasonable thing they need and a lot of what they want.
If you’re one of them, remember a few things.
1. The hardest financial skill is getting the goalpost to stop moving.
But it’s one of the most important. If expectations rise with results there is no logic in striving for more because you’ll feel the same after putting in extra effort. It gets dangerous when the taste of having more—more money, more power, more prestige—increases ambition faster than satisfaction. In that case one step forward pushes the goalpost two steps ahead. You feel as if you’re falling behind, and the only way to catch up is to take greater and greater amounts of risk.
Modern capitalism is a pro at two things: generating wealth and generating envy. Perhaps they go hand in hand; wanting to surpass your peers can be the fuel of hard work. But life isn’t any fun without a sense of enough. Happiness, as it’s said, is just results minus expectations.
2. Social comparison is the problem here.
Consider a rookie baseball player who earns $500,000 a year. He is, by any definition, rich. But say he plays on the same team as Mike Trout, who has a 12-year, $430 million contract. By comparison, the rookie is broke. But then think about Mike Trout. Thirty-six million dollars per year is an insane amount of money. But to make it on the list of the top-ten highest-paid hedge fund managers in 2018 you needed to earn at least $340 million in one year.¹⁴ That’s who people like Trout might compare their incomes to. And the hedge fund manager who makes $340 million per year compares himself to the top five hedge fund managers, who earned at least $770 million in 2018. Those top managers can look ahead to people like Warren Buffett, whose personal fortune increased by $3.5 billion in 2018. And someone like Buffett could look ahead to Jeff Bezos, whose net worth increased by $24 billion in 2018—a sum that equates to more per hour than the “rich” baseball player made in a full year.
The point is that the ceiling of social comparison is so high that virtually no one will ever hit it. Which means it’s a battle that can never be won, or that the only way to win is to not fight to begin with—to accept that you might have enough, even if it’s less than those around you.
A friend of mine makes an annual pilgrimage to Las Vegas. One year he asked a dealer: What games do you play, and what casinos do you play in? The dealer, stone-cold serious, replied: “The only way to win in a Las Vegas casino is to exit as soon as you enter.”
That’s exactly how the game of trying to keep up with other people’s wealth works, too.
3. “Enough” is not too little.
The idea of having “enough” might look like conservatism, leaving opportunity and potential on the table.
I don’t think that’s right.
“Enough” is realizing that the opposite—an insatiable appetite for more—will push you to the point of regret.
The only way to know how much food you can eat is to eat until you’re sick. Few try this because vomiting hurts more than any meal is good. For some reason the same logic doesn’t translate to business and investing, and many will only stop reaching for more when they break and are forced to. This can be as innocent as burning out at work or a risky investment allocation you can’t maintain. On the other end there’s Rajat Guptas and Bernie Madoffs in the world, who resort to stealing because every dollar is worth reaching for regardless of consequence.
Whatever it is, the inability to deny a potential dollar will eventually catch up to you.
4. There are many things never worth risking, no matter the potential gain.
After he was released from prison Rajat Gupta told The New York Times he had learned a lesson:
Don’t get too attached to anything—your reputation, your accomplishments or any of it. I think about it now, what does it matter? O.K., this thing unjustly destroyed my reputation. That’s only troubling if I am so attached to my reputation.
This seems like the worst possible takeaway from his experience, and what I imagine is the comforting self-justifications of a man who desperately wants his reputation back but knows it’s gone.
Reputation is invaluable.
Freedom and independence are invaluable.
Family and friends are invaluable.
Being loved by those who you want to love you is invaluable.
Happiness is invaluable.
And your best shot at keeping these things is knowing when it’s time to stop taking risks that might harm them. Knowing when you have enough.
The good news is that the most powerful tool for building enough is remarkably simple, and doesn’t require taking risks that could damage any of these things. That’s the next chapter.