The Ten Roads to Riches

by Ken Fisher

  So then I went back to Lara Hoffmans, who worked with me in crafting The Only Three Questions That Count. She set out to do the research and render rough drafts of each chapter tailored to what I’d envisioned as a goal. Her work gave me the freedom to do what I otherwise must do on a daily basis, which is focus on my day job at my firm. Then, I’d edit/rewrite on nights and weekends and Lara would clean it up and fix my mistakes with her crew and then I’d edit/rewrite again, and we went on and on like this through five to seven rounds on every chapter.

  Happily for all involved, this second edition was less of a production—but still required the time and effort of many—not least of all Tula Weis, the John Wiley & Sons editor who also shepherded my last book, Beat the Crowd. Elisabeth Dellinger, coauthor of Beat the Crowd, again shelved many of her day-to-day responsibilities writing and editing for my firm, and devoted much of her attention to this project. Like Lara before her, Elisabeth shouldered most of the load, allowing me to focus on my day job while she researched the comings and goings of the world’s richest and distilled them into informative, entertaining new content. Assisting her were YoungRo Yoon, Jesus Torres, Sky Waters, Ryan Key, Isaac McKinley, and Andrew Lazzeri from my firm’s Research group. Todd Bliman, who oversees my firm’s Content team and website, www.MarketMinder.com, also provided valuable input and editorial insight while making it possible for Elisabeth to pull double duty and still get the occasional good night’s sleep. Thanks are also due to Content staff writers Chris Wong, Jamie Silva, and Ken Liu for taking on additional work while Elisabeth was otherwise occupied.

  Elisabeth, Lara, and all the rest put in tremendous work on this, but in the end the book is mine from conception to final words, including any omissions or errors. If you find fault in the book, it is mine, not theirs. But without them I’d never have had the patience or the time to get this book started or completed. Twice.

  Despite this being a book on people, it would have been impossible to do it without the generous help of a variety of data sources. It would be remiss of me not to thank Global Financial Data, Inc. and FactSet. The ability to use data has exploded in recent years and you will see documentation supported by footnotes from these sources scattered throughout the book. Some of my more bizarre claims can only be made by putting the statement in scaled context, which can only be done with the fine data these firms allow me to use.

  I’ve also, and for obvious reasons, made extensive use of both the most current Forbes 400 List of Richest Americans and its predecessors going back to the origin of the “Richest List” in 1982, as well as more recently the Forbes annual “Global Billionaires” list. And why not? After all, these lists are the gold standard measuring America’s and the world’s mega-wealthy and without them this exercise wouldn’t have had the metric-based foundation used to show how these folks got where they are. The Forbes 400, which started as a lark by Malcolm Forbes, has evolved into an institution with universal acceptance establishing the basis for how we determine quantified wealth. That is just one more major contribution Forbes as a publication has made to the world.

  I must thank Jeff Silk, vice chairman at my firm and someone who has been my ride-along for over 30 years and whom I write about extensively in Chapter 3 as a ride-along role model. Jeff read through parts of the book, made comments, and in that way improved it as he improves everything he ever touches.

  Grover Wickersham, a longtime friend and associate, securities lawyer, money manager, and former executive with the Securities and Exchange Commission, read most of the first edition, making highly detailed editing suggestions all along the way, page by page, line by line, probably 75 percent of which I ultimately incorporated into the book. His contribution to this book was simply over the top. He edited on planes, on two continents, in three countries, faxing me material in the middle of the night and arguing with me when I didn’t accept his suggestions. With friends like Grover I need fear no enemy. I only wish his handwriting were easier to read because I sure read a lot of it. Actually, I mention Grover briefly in Chapter 1 and Chapter 9. The book would be better if I mentioned him more.

  Speaking of lawyers, Fred Harring read the whole book for libel to make sure I wouldn’t get my rear end sued off. I still may well be sued for some things I’ve said, but at least I have confidence I’ll prevail in court. San Diego hot-shot plaintiff’s lawyer Scott Metzger did another libel read on Chapter 6 just to make sure, and I appreciate the parallel views between Scott and Fred, providing me double reassurance.

  Oh, and friends. I’ve written about a lot of them in the book. Whenever you do, you run the risk of depicting them in ways they don’t care for and maybe you’ll lose them as a friend. There are dozens herein, too many to list, and I thank them all as a group, hopefully, for remaining friends after they read these words.

  Finally, one more time, as so often in the past, this book has been an excuse to engage in the spousal abuse of neglect. My wife of now 46 years has evolved over the decades to be exceptional at letting me go as I become temporarily insular, focusing almost solely on the cranking-out part of doing a book. The nights and weekends I owe her for this book can never be repaid in full. A book like this is a labor of love and much of it from the author’s spouse. It is good to be loved.

  My career is getting old now. Much more of it is behind me than the few years I have left ahead. It has been and still will be tremendous fun. Doing a book like this, which is really a tangent from my day-to-day work, is also a lot of fun, more so than pretty much any hobby anyone can do—or any that I can imagine. And, so, I also thank you, my reader, without whom my publisher, nor any other, would indulge me in such fun. Thanks to you all.

  Ken Fisher

  Camas, WA

  ABOUT THE AUTHORS

  Ken Fisher is best known for his prestigious “Portfolio Strategy” in Forbes magazine, where his over 30-year tenure of high-profile calls made him the longest continually running columnist in Forbes’ 90-plus-year history. He is the founder and executive chairman of Fisher Investments, an independent money management firm managing over $70 billion for individuals and institutions globally. Fisher is ranked #184 on the 2016 Forbes 400 list of richest Americans and #549 on the 2016 Forbes Global Billionaire List. In 2010, Investment Advisor magazine named him among the 30 most influential individuals of the last three decades. Fisher has authored numerous professional and scholarly articles, including the award-winning “Cognitive Biases in Market Forecasting.” He has also written 10 other books, including national bestsellers The Only Three Questions That Count, How to Smell a Rat, Debunkery, and Markets Never Forget (But People Do), all published by Wiley. Fisher has been published, interviewed, and/or written about in many major American, British, and German finance or business periodicals. He has a weekly column in Focus Money, Germany’s leading weekly finance and business magazine.

  Lara W. Hoffmans coauthored numerous bestsellers with Ken Fisher, including The Only Three Questions That Count, How to Smell a Rat, and Plan Your Prosperity. She has also contributed to Forbes.com and other financial publications.

  Elisabeth Dellinger, coauthor of Beat the Crowd with Ken Fisher, is an analyst and staff writer at Fisher Investments and has been with the firm for over a decade. She is a senior editor at MarketMinder.com and a contributor on Equities.com as well as other financial news websites.

  1

  THE RICHEST ROAD

  Have a compelling vision? Leadership skills? An understanding spouse? You just might be a visionary founder.

  This is the richest road. Founding your own firm can create astounding wealth. Eight of the 10 richest Americans did this, including Bill Gates (net worth $81 billion), Amazon maestro Jeff Bezos ($67 billion), Facebook titan Mark Zuckerberg ($55.5 billion), Oracle CEO Larry Ellison ($49.3 billion), info magnate and former New York City mayor Michael Bloomberg ($45 billion), and Google wunderkinds Sergey Brin and Larry Page (around $38 billion each).1 Close behind are gambling magnate Sheldon Adelson ($31.8 billio
n), Nike’s Phil Knight ($25.5 billion), financier George Soros ($24.9 billion), Dell’s eponymous founder, Michael ($20 billion), Tesla visionary Elon Musk ($11.6 billion), and many of the richest Americans from nearly every industry and angle.2 Even better? These folks get wealthy and spawn rich ride-alongs, too. (See Chapter 3.)

  This road works with scant restriction by industry, education, or pedigree—PhDs and college dropouts are equally welcome. Continental Resources founder and CEO Harold Hamm ($13.1 billion) was the son of Oklahoma sharecroppers, grew up dirt-poor, and never went past high school.3 Instead he pumped gas, drove trucks, and learned the oil industry ropes. Now he’s known as the “world’s richest truck driver” and the titan of the Bakken shale.

  Be warned: This road isn’t for the fainthearted. It requires courage, discipline, Teflon skin, strategic vision, a talented supporting cast, and maybe luck. Those lacking entrepreneurial spirit needn’t apply—nor fear-driven folks.

  Make no mistake, it’s tough. Few new businesses survive more than four years.4 But starting a business is the American Dream. Succeeding is the realm of supermen and superwomen. The key to success is a novel twist making what you do different—the difference that works.

  Are you a person who can’t be stopped? Can you, as Phil Knight would say, “Just do it”? You must be great at your core business and the business of business. Vision alone won’t do! You need acumen, charisma, tactical thinking, and leadership skills. I’ve never met a successful founder whom folks didn’t want to follow. They’re just super. They know their product cold. They’re skilled at sales and marketing. They become great delegators. They also build a common culture into repeated waves of new employees so their firm takes on a life of its own beyond the CEO. This is a tall order.

  Before you start down this road, you must answer five critical questions:

  What part of the world can you change?

  Will you create a new product or innovate an existing one?

  Will you build a firm to sell or one to last?

  Will you need outside funding, or can you bootstrap?

  Will you stay private or go IPO?

  PICKING A PATH

  First question—what part of the world can you change? Make no mistake, founders create change, be it little or big. Ideally, you can create change where you’re passionate. Change creates value even in lousy industries. Changing lousy to not-lousy is huge! Or if you aren’t really passionate about something, it might be OK just to follow the money—focus on high-value areas. For this, flip to our Chapter 7 exercise on how to determine what fields are most valuable.

  You can also focus on sectors likely to become more relevant—in the United States and globally. For example, service industries have grown tremendously—indeed, America’s economy is almost 80 percent services.5 Technology will become more critical, not less—count on it—and with it cybersecurity. Same with health care—good or bad economy, we still want ever more medication. Financials took it on the chin in 2008, but folks always need to invest and borrow—particularly entrepreneurs starting firms. These are all areas likely to become more relevant.

  Pick a field that will only become more relevant.

  Or flip this concept a bit and focus on industries likely to become less relevant. Now, I’m not forecasting what happens to any industry in the next few years, but long-term, firms in unionized fields (like autos and airlines) die a slow and painful death, have lousy stock returns, and ultimately get replaced by something—somehow, some way—that sidesteps unions. Maybe you want to start the firm that creates the change and does the replacement. Think: Which industries need an Uber?

  Start Small, Get Bigger—Always Think Scalability

  Starting small is best. Few set out to found the next Microsoft—they start tinkering with computers in Mom’s garage. When I started my business, I started small. If you had asked me then if I’d be running a firm as big as it is today, I’d laugh. Start small, get bigger—always think about scalability. If your business is a hit, will it be foiled by its own success?

  For example, a dry-cleaning facility is small. Demand is fairly inelastic—folks always need clean clothes, even in bad times. And it’s easy entry. But for these same reasons, it’s unlikely to grow into a massive national business—it lacks scalability. Dry-cleaning chains basically don’t exist. How rich can you get owning one or a handful of local stores? Then again, maybe you become the person who cracks the scalability issue and figures how to create a huge dry-cleaning chain—sort of the Sam Walton of dry cleaning.

  Start small—think huge.

  Taco stands are tiny, like dry cleaners. Easy entry, too—just tortillas and a cart—but massively scalable. You wouldn’t pull off the highway to visit your favorite dry cleaner, but you would to grab lunch at your favorite taco joint. For example, Chipotle was a tiny regional burrito joint in Denver. McDonald’s invested, and Chipotle went national, then public in 2006. It did this by focusing on scalability and taking every advantage it could from centralized buying, mass advertising, and, yes, technology. Tiny into huge.

  NEWER OR BETTER?

  Next question. Entrepreneurs change the world in two basic ways: Creating something entirely new—filling a product or service hole—or making existing products better, more efficient. Which is for you? The entirely new crowd is like Bill Gates and late Apple founder Steve Jobs.6 Or Will Keith Kellogg—creator of corn flakes and the cold breakfast cereal genre. Or John Deere, an ironsmith who invented the steel plow and one of America’s oldest firms. Entirely new!

  Your initial motivation can be more personal—maybe changing a small slice of your world. That can pay big. My friend Mike Wood was an intellectual property lawyer frustrated by the lack of good electronic games to help his son learn phonics. Inspired by this product hole, he founded Leapfrog in 1995. When he stepped down nine years later, his stake was worth about $53.4 million.7 When Mike isn’t serious, he shows his creative side, doing a heck of a job playing guitar and singing cowboy songs. You may think you need an MIT degree to discern the next great product. The truth is, sometimes all it takes is having a need you believe others have, too—and maybe some creativity and cowboy songs.

  If you can’t visualize new products, try improving existing ones. Many of today’s wealthiest entrepreneurs simply did a fresh take on something existing—improving performance, productivity, or profit margins—making it better.

  Charles Schwab ($6.6 billion)8 didn’t create discount brokerage, but he made it widely accessible. The late Bose CEO Amar Bose didn’t invent stereo speakers. He made them sound awesome. WhatsApp cofounders Brian Acton ($5.4 billion) and Jan Koum ($8.8 billion) didn’t dream up mobile messaging—they made it easy, secure, and international.9 The Crocs cofounders didn’t invent boating shoes—they made them insanely ugly and inexplicably popular. With a market cap over $620 million,10 the Crocs founders are laughing all the way to the bank (wearing ugly shoes). These folks found new, more profitable ways to deliver old functions—which generated wealth, created jobs, and aided our nation’s growth. Simply stupendous.

  Efficiency and lower costs through building proprietary distribution is another way to innovate. That was Walmart founder Sam Walton’s way—the low-cost provider. His vision left his three surviving children a legacy of over $35 billion each.11

  You could try the reverse of Walton’s way—intentionally make something simple really, really expensive. Like Ralph Lauren (net worth $5.9 billion),12 founder and CEO of Polo, with his pricey, profitable eponymous clothing line. He’s branched into outdoor wear (he regularly designs US Olympic gear and at one point outfitted Aspen Skiing Company’s ski patrol13—how upscale can you get?), as well as home furnishings, fragrance, and even something as simple as house paint. Lauren discovered a great branding strategy could persuade rational people to pay huge premiums for the most basic men’s pants. Go figure! Vera Wang is another fashion innovator who built a fortune taking traditional white wedding dresses to extremes. Some gown
s run more than $20,000, with huge profit margins. This takes a convincing, innovative brand—tough to do!

  You must choose—fill a product hole or innovate on an older theme?

  BUILT TO SELL OR BUILT TO LAST?

  Third key question—what are your future plans? Is this firm one you’d like to make last for generations? Or is it one you want to build, grow, sell, and walk away from? Either is fine. There’s nothing wrong with building a business you don’t want to run forever. Some folks want a legacy. Others just want to cash in. The average founder won’t want to do what it takes to create a legacy. But lots of founders have the stuff to build a business and sell it for $5 million, $20 million, even $500 million, and move on. Up to you!

  Built to Sell

  Building to sell is easier. Succession management is less of an issue. You find some enticing product hole or improvement. Then you think like a buyer—“What would make someone want to buy me out?” Answer: profits or profit potential. Also, your business must be transferable—which means you must be replaceable. Building to sell may make you wealthy but generally doesn’t create mega-wealth—and that’s fine. Remember those Nantucket Nectars commercials? “Hi, I’m Tom. And I’m Tom. We’re juice guys.” The “two Toms” started serving homemade juice to tourists from their little boat in Nantucket in 1989. In 2002, Cadbury Schweppes envisioned huge profit potential, selling a burgeoning brand through their already-huge existing distribution channels. It bought them out for $100 million.14 Neither Tom is on the Forbes 400, but they’re likely satisfied with their lot.