Wealth is Largely Decided by Luck and Chance

Almost two decades ago, in my mid-20s, I saw a documentary about the lifestyle of heirs to very large inherited fortunes made by Jamie Johnson- himself an heir to the Johnson & Johnson family fortune. I found that documentary, known as ‘Born Rich (2003)’ interesting for many reasons- but one stuck out more than any other. The heirs to these billion dollar fortunes were, to put it mildly, rather mediocre. If they hadn’t been born into a super-rich family, they would have almost certainly have ended up working at some generic office in a nondescript office park or downtown high-rise.

In other words, they did not posses any abilities which would have allowed them to replicate the success of their ancestors and this got me thinking.. how did their ancestors end up becoming so rich? The more I looked into this issue, the more it became obvious that the most important factor for becoming extremely rich (or even moderately so) was some combination of luck and chance. In this rest of this post, I will explain this view with multiple examples so that you too can see the obvious.

Let me start with an interesting anecdote about most of my cousins and classmates who stayed on in India, while I moved here after my undergrad. As it turns out, the majority of them now enjoy a lifestyle and wealth equivalent to or better than the median upper-middle class person in this country. Notably, the amount of money they make (inflation adjusted) is far more than their parents- even though they were often got into similar professions. So how did this occur? Why such a large increase in the amount of wealth between those two generations, when they had roughly comparable educations and professions? The simple answer is ‘their year of birth’.

The generation of my parents and their cousins came of working age in the 1960s and 1970s, at a time when growth in the Indian economy was almost completely stifled by dumb bureaucrats. The period between 1947 and 1991, known as the ‘License Raj’ era, saw anemic growth even though things started picking up in 1980s. Consequently, the job opportunities available to them were poorly compensated and there was an entire bureaucratic structure to stop them from improving their lot. As mentioned above, things had started to change by the 1980s, at least in the part of India where I grew up, but it took an especially a pretty bad foreign exchange crisis between 1989 and 1991 for things to really start changing on a large scale.

Once that process started, there was a massive increase in both number and size of corporations along with a similar increase in demand for employees with required skills. Prior to that, any person with a decent education in India had to permanently move abroad, usually to a western country, to get a job which paid enough to enjoy what one might consider to be a middle-class lifestyle. But by the mid-1990s, this was starting to change. The 1990s and 2000s were also the decade when all those educated children of the generation who came of age in 1960s and 1970s hit the job market. It does not take a genius to figure out what happened next.

The very brief version of the story is as follows: some of the first employees of many corporations which would later become very large came from the same generation who had entered the workforce in the 1990s and early 2000s. This age cohort were not only in the right place at the right time, but had far less competition than later ones due to of the significantly lower number of universities and colleges in India at that time. As corporations grew and newer ones kept coming up, they also climbed the corporate ladder much faster than previous and subsequent generations. To make a long story short, they ended up became very successful and benefitted to the fullest extent from the economic liberalization of India after 1991. Their property and other investments also gained far more value over that same time period.

This is not to say that subsequent generations have done much worse, but it is clear that the speed at which this particular cohort climbed the corporate ladder will likely never be equaled in the near future. The generation in India which was educated and came into age during the 1990s and 2000s hit the proverbial jackpot. As some might notice, this sounds a lot like how the Baby Boomers in the West ended up getting an incredible deal on many fronts due to when they were born. Not only did they enjoy an inexpensive education, decent paying stable jobs and massive increases in the price of their homes, many also ended up with nice pensions. But what do these examples have to do with becoming rich, very rich and super-rich?

Let me take you back to 1977. While it might just have another ordinary year for most people in the world, the first commercial products released by a few small companies founded in that year would end up becoming massive success stories and a number of them are still around today. To those who did not catch what I am talking about, here is a list of personal computers (PCs) and gaming consoles released that year. Yes.. the Apple II, TRS-80, Commodore PET and Atari 2600 were all released in the same year. Microsoft also first demonstrated BASIC in 1975, and almost every single one of the first generation of PCs could run it. There are, of course, a number of reasons why the first successful PCs were all released in 1977- ranging from release of first affordable CPUs (Intel 8080/8088, 6502, Zilog Z80 etc) just 1-2 years before and maturity of other supporting tech necessary to build and sell them at an affordable price.

Note that even those corporations from that list which have not survived to 2023 did pretty well in the 1980s and 1990s. Now ask yourself a simple question, other than the IBM PC (1981) which was backed by a massive multinational corporation, have there been any PC brands and system architectures which had such a massive and lasting influence on the future of that class of products. And I did not forget about SGI (1982) or Sun Microsystems (1982). Unless your PC making corporation started sometime between the late 1970s and early 1980s, you had no real chance to enter or remain in that field as a leader. BTW, major clone manufacturers were also founded around that period- Compaq in 1982 and Dell in 1984.

Moving on to pivotal social media and related companies. Friendster was founded in 2002, Skype in 2003, FaceBook in 2004, YouTube in 2005 and Twitter in 2006. Sure.. others which were later acquired by FakeBook were founded a bit later- Instagram in 2010, WhatApp in 2009 etc but you get the point. The first successful ones ended up dominating the field. Google was founded in 1998 and Amazon in 1994. Now ask yourself, could someone who was equally or even more talented replicate the success of those who founded the first somewhat successful corporations in those areas? Or just look at how Apple benefitted from producing the first widely successful MP3 player (iPod), touchscreen smartphone (iPhone) and touchscreen tablet (iPad).

Still not convinced? Have a look at the ‘Gilded Age’ in late 19th century USA. Why did this country produce so many obscenely rich people during that period? And we are not just talking about the Rockefellers, Carnegies, Mellons, Vanderbildts or Astors. Those were just the richest and most famous of that bunch. For every one of them, there were at least a dozen who were a bit less rich and not as famous. But most of their wealth came from far larger trends. John D. Rockefeller’s immense fortune had everything to do with him entering the oil producing/refining business at the perfect time- specifically when there were only five primitive refineries in USA and just prior a huge global increase in demand for kerosene in late 19th century.

Rockefeller may been a shrewd businessman but his incredible success had everything to do with being a very early entrant to the field, combined with USA being the major oil producer and exporter for decades in combination with a massive global increase in demand for his products starting with Kerosene and moving onto Gasoline, Diesel etc. Andrew Carnegie similarly benefitted from working in the right places at right time to benefit from very early exposure to first Telegraphs, Railways, Oil companies which ended up leading to his Steel Empire. It also helped that USA has massive newly found reserves of coal and iron ore in conjunction with a massive increase in global demand for Steel. He may have been smart, but he also got very lucky.

Cornelius Vanderbilt was also at the right place at just the right time to benefit from the incredible effects of the Steamboat revolution and Railways on USA. Specifically, he was perfectly positioned to benefit from the massive increase in demand for the latee, in the period between 1850 and 1870s-1880s. John Jacob Astor benefited from having enough money from his fur trading business to massively invest in cheap NY real estate at the beginning of the 19th century. The rest, as they say, is history. So what does all of this mean and what can we learn from it?

Wealth, but especially extreme wealth, is largely decided by luck and chance. It helps to be hard working, smart and shrewd to make full use of the opportunities provided by fortune. But for every person who makes it big, there are probably a dozen or more just as capable (or even more so), who end up far less successful than the lucky one who managed to hit the jackpot.

What do you think? Comments?