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As I mentioned last week, now is an important time to get busy making money. It’s not just our unstable politics, our growing debts, and the threat of inflation. It’s technology and the sheer pace of change we’re seeing in our society and culture. It’s an upheaval. We learned just a few days ago, that the leading company in the AI space thinks that we will achieve Artificial General Intelligence sometime in 2025. This will almost certainly be a world-transformative moment. Whether it ushers in a Golden Age or some dystopian nightmare, we will come to measure and date things in reference to it. 

“Well, in the pre-AGI days, things worked like this...but now…”. 

So now, more than ever, winning financially is a must. Whatever the post-AGI world looks like, it’ll be better to have more money than less. Trust me on this one! 

As simple as “making more money” sounds, there’s a lot of confusion and questionable information out there about just what that means. So, I thought I would dedicate some space here in Profit+ to cover the topic from different angles. Today, we’re going to start with a big, meta idea and discuss the philosophical basis for bringing more money into your life. In subsequent issues, we’re going to discuss other critical topics like intelligent financial management, saving and budgeting, and the art of investing. 

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When it comes to making money, some ways are obviously better than others. It’s one thing to work more hours at your job or pick up a few extra shifts and another to start a company or make a life-changing investment. But, to be fair, everyone has to start where they are in life and simply working more is often the only rational place to begin. 

That being said and at the risk of grossly oversimplifying our rather complex economic system, there are really only 4 good ways to make money:

1. Create Something New

2. Provide Exceptional Value

3. Have Variant Perception

4. Engage in Financial Alchemy

Let me start with the good news: while all 4 ultimately require money to pull off at any meaningful scale, they don’t at inception. In other words, these strategies are available to you regardless of your current financial situation.

Now for the bad news: while these concepts are simple to articulate, they are very difficult to execute in the real world. Otherwise, we would all be rich!

Create Something New 

Creating something new is the ultimate path to building wealth. This is where legends are made—think Elon or Jobs or Edison—and it is all about innovation. It’s Thiel’s famous “0 to 1” idea, where you either invent some new product or service altogether or at least come up with a new business model. 

Again, context matters, if you develop some incredible new technology or business model while working for someone else, that’s one thing. If you do so, while working for yourself, that’s another. Either way, you probably make a bunch of money but the latter is clearly better.

Here, the risks are high but so are the rewards. The payoff function is as asymmetrical as it gets. From a financial standpoint, it’s very much like the art world, where you either succeed fantastically or fail completely. 

Provide Value

Another way to make money is to develop some skill or capability that people really value—think lawyer, doctor, surgeon, professional athlete, computer engineer, rocket scientist…. The game here is to get really good at something that the current economy finds really valuable or to own a business that can consistently profitably produce some valuable product or service. 

The payoff function varies widely based on industry. For professional sports, it’s as asymmetric as innovation. For lawyers, doctors, and engineers, less so. However, there’s far greater consistency and predictability here and for many of these avenues, there’s a clear path where hard work can reliably payoff. 

Variant Perception

You cannot talk about making money without talking about investing. Indeed, in many ways, it is the high art of all capitalism and the perennial game of human action. Riches await those who can find good investments or beat the market! 

Because investing is a competitive endeavor, to be successful you have to be either really lucky or really smart. And you have to be smart in a certain way. You have to have what is called “variant perception,” where you can see something that is true about the world and markets that no one else can see. It’s about finding that undervalued asset or mispriced commodity or seeing the growth potential that no one else can see or backing the right entrepreneur.  

By the way, people consistently underestimate the role that luck plays in investing and financial success in general. It plays a huge role and we have this unfortunate tendency to downplay its power. Indeed, luck has made many gurus and many geniuses. We are the fools for thinking they are smart just because they have made money. More on this some other day. 

With investing, the payoff function is asymmetric but fundamentally constrained by how much capital you have access to. At the highest levels—e.g. a multi-billion-dollar hedge fund—it’s as asymmetric as they come. But if you don’t already have a lot of money or don’t have access to it, your returns are limited by how much you have to risk. It’s also inconsistent and has a lower probability of success. For every successful investor, there are thousands of failures.

Financial Alchemy

Finally, you can make money using financial alchemy, the historical favorite of the elite. Essentially, financial alchemy is about compounding financial returns off of other people’s money and/or effort. Here, we’re talking about things like lending, insurance, and taking assets and businesses with stable / rising cash flows—think real estate, utilities, and other types of moated business—and leveraging them with fixed price debt. What these businesses have in common is that they are attempts to financially engineer consistent compound returns and to scale by using other people’s money. 

For any individual deal/transaction, the payoff function may not be quite asymmetric but at scale, these are phenomenal businesses. The returns are very consistent and predictable and can be incredible when the right macro dynamics manifest. While these businesses are hard to start from scratch, working in finance has always been a good path to wealth building.

While I have categorized these as separate and distinct paths, in reality, there are a lot of blurred lines. To be successful, you have to engage in all 4 paths, in some form or another. Indeed, this is what you find when you examine the lives of many of those at the apex of capitalistic success. The Elons and Buffets of the world are playing in all 4 areas. 

Wherever you are in life though, you can apply the ideas here to make progress. I always tell people that entrepreneurship isn’t just for those who start companies. It’s more a mindset and a set of practices and values. You can be entrepreneurial in a job or even in a non-profit. Indeed, as we’ve seen from podcast guests like my friends Ibert Schultz, Afam Onyema, and Cristian Ahumada, some non-profit leaders are as entrepreneurial as you can get!  

The key to making progress is to start looking for ways to action the principles of entrepreneurship in your daily life. If you set out with the right intention and pay close enough attention you can find countless opportunities in a day to create something new, provide exceptional value, have a variant perception, or engage in financial alchemy. Make this a part of your being and the sky is the limit!

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