The Millionaire Next Door

Stocks: Not the Only Bull Market

A recent newspaper headline proposed that “the best way to get rich is the stock market.”  Building wealth via stocks or other investments is akin to growing trees.  You can’t grow oak trees if you don’t have enough money to buy acorns.  So, suggesting that the stock market leads to wealth is putting the cart before the horse.  It is not just about being frugal.  Frugality has its limits.  Some people misread the material in The Millionaire Next Door.  In the book, I mention that most Americans are not wealthy.  This is especially interesting among those who earn incomes in the good to great categories: “many of these people live from paycheck to paycheck.  These are the people who will benefit the most from this book.”  So in essence the book is designed to help those who make better than an average living. 

The probability of becoming a millionaire is quite low for those who generate low levels of income.  The median household income in America is about $50,000.  With this level of income, a married couple with 3 childlren would have an extremely difficult time becoming a millionaire.  Remember that 90% of millionaires are college graduates, and there is a high correlation between income and education.  Of the thousands of interviews that I have poured over during my career, one of the most interesting is about a multi decamillionaire who expressed how most millionaire next door types feel.  He admitted making money in stocks, commercial real estate, cattle, oil fields, even high grade antiques and precious metals.  Yet he eloquently summed up what most millionaire next door types believe:

. . . hard to be knowledgeable on a great many [investment] topics.  The best thing that I have done has been my own business and to be as good as I can in that.  That’s the mother lode that supports everything else.

In other words, the major league revenue generated from his business funded all of his other investments.  The self employed in America have 4 to 5 times the net worth of those who work for others.  But self employment does not automatically translate into big income and wealth.  Consider the following.  Of the more than 23 million small business owners who are self employed sole proprietors, their average annual net income was only $11,637.  

 Of course income varies considerably across industries.  For the 95,369 dental offices that income was $100,603.  Contrast this with the nearly 400,000 people who own restaurants and/or drinking establishments.  Their net income was only $3,814 from a gross of $111,075.  Selecting the right business is a major factor in explaining profitability and ultimately wealth.

In both The Millionaire Next Door and The Millionaire Mind, I list the types of businesses owned by the millionaires surveyed.  These businesses run from the “dull normal” to the very unique.  As an example, on p. 256 of The Millionaire Next Door, column 1, item 29 under Businesses of Self Employed Millionaires, you will find ‘”bovine semen distributor.”  Interestingly this business category was recently mentioned in a Wall Street Journal article:

. . . Julio Moreno, of Oakdale, Calif., has a freezer full of the bull’s semen that sells for at least $3,000 per unit.

If asked how he became wealthy, would Mr. Moreno say stocks or bull semen?

7 thoughts on “Stocks: Not the Only Bull Market”

  1. I think a lot of non-millionaire next door types think that getting rich in the stock market is something that happens quickly. Pick the right stock, and boom, millionaire. The truth couldn’t be any more boring. In fact, most of us millionaire next door types are plodders. We make a lot of little decisions carefully over many, many years. We focus on our studies, we pursue potentially-lucrative careers, we live below our means, and we start saving and investing from the first moment we enter the work force. Those little “good” decisions compound on one another over the years. It takes decades, but carefully squirreling away money in the stock market over a long time yields big results at the end. Some people make different decisions early in life (and end up in $50,000/year jobs), and others make different decisions later in life (and end up living month to month on handsome paychecks). It comes down to living a disciplined life your whole life.

  2. I love reading these blog posts. They contain lots and lots of wisdom. I also enjoy reading the comments almost as much as the actual blog and Marks is one of them.

    Mark – Excellent comment.. very well worded. I’ll be quoting you in the days, months, and years ahead.

  3. Great article Mr. Stanley, maximizing your income can help you build your wealth at a faster pace if your income is managed correctly.

  4. Yes I agree with Mark. For most of us millionaires, building wealth is a process. For the Hollywood-manufactured stars, it’s a quick sensation, but many average Americans are still dazzled by fame and do not “do,” but “spectate.”

    “Boring” is the word! I live a very frugal life now compared to my already frugal life seven years ago, but my net worth has been increasing at an accelerated pace. Just in the last 3 and a half years since I crossed seven figures. I have “nothing to show for it” in the sense that I don’t buy the toys I like. Much of my assets are in equities (62% of my assets), government securities, and commodities. My highest obsession is my health and has been so for decades, so I prefer having a great physique in my 50s to being an obviously sedentary deca millionaire.

  5. I’m also a below-the-radar-millionaire-next-door and would like to add the following. I suspect a lot of folks are under the impression that wealthy individuals have a Gordon Gecko level of skill in finding the most lucrative/profitable investments. They imagine someone parked in front of six flat-screen monitors, rapidly moving in and out of positions, banking profits on every trade. Although I am a real-estate and equity investor, I think investing skill is overrated. The idea is to retain a big chunk of your income stream and invest it conservatively rather than trying to maximize the return on a smaller amount of capital. That usually pushes people into high-risk investments. It’s more important (and easier) to not waste income than finding the magic-bullet investment.

  6. Interesting post.
    I am a 43 year old Super PAW with an annual gross income of approximately $75k.
    My investment portfolio consists primarily of mutual funds and shares in what I would describe as “unglamorous” publicly traded corporations that have slowly but surely appreciated in value.
    Incidentally, if you see me shopping at a discount department store or driving in my 2004 Toyota with 113,000 miles, you will probably not guess I’m wealthy!

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