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How The Wealthy Really Are Different From Everyone Else

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In my younger and more vulnerable years my father gave me some advice that I've been turning over in my mind ever since. "Whenever you feel like criticizing any one," he told me, "just remember that all the people in this world haven't had the advantages that you've had.”

- F. Scott Fitzgerald, The Great Gatsby


Why do some people become rich while many others struggle just to stay afloat? Is it luck? Are the rich simply luckier than the rest of us? Is it intelligence? Are the rich the brightest society has to offer? Is it hard work? Do the rich put in more effort toward their goals than their peers? Or is it ruthlessness? Do the rich throw ethics aside and value success above everything else?


Rather than get political – everything seems to be political these days, I thought it made sense to pass along a brief article on the subject published in Forbes Magazine, by Rainer Zitelmann.

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New Psychological Studies: How The Wealthy Really Are Different From Everyone Else

Rainer Zitelmann

May 8, 2019


The author F. Scott Fitzgerald is credited with saying: “The rich are different from you and me.” And Ernest Hemingway is supposed to have responded: “Yes, they have more money.” In fact, the actual words Fitzgerald used in his short story “The Rich Boy” (1926) are: “Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft, where we are hard, cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand.”


People have always suspected that the rich are somehow ‘different,’ not only in terms of what they possess, but in their personalities. However, there are not many scientific studies that can either confirm or refute this thesis – neither in the United States, nor in Europe. Now, a team of six German economists and psychologists has conducted a large-scale study: They interviewed 130 wealthy individuals and used the results to derive a psychological profile, which they compared with the population as a whole.


Big Five Test


Of the various models developed by psychological researchers to describe personality types, it is the Big Five model that has largely come to dominate over the past few decades. This latest wealth study used a condensed version of the Big Five test to distinguish between five core personality traits:


Conscientious: Describes people who are thorough, meticulous, diligent, efficient, well organized, punctual, ambitious and persevering.


Neuroticism: Individuals with a high degree of Neuroticism tend to be nervous and frequently worry about everything and anything that could possibly go wrong. They tend to react impulsively and, overall, are not particularly psychologically stable.


Agreeableness: Individuals with high levels of Agreeableness have a pronounced desire for harmony; they have a tendency to back down too quickly and are frequently too trusting.


Extraversion: Individuals with high Extraversion are talkative, determined, enterprising, energetic, and courageous.


Openness to Experience: Individuals with high Openness to Experience are imaginative, creative, and curious.


When you compare the personality traits of the general population with those of the researchers’ wealthy interviewees, the following patterns emerge:


· The rich are emotionally more stable, and therefore less neurotic

· The rich are especially extraverted

· The rich are more open to new experiences

· The rich are less agreeable, which means they are less likely to shy away from conflicts

· The rich are more conscientious.


In addition to the Big Five test, the researchers also investigated two other personality traits: narcissism and internal locus of control. Their findings:


· The rich are more narcissistic

· The rich exhibit a stronger internal locus of control. This means that they are more likely to agree with statements such as “I determine how my life turns out” than they are with statements like “What you achieve in life is mainly a question of luck or fate.”


What Makes the Superrich Tick


The results of this latest wealth study are consistent with those of my doctoral dissertation on “The Wealth Elite,” which was based on interviews with 45 wealthy individuals. With only a few exceptions, most of the interviewees were self-made millionaires, and the ‘poorest’ were worth between 10 million and 30 million euros. Most, however, were worth significantly more, between 30 million and one billion euros, and some even more.


This study on the psychology of the superrich also came to the conclusion that the rich are psychologically very stable (i.e. not very neurotic). It also showed that they are particularly open to new experiences, more extraverted, more conscientious – but not necessarily agreeable.


In contrast to the recent survey of 130 wealthy individuals mentioned above, the study of the superrich involved in-depth interviews of between one and two hours each. In addition, the superrich interviewees not only completed a condensed version of the Big Five test, they took the detailed version with 50 questions.


One of the key findings was that the superrich are frequently nonconformists. They enjoy swimming against the prevailing current and have no problem contradicting prevailing opinion. Another result: the superrich are more likely than others to make decisions based on gut feeling. They tend to rely more on intuition than on detailed analysis.


And, most importantly, they have a completely different approach to dealing with defeats and setbacks than most people. Across the population at large, people like to take credit for their successes while looking to assign the blame to others for defeats and setbacks. In this, the superrich are quite different, as the interviews showed: They seek to identify the causes of setbacks in themselves, not in external circumstances or other people. This gives them a feeling of power: “If the fault lies with me, I can change it. I am in control of my own life.” There are many reasons why some people succeed in becoming rich and others don't, but the specific combination of personality traits that both studies identified is certainly one of the reasons. Rich people become rich because they act differently from others. And they act differently because they think, make decisions and react differently than most people. Apparently, Fitzgerald was right: “The rich are different from you and me.”

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The ongoing trade negotiations with China have been dominating financial markets over the past couple of weeks. Most people who study the Chinese believe they historically tend to play the “long game.” Meaning they are willing to take short-term pain for a long-term win as their history spans thousands of years while ours merely spans hundreds. I have no special insights into who will prevail in this battle, but I will say from an economic standpoint it appears China, a low-cost producer and exporter has the most to lose financially if a deal (no matter how toothless) is not agreed upon.


Beyond the headlines, I am becoming more sympathetic to the stock market melt-up scenario. Similar to the Fed’s easy money response under Greenspan during the 1998 Russia economic crisis and the failure of hedge fund Long Term Capital Management, today’s Fed led by Jay Powell also blinked when global stock markets dropped in the final months of 2018. It appears political pressure coming from President Trump could prove unbearable and frankly not worth the risk to the markets or the economy as our sitting President continues to apply pressure on the Fed in an attempt to help him win re-election in 2020. Americans have little stomach for either economic or asset value declines, which means short of an inflation scare (unlikely) money stays easy and likely gets easier. Stocks up and bonds up over the coming months.




Sincerely,

Justin Kobe, CFA

Founder, Portfolio Manager & Adviser

Pacificus Capital Management


Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Cambridge and Pacificus Capital Management are not affiliated.

Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. These are the opinions of Justin Kobe and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

Investing in the bond market is subject to risks, including market, interest rate, issuer credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies is impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Diversification and asset allocation strategies do not assure profit or protect against loss.

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