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19-March-2006
How to be Rich in Business, Markets and Life, by Victor Niederhoffer

I'm sure that many of us recall the anecdotes about J Paul Getty, the world's richest man in the 1950s. He made his workers pay for their own telephone calls with a pay phone at his home, and would choose to wait half an hour at the roller-skating rink with his date if it meant that he could get them in for half price.

Many of us have learned things from him, like how you should always be a contrarian if you wish to succeed in business, and how you should read Henty to get a great introduction to English and American history. Getty makes the Sage of Nebraska look like a spend thrift and was a technical genius in the spirit of Howard Hughes. Having invented new methods of finding, extracting and drilling oil, (one time a well was stranded, as the drilling team was unable to fish out a drill bit that had gotten stuck in it. Getty went out and bought a six foot marble shaft from the local cemetery, had one end cut to taper and threw it down the drill site. The heavy slab slammed the bit out of the way and the technique is now called the Paul Getty Special!)

Getty made money hand over fist in wildcatting, hotels, stock market trading, real estate, and every aspect of the integrated oil field industries, and therefore can command our respect and has much to teach us.

At six dollars retail price, his 1965 paperback How To be Rich is about the best buy that anyone can make for improving their abilities in business and life. The flavor of the book is best captured for me in the following paragraph:

All my sons chose to enter the family business. Each was allowed to start right at the bottom of the ladder. My sons served their apprenticeship by serving customers in filling stations ... they sold gasoline and lubricating oil, filled batteries, changed tires, and did their share of cleaning grease racks and sweeping the premises where they worked. Despite this, innumerable casual acquaintances have blandly asked me to do them a favor and give their sons or unemployed relations executive level positions in firms I control. They never seem to understand why I turn them down and they almost always become highly indignant about it.

The best section of the book is about habits that successful business people should have. They should be optimistic and cheerful, relaxed and patient, thrifty, and pause to review their reasoning before making decisions.

Executives would do well to periodically make an inventory of the things they do in connection with their own work that are useful and productive habits, write them down on a piece of paper, and eliminate all those that remain.

A key point is what Getty refers to as the imp of the impossible. Never undertake the impossible, but also never accept a no on what is possible.

Another chapter in the book is on millionaire mentality. That mentality is to be imaginative and farsighted, while at the same time taking care of the little things that add to to the bottom line. A nice technique of Getty's here was to instruct his book keeper to shortchange by five dollars each of the key managers in any of his businesses who needed to pay more attention to cost-cutting. After doing this you can expect to have each of the managers in your office to upbraid you within an hour of the pay check. Then Getty would say to them:

I've been going over the company's books. I've found several examples of what I consider unnecessary expenditures which could cost the company's stockholders many tens of thousands of dollars. Apparently you paid little or no attention to them, and made no effort to reduce the expenses or correct the situation, yet when your own pay check was involved you were here in a minute.

As to what makes a good executive, Getty believed that the ability to lead is key and that leadership should be done by example -- every job that your employees do, you should know how to do better. After teaching his employees, Getty would then give them the latitude to execute the goal on their own. One rule that Getty follows which every good businessman might do well to adopt is always to praise an employee in public and criticize him only in private.

In addition to making money in every aspect of the oil business, Getty made fortunes in stocks and real estate. He has chapters on the techniques he used in both fields. His stock market tips boil down to buying stocks when they sink low and holding them for the long term, and he describes how he made a fortune by doing this in 1932 during the height of the depression. Unfortunately, anything like this strategy in the 2000-2002 season would have caused untold harm and disaster, with many stocks that dropped to seemingly good prices -- like half of their former -- then proceeding to drop another 95% from that level. Again. The rest of his advice is the kind of untested thinking that so many of the value investors are prone to, like to wait until stocks fall below their book value and then to buy them. The problem is that during the periods that you are waiting you will be foregoing the steady beat of the 10% a year return for a random selection of individual stocks, that we have seen over the past century.

One of the most poignant and useful chapters for me was on how to deal with adversity. Getty points out that everyone in business is going to have to deal with disaster now and again. He recommends being prepared for adversity and then regrouping to attack the enemy.

When his troops have been rested and reinforced, and his supplies replenished, the successful General launches the carefully planned counterattack ... He makes feinting and diversionary assaults, aims his major blows at the weakest point in the enemy lines, and holds back his reserves until he can commit them at the decisive moment.

The business of wildcatting oil depends on good research, strong business-like habits, the ability to come back, proper leadership. It depends on all the important input qualities necessary to create a proper balance of reward relative to risk amid a constantly changing landscape of uncertainty, with its innumerable dry holes and the ultimate return for undertaking risky adventures. It is very similar in its broad outlines to our own field of spec-investing.

Getty's book is far better than all other self-help books, which tend to be written by great salesmen of self-help books rather than by businessmen successful in innumerable fields and in every kind of positive and negative economic condition, as Getty was. I can give this book my highest recommendation as it is filled with useful tips drawn from the real-life experiences of one of the most successful business persons ever. Those who absorb the lessons of How to be Rich, a book written by a master businessmen -- the Ted Williams of his field -- will be much augmented in all of their undertakings.

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