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The Algebra of Wealth

Scott Galloway@profgalloway

Published on January 28, 2022

T-minus 17 days until Pivot MIA, a new three-day event I’m hosting with Kara Swisher. We’ll be joined by the CEOs of Airbnb, the New York Times Company, WeWork, and Parler, and by my role models, professors Aswath Damodaran and Jonathan Haidt. Join us at the Faena and 1 hotels, February 14-16. Purchase your pass here. No Mercy / No Malice subscribers are also invited to an exclusive meet & greet with me and others at the opening night party — just send us a note at, and we’ll put you on the list.

Switching gears to the market, shit has gotten real the last few weeks. Or less unreal than it has been in the past 13 years. I’d like to say I sold in November, but my portfolio is down 20%+. And yet, I feel … fortunate. This time around, I’ve learned. I know the algebra of wealth, but it took me several decades to develop the discipline to practice it.

The valuations of stocks and assets have changed dramatically in the past few weeks. But the song of wealth creation stays the same.

[The following was originally published on February 12, 2021.]

I know a lot of people who make an extraordinary amount of money, but few people who are rich. Rich is having passive income greater than your burn. People on a path to money focus on their earnings; people on a path to wealth also focus on their burn. Joseph Heller said, “It takes brains not to make money.” (I think he was casting a favorable light on his starving artist friends.) This may be true, but it definitely takes brains to hold onto it (money).

My father receives $48,000 per year from Social Security and his Royal Navy pension (he was a frogman). He spends $40,000, and that’s enough to make him happy. He swims every day, watches a shit-ton of hockey (Leafs fan), and on Fridays goes to the Taco Stand (an actual restaurant in La Jolla) and orders something called a michelada. (Apparently it’s medicine delivered in a chilled, salt-rimmed glass — he claims his hair is regrowing and that he’s sleeping better. I believe half of that, so … I believe it.) Anyway, it’s not your income, but your income-to-expense ratio, that determines if you’re rich.

My observation is that there are four variables in the algebra of wealth: focus, stoicism, time, and diversification.

People conflate a lack of focus with a lack of talent. Intelligence and talent are correlated with success, but the strongest signal of future success is your perseverance and resilience: what the books in airport bookstores call “grit.” Unless you are supremely disciplined, your career will have to be something that gives you some enjoyment. But don’t mistake focus for your “passion.” People who tell you to follow your passion are already rich. Follow your talent. The accoutrements that accompany being great at something (relevance, admiration, camaraderie, money) will make you passionate about whatever “it” is.

Focus on putting yourself in a position to be financially successful. Get certified: In a digital world, much of the corporate world decides whether to swipe right or left based on the logos (aspirational universities/firms, vocational certifications, etc.) on your LinkedIn page.

Sector dynamics will trump your talent. (I realize how awful that sounds.) However, someone of average talent at Google has done better over the past decade than someone great at General Motors. Be thoughtful … any opportunity you have when you’re young to choose among different paths is a profound blessing.

Look for the best wave to ride. Twenty-five years ago, I chose to paddle into the e-commerce wave. My first effort (Red Envelope) failed. Even worse, it failed slowly … over 10 years. I stuck with it and started a firm that helped other firms develop e-commerce strategies (L2) and have owned Amazon stock for 12 years. It took me a while, but the strength of the wave kept me moving, and carried me to the beach. I just read the last sentence and am fairly certain I will never be a truly great writer. Anyway.

Focus on your relationships. Family and friends are essential to long-term happiness, and the most important relationship is with your spouse. The most essential economic decision you make will be who you decide to partner with or, more specifically, who you decide to have kids with. The net worth of married people grows 77% larger than that of single people. Marry the right person, and then invest in that relationship every day. You’ve wagered 50%+ of your net worth, and your value in the marketplace, on that partnership. Don’t keep score, and bring forgiveness, generosity, and engagement. In sum, show up.

Determine what you can and can’t control. You can control your reactions to temptation — a lack of discipline is the antichrist to economic security. Our society of superabundance makes this difficult. Billions of dollars are spent every year on schemes to manipulate our natural impulses into spending more money, consuming more fat, and believing everyone around us is more successful than we are. The upgrade from economy to premium to business to first class to private jet can seem like an investment in yourself — it’s not. The most powerful forward-looking indicator of your financial security is not how much you earn, but how much you save.

A specific activity accelerates in a bull market, conflating luck with talent and dopamine with investing. Diabetes, high blood pressure, and sharing a screenshot of your Robinhood gains are maladies of industrial production that exceed our instincts. Trading — distinct from “investing” — can feel like work and productivity. It’s not. It’s gambling, but with worse odds and no free drinks. One study found that over a 12-year period, only 5% of active retail traders made any profit at all. This time around, apps including Robinhood, with its dopamine-triggering confetti, and 24-hour-a-day, volatile crypto trading are the drugs of choice. Most day traders will be fine, suffering affordable losses … most. However, for many there are darker outcomes. Young men are especially vulnerable, as they are more risk aggressive. Between 80% and 85% of day traders are men, and 23% of men who gamble become addicted (as opposed to 7% of women). Most of us can gamble without becoming addicted, just as most of us can drink without becoming an alcoholic — but know the risks.

Stoicism is not just about remaining calm in the face of temptation. It means having good character. Succeeding in life is much easier if other people want you to succeed. We have a mental cartoon image of rich people as grasping and cruel. The reality, in my experience, is that wealthy people, in general, demonstrate strength, acumen and … kindness. Economic security is in the agency of others, and you want others to want you to win.

I spent the first 40 years of my life chasing some form of Western relevance so I could register more dopamine surges. Nothing was ever enough. More, I want fucking more … now. The pursuit always managed to distract me, and I was unable to get the engines of success and fulfillment firing on all cylinders. This stage of my life was characterized by fits of progress, getting close, but never achieving anything resembling the potential my opportunities warranted. In one moment that all changed for me: When my first son came rotating out of my girlfriend 13 years ago. In sum, shit got real. I was young enough to be selfish, but old enough to recognize it and acknowledge that I needed to change. I decided at that moment (no joke) to bring more focus and discipline into my life.

“Time is the fire in which we burn,” says the poet. It is our most inflexible and valuable commodity, the one thing with which you should not be generous. Squander money, you may earn it back. Squander time, it is gone forever.

Re investing: The long term is our ally, the short term our nemesis. The gangster authority on time, Albert Einstein, supposedly remarked that compound interest is the eighth wonder of the world. Yet our brains are not wired to understand this. When I was 26, I thought of being 46 as the distant, irrelevant future. Now that I’ve reached that age (actually I’m 56 … ugh), 26 feels as if it was last year. But small investments I made a decade-plus ago have grown into the base of my economic security.

Compounding is not just a financial thing. The most important returns in life come from the compounded effects of our investments over time, whether in our finances, careers, hobbies, or relationships. Change the timescale of your life, and you change your life.

In your life, focus is key. Plan A for financial security is being great at doing something the market values highly, and leveraging that into income and/or equity in a business. But Plan A squared is investments. And with investments, focus is to be avoided. Diversify and, unless your plan is to be in the finance industry, be sure that your time spent tracking/trading does not distract you from what is/should be your source of income and savings.

Investing over the long term pays out, but there are always dips along the way. Diversification is kevlar — with it, bad decisions will still hurt, but they won’t prove fatal. Diversification, in other words, is your bulletproof vest.

A few of my many egregious investing errors:

  1. Red Envelope: I was so emotionally involved (I co-founded the firm in 1997) that I kept putting money into the business and ended up losing 70% of my net worth when it declared Chapter 11 in 2008. I had no kevlar, as I was terribly concentrated in one asset.
  2. Netflix: Yes, Netflix. I believed in the company, respected its management, saw its potential, and bought a lot (for a professor) at $12/share. That’s the good news. The bad news is that I sold it six months later at $10/share to capture a tax loss and never re-bought. Today it’s at $558. Not that it doesn’t haunt me … every day. Nope, definitely not.

Most of my major mistakes in investing can be distilled down to two things: not diversifying, and trading.

Mistake No. 1 (Red Envelope): Almost fatal. I was 43 and outwardly successful.  But with the birth of my first son, I was feeling more economic anxiety than I had since I was a kid. (I grew up in a household with a single mother who worked as a secretary.) Mistake No. 2 (Netflix): Painful but nowhere near fatal. I had eggs in other baskets (i.e. Amazon, Apple, Nike, Oracle). In the end, my kevlar has been not allocating more than 10% of my net worth to any one investment. That doesn’t mean I don’t look for opportunities that offer asymmetric upside — I do. I just don’t ever take off my kevlar. You don’t need to be a hero to get to economic security.

Not Your Fault

These principles have served me well, especially as I’ve become more disciplined about following them. But while I wasn’t born into wealth, I did benefit immensely from the circumstance of my birth. My smartest move was to be born a white male in California in the sixties. An America that loved unremarkable kids presented me with a world-class education (at the time, UCLA had a 60% admissions rate and cost just $400 a semester), thrust me into the financial boom of the 1980s, and, through sheer luck, positioned me to catch the internet wave.

Since I set foot on the UCLA campus in the 1980s (feels like just last year) we’ve told ourselves we remain the Land of Opportunity, and that we’re making progress to remedy our historic imbalances. Yet as illustrated by one metric after another, economic security is harder to obtain, not easier, and is becoming less a person’s individual fault and more a result of circumstance … America is becoming less, well, American.

Are we headed for another revolution? I don’t know, but we are due for another righteous movement. What can you do in the face of a system that profits off you becoming overweight, indebted, divided, and addicted? Answer: Rebel.

Focus on what matters. Be a Stoic in the face of temptation. Use Time to your advantage. Diversify your investments.

In any economic climate, how do we build economic security, foster love, and find joy? How do we get rich?


Life is so rich,

P.S. Malcolm Gladwell has a similar take on focus: “There is no way around hard work. There are never any shortcuts, and anyone who tells you there’s a shortcut is blowing smoke.” He’s guest lecturing on the Product Strategy Sprint in just a few weeks. Sign up now.



  1. Everett says:

    You are WAY off about Netflix. If you bought at $12 when it first started trading, then because of the many splits along the way, today’s stock price would be more like 20,558!!!! Believe me, I agonize about that mistake constantly…

  2. Nicole Wallis says:

    hi hello

  3. Joseph says:

    An interesting read. I enjoyed it so much. And learned a lot from it.


  4. Srinivasarao S says:

    Sincerely shared Your experiences Sir, Helpful to all. Thanks a lot

  5. Robert Fitzpatrick says:

    … unless that great person at GM saved their money and invested it in Google while the average guy at Google sold his stock as soon as it vested and spent it on luxury cars. 🙂

    • Tim says:

      Duh. The point was that the same labor can be valued way more solely based on the employer / industry. There’s no inherent relationship between employer and personal finance discipline.

  6. Nabil Kouchouk says:

    Love the formula and insights Scott thanks for sharing

  7. Old guy says:

    Great article, great lessons, well distilled wisdom. Can you write a piece about creating/managing priorities, activities, values and finances for retired folks? Thanks from a fellow Boomer.

  8. Muhammad Khan says:

    Great article – Thanks

  9. Esther UDIA says:

    Lovely article. Real-life advice.

  10. Horacio says:

    Hi Scott, real words for real life. Thanks

  11. Charles Ramsey says:

    The best thing you have written. Thank you not for me, for my son.

  12. Toronto manz says:

    Young and lonely men are paying tens of thousands of dollars for a fart in a jar from an OnlyFans creator.

  13. J says:

    “Remember that time is money.” Benjamin Franklin

  14. Kheri says:

    This is the best financial article I’ve ever read. Excellent advice! Saving for future reference, note taking, and strategy building. Well done!

  15. Scott says:

    Love it! I have similar thoughts just can’t articulate them as well as you have in this piece. I am sending off to all my kids.


  16. Joel says:

    I really appreciated the line–“Succeeding in life is much easier if other people want you to succeed.”

    I’ve always hated the idea that you’ve got to make enemies to be successful as if everything in life is a zero-sum battle. That may be one path to success, but too often I think career strategist or gurus, they become myopic and carry on as if there is one way to pursue a career (or a life) rather than a plurality.

    Thanks for the line. Will jot it down in my memorable quotes journal. 🙂

  17. Mo says:

    Just want to say that I LOVED Red Envelope. I was crushed when things ended. It was so classy. For all the disappointment, just know there were many happy customers. Cheers!

  18. Renee Yeager says:

    I truly loved this, Scott. Sent it to my son in college telling him to read it and refer back to it often. I hope he takes your advice. Thanks for sharing your experience and insights.

  19. Richard Nye says:

    You really need an editor. Or if you have one, fire it. Your rants are thoughtful and occasionally stimulating. Your enthusiasm is contagious. I send your comments to my adult grandchild and they enjoy reading them. But WHY do you have to degrade your prose with 4-letter words. It strikes me that you fear you can’t be cool and convey your message without locker room expressions.

    • Al says:

      I agree. Occasionally the “f word” adds punch to a thought, but considering that you are reaching out to millions, keep it clean. But this guy is writing to the masses. And the average American these days isn’t very intelligent or rational (i.e., a dumb-fuck).

  20. Paul Terry says:

    What can I say Scott? Every time I read / listen to your work, I laugh out loud and learn something now. The best possible combination. Keep on keeping on, and keeping us all grounded as to where much of our success comes from – a heady cocktail of good luck, timing and stoicism, pluses some other fairly random influences.

  21. E. Raza says:

    Just joined your newsletter – This is a great piece, resonates a lot. Curious: what’s your take on the hustle culture?

  22. c cook says:

    Excellent column. But, one nit. It is important to LISTEN to others with different opinions. That is how you avoid the rocks when new technology appears. Your event seems to feature leftist NYC focused speakers and organizations. NY Times lost all sense of objectivity when Classified Ad revenue went away and they had to appease left readers to pay the bills. Maybe speakers from WSJ, if there was a chance for some real debates. WeWork and AirBnB are successful because of luck as much as skill, which is the hallmark of leftist CEOs. Maybe a company the actually makes something real would be a good addition. Since you complain about the cost of education, call out the reasons. Question ‘diversity’ and useless majors that drive up all college costs. THAT would make the audience squirm a bit. And, growth comes from confronting truth, as the left tells us. Good luck.

  23. Sabir Semerkant says:

    When the Tech Bubble burst in April 2000, you could’ve picked up Amazon at $4-5 per share and drop-in $10,000. Today it would be $22 million. Hind sight is painful. I feel for your Netflix timing. I really liked Red Envelope as a startup back in the day. You live and hopefully learn.


    Great insight Scott

    Thanks for sharing

  25. Cyril says:

    From “Pattern Recognition” by William Gibson: In response to the protagonist’s “I know it in my heart” comment “The heart is a muscle,” Bigend corrects. “You ‘know’ in your limbic brain. The seat of instinct. The mammalian brain. Deeper, wider, beyond logic. That is where advertising works, not in the upstart cortex. What we think of as ‘mind’ is only a sort of jumped-up gland, piggybacking on the reptilian brainstem and the older, mammalian mind, but our culture tricks us into recognizing it as all of consciousness. The mammalian spreads continent-wide beneath it, mute and muscular, attending its ancient agenda. And makes us buy things.”

    Gibson, William. Pattern Recognition (Blue Ant) (p. 69). Penguin Publishing Group. Kindle Edition.

  26. Jose Augusto Chez Sanchez says:


  27. Frederic Dominioni says:

    Thank you Scott for yet another great No M2 piece! Indeed, “Time is the school in which we learn, and the fire in which we burn”…For anyone looking to quickly understand and accelerate the process of applying your Algebra and equation of Wealth, I’d just add that building mental and physical “kevlar” is really really important. So get on your WHM breathing routine, and don’t forget to plunge in that 52 degree Pacific water…You’ll thank me for it. Peace. (casadelazul_baja)

  28. Frances 🇨🇦🇲🇶 says:

    Enjoy your newsletter and podcasts on a regular basis. Have passed the links on to friends who also enjoy them. It’s all informative. Love your humour and orator skills. You’re a keeper on my Twitter 🙂

  29. p rb says:

    I worked mostly in nonprofits and had basic skills and writing talent. My fear of poverty in my old age (I’m now 80) motivated me to save “even when I was unemployment,” as a friend once joked. The power of compound interest is something I preach to my young friends, but I don’t know if they take it to heart. I started a regular IRA with I was about 40. I am better off than I ever was when I worked.

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