As I was approaching my final years of university in the early 2000s, things weren’t looking pretty on the job front.
The dot-com bubble burst just a few years ago, leading to a downward spiral in the stock markets and slim job prospects for new graduates. When I finally managed to land an entry-level job with a large corporate, I walked around exhilarated for weeks.
But while you didn’t read about it in the newspapers at that time, this was also a period of incredible wealth creation. The internet start-ups that survived the shakeout were building the foundations of trillion-dollar businesses.
Wall Street was busy securitizing mortgages. And hedge funds were raking in billions by either taking directional bets on those securities or eschewing fundamental analysis altogether and trading based on quantitative models.
Most people, myself included, found out about this post-factum.
It wasn’t until the aftermath of the financial crisis that we have realized how much money has been minted in the short period between 2001 and 2007.
The same phenomenon is playing out today.
While everyone else is grappling with the lockdown and distracted by the 24-7 news cycle, a group of focused individuals is seizing an unprecedented opportunity to build wealth in the post-Covid world.
The Second Gilded Age
Before she became Canada’s deputy Prime Minister, Chrystia Freeland published a great book titled “Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else”.
In it, she defined the period leading up to the financial crisis as the Second Gilded Age. It’s an apt metaphor, given the immense wealth creation in that period. And the two driving forces that enabled the rise of the 1% above everyone else were technology and globalization.
For the first time ever, talented individuals – and well-run businesses – were no longer restricted to doing business locally. All of a sudden, they could sell their products and services worldwide.
Yes, this also meant facing competition on a global scale. However, those who managed to outdo their contemporaries were in a position to collect the spoils on an unprecedented scale.
Hedge funds tapped a global investor base – and used the money to trade across every single exchange in the world. Silicon Valley start-ups came to dominate entire swathes of the world economy. And in my world, talented bankers could now leverage their talents to do business anywhere in the world.
While there’s a lot to be said about preferential taxation, state capture, and effective monopolies, all of that happens at a much later stage.
At the very beginning, building real wealth boils down to one and one thing only: your ability to help as many people as possible – while ensuring you are the one who collects the economic rent.
Therefore, it’s hardly surprising that running your own business on a global scale is the most effective way to build true wealth.
For all its shortcomings, the Covid lockdown has one amazing attribute. It will last long enough for people to form new habits.
Source: Clearvue Health
Five weeks in and we can already see the effects.
For bankers, doing client video calls via Zoom is now a socially accepted practice. Earlier this week, I had a video call with an executive of a large French conglomerate and a chairman of a big Italian firm in one day.
Fifty years ago, this was impossible. Two months ago, this entailed four flights and two days of travel. Now, I am able to double the velocity of my client interactions (the biggest determinant of fees and my compensation) at the click of a button.
Is this something that was technically possible a few years ago? Sure – but the point is that now it is also socially acceptable.
My wife is now doing her workouts through our gym’s app. Whether live or on-demand, there is no need to go to the gym to stay in shape anymore.
Even more importantly, remote classes open up the possibility to work out with the best instructors in the world, whenever and wherever you want.
Our daughter is doing singing, dancing, and acting classes online. Some of her tutors are located in other cities – and some in other countries.
Are we going to put her in local activities once the lockdown is lifted? For sure – nothing will ever replace human interaction. But we will also continue working with the best instructors, no matter where they are located.
The Economics Of The 1%
It doesn’t matter who is on the other end of the value exchange. Whether you are a businessman, a fitness instructor, a tutor, or a plain cog in a large corporate machine, you are now operating in a world of truly unlimited possibilities.
In a world of almost eight billion people, you only need to find a few hundred “true fans” that find value in the product or service you offer. And even if that value is nominal in nature, you now have a path to monetizing your skills and abilities – on a global basis.
That, in return, translates to the 1% capturing an ever-increasing share of the global income.
Yes, the top 1% are pulling away
The pre-requisite, of course, is to be really good at something. As much as the press likes to beat up on the top 1% these days, the reality is that most of the people in that group are really good at something.
In the world we live in, there’s demand for pretty much everything. You just need to be the best person to fill it.
Building wealth was never easy to start with. In the post-Covid world of stagnant pay, higher taxes and reduced incentives to save it will get even tougher.
At the same time, it has never been easier – or more socially accepted – to use technology to monetize your unique set of skills, attributes, and perspectives.
Regardless of whether you are self-employed or working for someone else, your ability to leverage yourself has just gone up to a whole new level.
Give it a shot and you may well find yourself coming out of this crisis in a much better place than you started.
About Banker On Fire
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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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