How being contrarian can help you win the wealth game

In the latest of a series of articles, former lawyer and City money man Peter Alcaraz explains how it is the 'quiet rebel' that can more easily achieve financial freedom early.

Peter Alcaraz read law and economics at Durham University and spent 24 years advising small and mid-sized companies on mergers, acquisitions, IPO's and fund raisings, first as a lawyer and for the last 20 years in corporate finance. At the age of 46 after reaching 'O' he left city life to write, study, travel and spend more time with his wife and two daughters. His first book, The Wealth Game - an ordinary person's companion was published in 2016 and has become a staple among wealth managers, business schools and private individuals wishing to develop their personal finance skills. 

•    How you can achieve financial freedom more quickly
•    How to calculate your real net worth
•    How to calculate your total future needs and retire early
•    How to keep a firm grip on cash flow and preserve your wealth
•    How you can generate more surplus cash flow
•    Rules and strategy for achieving financial freedom quickly

In short-course sailboat racing, if you aren't leading the race, it pays to be on the tail of the leading boat and track its every move until a chance to pass arises. Joining one of the chasing packs is generally a recipe for finishing there; there's lots of noise and crowding with 'dirty' wind, and everyone is watching each other. The solitary world of ocean racing is different; there, you profit from taking your own carefully planned path from the start and largely ignoring the competition.

In both cases, someone occasionally takes a flyer and heads off in a completely different direction, hoping to catch a favourable tidal stream or wind pattern, and then either wins by a spectacular margin or limps back long after the prizes have been awarded.

Taking a flyer in the wealth game suits those who have nothing to lose or who don't mind losing what they have - in other words, they have a very robust attitude to risk. "All or nothing, but anything's better than the boring mediocrity of being in the middle" is the mind-set, where terms such as employee, manager, commuter, pay raise, promotion, mortgage, pension, and savings become bywords for losers.

These adventurers may be desperate, misguided fantasists, or both, but a small number are genuinely exceptional individuals who emerge through elements of brilliance, tenacity, and shades of good fortune to cook up enterprises that make them and others rich beyond the dreams of the ordinary people they once were.

I applaud them. They are the sporting elite, the rock stars, the Nobel Prize winners, and giants of business and wealth, and their achievements are inspirational and uplifting. What a rich resource of role models we have to study and emulate. If you aren't one of them, you should still strike out on your own; there is no safety in numbers, and any comfort or security you might feel in a group of followers is misguided. Just look around. If there is a rich resource of elite to study, how much richer a resource is the remainder? You will end up becalmed in a middle ground, neither here nor there.

The trick is to adopt the attitudes, energy, and chutzpah of the stars, but instead of heading into the unknown and risking everything, apply them to a guaranteed strategy that you know will work, like the one set out in my book. 

For this, you need a certain private temperament: subversive, confident, independent minded, determined, and focused. Why private? Because for now, unlike the elite, you are still in the pack, and until you can break free financially, you must pay lip service to its rules and customs or be trampled on. Learn to be an outsider in the system. Find a cause unrelated to your own self-interest. Your will is toughened by this.

A Particular Temperament

As a youngster, I found it far easier and more interesting to observe the folly of others than my own shortcomings. The scorn and arrogance of youth, idealism, and early successes have given way to compassionate observation. 

First, spot the dreadful mistakes and judgement errors of others, and second, step carefully around them in your own life - voyeuristic perhaps, but infinitely preferable to blundering forward without studying the terrain or reading any of the signposts along the way. However carefully you plan and prepare, there will always be more than enough to occupy you.

And what others do still shocks me. Squirrels and beavers gather food and build homes for the winter season. Apparently, humans in much of the developed world haven’t yet worked that out. When winter comes in the form of economic downturn, banking collapses, and the drying up of cheap money, we cry for help rather than delving into our larders and store cupboards that, of course, are bare. If ever there were a case for taking a different path, this is it.

In 1854, the American transcendentalist and friend of Ralph Waldo Emerson, Henry David Thoreau, published Walden after spending two years living on his own in the woods near Walden Pond, Concord, Massachusetts. The first chapter is titled "Economy" and opens with this message:

"I do not propose to write an ode to dejection, but to brag as lustily as chanticleer in the morning, standing on his roost, if only to waken my neighbours up."

He explains the purpose of the adventure as follows:

I went to the woods because I wished to live life deliberately, to front only the essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived. I did not wish to live what was not life, living is so dear: nor did I wish to practice resignation, unless it was quite necessary. I wanted to live deep and suck out all the marrow of life, to live so sturdily and Spartan-like as to put to rout all that was not life, to cut a broad swath and shave close, to drive life into a corner, and reduce it to its lowest terms, and if it proved to be mean, why then to get the whole and genuine meanness of it, and publish its meanness to the world; or if it were sublime, to know it by experience, and be able to give a true account of it in my next excursion.

In the wealth game, only by making choices different from the general population’s can you hope to achieve a better than average outcome. You are more loner than leader and never a follower.

Guerrilla Tactics

If you still wonder how being contrarian can help you in the wealth game, here are some of the personal philosophies that I adopted as part of my ‘be different’ strategy. They’re here to

illustrate. Adopt any of them if you wish, but remember that it’s your own personal strategy that matters.

Work - treat it (to yourself) as a game

The first lesson of work is to understand your position in the enterprise. What does the firm exist to do, how exactly does it do it, who does what, and where do you fit in? Stand in the shoes of the owners and managers separately, and ask, "Why have we employed this person, and what do we expect from him/her?" Think as they think; understand what motivates them. Learn to anticipate their actions.

Second, work out where the value lies and how it is apportioned. A law firm or architect practice sells human services. The staff are the firm and should demand the lion’s share of profits, allowing for brand value that also contributes. A manufacturing plant is a mix of premises, plant, machinery, and people (i.e., capital and labour). Value tilts towards the capital. For a theme park with rides attractions and landscaped gardens, the physical structure is the business offering, and the staff on site play a supporting role.

This approach is commercial. Many people get no further than asking these questions: Is this a job I enjoy? Do I like the people, is the pay acceptable to me? Can I travel to it? Is it the best option I have? These questions are fine, but they are narrow. By understanding your environment and the motivations of those you work for or report to, you will perform more effectively.

Specific tactics include the following:

Targeted over delivery - Select tasks and times where extra effort will have maximum effect, particularly when others are asleep or cruising. Slow down and preserve energy when undertaking menial tasks. In varying pace and activity, you avoid becoming a predictable journeyman, and your actions will be more explosive.

Hunt efficiency - Don’t waste time, and avoid the impractical. Let others handle long or pointless meetings, protocols, and activities that won’t in some way add to your worth.

Pick your battles - Let opponents win if their victory does not harm you. It will help preserve harmony, and when you do choose to fight or resist, your actions will stand out. Only take action where there is real benefit to your cause, recognizing your standing in the firm; bright and questioning is good, but a difficult junior will be “short-dated stock,” as they say in the city.

Know your opponent - It is said in martial arts that you ‘control the light’ when you can see into your opponent’s mind as he attacks. If you show him that you will control his methods with strength, he will be controlled by that strength and change his mind. In this way, you can head your opponent off in advance.

Close down victory - On any issue that matters, such as a sales pitch, promotion bid, bonus discussion, or client fee negotiation, as soon as victory is in sight, close it down without hesitating or slowing down for a minute, and stop speaking as soon as you have won.

Selected openness - Freely disclose information that does not harm you, your clients, or your firm but that is of value or interest to the recipient. This fosters a trusting environment and elicits much information in return. Holding your cards constantly to your chest breeds tightness and cramps. Only genuine secrets should be guarded.

Be yourself - Avoid any kind of constructed surface persona. It is like carrying a heavy weight. Humans are quick to spot authenticity and are attracted to it.

Stay grounded - By all means, let others coo at your status, but remember that it won’t last, and you are just another person trying to get on in life. Never be deceived into thinking that you really are important or that your identity is defined by what you do. I know incredibly talented and successful big cheeses who were either fired or retired and fell apart mentally because their identities disappeared. De-emphasize the self, and focus more on the world around you.

Know your value - Understand the commercial value of what you are doing, and get paid what it’s worth - or more if you can - but don’t delude yourself that a job is worth more than it is, however skilled, important, or dangerous it is.

Keep perspective - Cut through the fluff, and recognize why you are acting. There’s a big world and a wonderful life to be enjoyed outside of working for money.

Beware of "experts"

We are brought up to respect age and authority. It is unsettling to discover that wisdom doesn’t automatically follow age and that authority doesn't equal competence or integrity. And just because something is written in a newspaper, that doesn’t mean it is true or can be relied on.

In fact, you should respectfully assume that all utterances of so-called experts are wrong until they or you have proved otherwise. If it's impractical to prove their validity, treat them lightly. Remember that this is a quiet rebellion, but if you need to speak plainly and directly, do so, as you aren’t in a popularity contest.

A problem in personal finance is the perceived gulf between ordinary people and experts that disarms players into thinking that they are not up to the task. Often there is no gulf at all. With basic tuning in and training of the kind discussed in my book, you will be far better placed to improve your own situation than most others.

Accreditations, qualifications, industry regulators, and ombudsmen are no more than a state-sponsored attempt to promote minimum standards and safeguards across the widest possible population. They may satisfy the electorate at large or box tickers in Whitehall, but you should ignore them and demand more at every turn.

Think and act poor until you reach O (because until you're there, you are)

Early in the 2009 film version of A Christmas Carol, an animated Jim Carrey is seen counting coins in a dark room, his face lit grotesquely by a single candle whose light bounces off grim wood-panelled walls. In the hearth, a solitary piece of coal glows.

Inspiration for the character was reportedly drawn from the renowned miser John Elwes, known as “Elwes the Miser,” who also features in Our Mutual Friend. Born into a family of niggards, his wealthy mother starved herself to death, and the young Elwes became rich at the age of four upon the death of his father. The boy’s uncle, Sir Harvey Elwes, who took pride in spending no more than £120 per year, mentored him, and the two spent many an evening together bemoaning the profligacy of others while sharing a single glass of wine. 

On his death, Sir Harvey left £250,000 to his nephew, who continued the tradition of meanness, although he was described by his biographer as “chiefly an enemy to himself.” Despite many poor investments and loans that were never repaid, John managed to finance the construction of sizeable parts of Georgian London, including Portman Square and Portman Place, as well as parts of Oxford Street, Piccadilly, Baker Street, and Marylebone, and on his death, he left £500,000 (over £18 million today) to his two sons, born out of wedlock, and a nephew.

As one who reached O when he was four and devoted his adult life to asceticism, there was nothing ordinary about Elwes. As a role model, however, he and his like have something to offer - at least up to a point.

Personal parsimony, or an extreme unwillingness to spend money or use resources on oneself, is a powerful ally against spending on poverty-promoting depreciators and consumables. You can recognize the folly of frittering and the value of investing without living in rank squalor, ignoring personal hygiene, or obsessing over your wealth pot, and you can practice compassion and generosity towards others. Once you reach O, you can bid farewell and thanks to this friend and raise several glasses in memory over the coming years as you gently enjoy winding down your net worth. At its heart is the plain fact that whatever your net worth, you are not financially rich by any standard until you have reached O, and you fool yourself if you think otherwise.

Look at the “rich” around you. Are they what they seem?

For the rebel player, this is the big one to crack. This is the hardest subject personally and socially because of the enormous pressures from our own cravings, loved ones, friends, society, the marketplace, government, and the global forces of capitalism. Not a day passes without feeling the pressure or need to spend beyond subsistence.

By thinking and behaving poor, however, even when the cash is rolling in, you develop and exercise creativity and resourcefulness, two deeply satisfying attributes. There’s nothing clever about spending money, but spending money cleverly is a skill to be honed that will serve you throughout life. Let others act rich while you quietly get on with growing your wealth.

Time and again, I hear stories and experience the joys of the alternative holiday or activity, the makeshift wedding, the impromptu party, or the simple social gathering at home—all generally more fun and rewarding but also cheaper by a factor than showy corporate style, faux cool, or traditional alternatives. All you need is courage and enterprise. Courage is the big one, because only by abandoning your fears of others’ judgement, the unknown, the unscheduled, the discomforts and the inconveniences - large or small - will you take the plunge. Break with convention, embrace originality, and get used to eccentricity in the quest for more fun and a quicker journey to O. What’s the worst that can happen?

Thinking and behaving poor also keeps you rooted and in touch. You will see money and wealth as they are, as opposed to something grander and more important. Do you want to enter a twilight zone disconnected from ordinary people, where values are hideously distorted and success is measured solely in terms of money, possessions, and a certain lifestyle - where spending thousands on a pair of shoes or a handbag or tens of thousands on a trip is not only fine but essential, and where insulating yourself from any discomfort or want becomes mandatory?

Challenge tradition, convention, and received wisdom

These enemies are like experts, but they are worse, because they are completely unaccountable. No one takes responsibility for them; they just exist, manufactured by nameless inventors and adopted over time by communities—feared, respected, loved, or hated, but always clung to in some way or hidden behind by those who encounter them.

Somehow, the quiet rebel needs to let go, to detach from the illusory importance of customs and conventions without needlessly upsetting the apple cart. By standing back and coolly observing the landscape ahead, a player can more easily discern those actions most conducive to reaching O and those likely to impede progress. In certain circumstances, you will need to get tough, to rediscover your warrior spirit, and to rail hard against something, but such action should always be calculated against its effects on your journey to O.

Responses like "It's always been done this way" or "This is the absolute truth" should invite scepticism from any right-thinking human. Of course, you haven’t got time to challenge or take issue with every such platitude; to do so in today’s society would keep you permanently occupied with no time for anything else. 

As long as you remain an ordinary person in the world of wealth, it is best to challenge convention quietly but effectively, through actions rather than words. Let others form their own views about your behaviour without you telegraphing it for them. And most importantly, rebel not for its own sake or because it is fun to do so; do it to liberate yourself, follow your own instincts and judgements, and lighten the path to O.

It's time to hone up your commercial nous with finance skills. 

Read next week to find out….

Peter Alcaraz is a freelance contributor and not a direct employee of interactive investor.