How To Get Rich From Poor and Vice Versa: An Anthropological and Financial Theological Summation

1. I've been observing, sometimes as a "participant observer", the ways of the financial markets since July 1987. At one point, I was in charge of an arbitrage hedge fund of about $1bn when $1bn was considered a lot of money and even before we labelled such funds as "Hedge Funds." They were "based on" models that supposedly took advantage of "mispricings" in several simultaneously trading markets. However, there was always a catch. We would always have some form of what I call "execution risk" or "human judgement risk" and I always wondered why have all these humans in the way since once you've made the calculation, it was all a matter of hitting the bid or offer. Those were comparative halcyon days when we think of the ALGOs that make this "price discovery" process simply a machine-to-machine communication interface where trades are executed at 100,000 orders per second. Different world where human judgment in execution appears to have disappeared. Or, has it?

2. There's a biblical story of the three sons who were given a bit of money by their father and after one year, each reported back. One spent it all, another saved and the third invested. This story has bothered me because if we think crudely of all the wealthy people on the planet, why aren't they sharing their wealth with the poor? I know all the economic arguments pro and con, but there is still something missing in the theories that doesn't get into the "genetics" of the problem.

3. Here's one insight to the problem of wealth distribution. Think of the least amount of money in any given society--that is, the smallest increment of valued for exchange--and ask yourself, "If I "borrow" this penny from this Person X, what will this Person X expect in return?" This may appear to be a question for which no objective answer is possible, but fantastically, there is an answer specifically set out by Marcel Mauss in his classic, The Gift. In modern terms, we call it leverage.

4. In the biblical story, the three sons have completely different views on leverage. The one who lost everything had a view of leverage that was too high. The one who merely saved, too low. And the one who invested, had the correct view in terms of turning an illiquid asset into working positive net cash flow.

5. You might wonder why am I drawing references from homey biblical stories and anthropological literature, and not citing financial economic or law and finance articles. Why? Because that academic literature is not going to give you insight in how you can deal personally with your money. Now that you know it's all about the leverage, you can easily deal with rich and poor. You can even CHOOSE to be rich or poor. It's a matter of understanding your own sense of leverage.