Don’t count on getting rich twice.

-Charlie Munger

Worst of the mistakes are made in the best of the times.

-Rakesh Jhunjhunwala

…doing well with money has a little to do with how smart you are and a lot to do with how you behave.

Morgan Housel. The Psychology of Money.

Even Kubera with all his wealth, will go bankrupt if he overspends his income.

An ancient Sanskrit shlok

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In the mid 90s, Mike Tyson was at the peak of his career and had an estimated net worth of about $400 M. But he was spending $400,000 per month on his lavish parties and large entourages. He had three tigers which cost $70,000 to buy and cost $8,000 a month to maintain. He purchased over 100 cars to gift them to friends. And oh yes – he had a gold bathtub that cost $2.2 M!

Apparently somebody should have told Tyson that he has only $ 400 M! And if he overspends his income, he will go bankrupt. And if the math does not spare Kubera, it will not spare him either.

And duly, he filed for bankruptcy in 2003. Should we be surprised that he went bankrupt or that it took 10 years (to go from +$ 400 M to -$23 M)?

Nicolas Cage was much poorer than Tyson; he had only $150 M. But not to be outdone in spending, he too purchased exotic art like dinosaur skull for nearly $300,00 and other exotic animals. And he bought many castles and houses. Any financial planner will tell you, he concentrated too much and got his asset allocation wrong as many of the real estate properties lost value in 2008. And he we went from $150 M to -$14 M.

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Good times are intoxicating. Money, fame and power comes easily. And it keeps coming and coming deluding us into believing that it will last forever. We get complacent. We begin to acquire a lavish lifestyle, we acquire assets just to look cool or just to rub it into the faces of our people we don’t like. We get complacent. And just as RJ said: the worst of the mistakes are made in the best of the times.

Empires and countries make similar mistakes too.

Spain was one of the richest countries in the 16th centuries. But it didn’t invest those riches. It imported expensive and exotic things, fought endless wars and when money ran out they borrowed more. And today it is among the poorer EU countries despite where they started from. See here.

Recently a friend shared a video of how the Ottoman empire went bankrupt. In the 1800s, the empire borrowed money and instead of investing it in education or connectivity or improving trade, they spent the money on lavish palaces and building a large navy, mostly for vanity. When time came to repay, they borrowed from Paul to pay Peter but continued with their lavish lifestyle. It took them a 100 years and two World Wars to come out of that debt trap.

Similarly, when interest rates are low, like it was after the Global Financial Crisis, countries borrowed money and splurged it on useless or vanity projects. Such good times are also impermanent and someday your creditors are going to come for you. I asked Gemini to give me a list of such vanity projects.

Drivers of Waste	Mechanism	Example
Prestige	Myanmar building the “biggest” or “fastest” to look developed.	Naypyidaw’s 20-lane highways.
GDP Targets	Construction counts as growth, even if the building is empty.	China’s Ghost Cities.
Short-termism	Spending a temporary windfall (oil) on permanent costs.	Venezuela’s subsidies.
Easy Debt	If borrowing is “free,” the risk of a project seems low.	Greece 2004 Olympics.

In addition to the above, I would like to add how a resource rich country like Russia attacked Afghanistan when oil prices were at a high. And as oil prices crashed, they had lesser money and had to leave the war. Today, Saudi Arabia is spending massively on it’s futuristic projects – The Neom, the Asian Winter games with artificial snow, FIFA world cup and so on. But oil prices is throwing a spanner in the works. I am usually a skeptic (and miss out on trends) and therefore I think Saudi may end up as one of the case studies, but we’ll see. For a different perspective on what Saudi is trying to do watch this video.

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The basic premise of the book Psychology of Money was that when it comes to money, behavior trumps genius. What is behavior?

• Remembering that worst of the mistakes are made in the best of the times. It means knowing that times will change, and sooner than expected. And if you are cautious during bad times, you have to be extra cautious during good times to not go overboard.
• Practicing the discipline of saving and massively underspending your income.
• Living off your income and not off your assets. This means, whatever your income, you make your ends meet within that. You should not have to pay your living expenses by selling off your assets. At some point of time, I am sure Tyson started selling his assets to continue his lifestyle and lesser assets means lesser future income.
• Discipline to say no to useless, vanity items. For individuals it would be the wisdom to say no to acquiring an expensive lifestyle just to look cool. For countries it would be to say no to white elephant projects like the list above.

As Charlie Munger would say, life is too short to learn from just your own mistakes. Therefore, please, please and please learn from the mistakes of others. Because if we don’t … we too will make the same mistakes. See for yourself – if the Ottomans had learnt from Spain’s mistakes, wouldn’t they have been more careful about borrowing money or where to invest that money? Or if Saudi studies the Russian invasion, they may seen patterns of hubris and be less extravagant. Likewise, I am quite sure that some of today’s celebs rolling in success, wealth and fame will make the same mistakes as Tyson.

It’s almost like a law of life. If we don’t learn from history, we are doomed to commit the same mistakes.

But I don’t want to be one of them. And therefore, I want to learn from others’ mistakes as much as possible. And I hope that by writing about it, it will light the way for someone else too.

-Cheers!