Today’s Chapter is based on the book “The Almanack of Naval Ravikant: A Guide to Wealth and Happiness” by Eric Jorgenson. The book is a compilation of Ravikant’s wisdom and experience. Ravikant is an entrepreneur, philosopher, and investor who is known for sharing his principles for building wealth and creating long-term happiness through his Twitter account @naval.
Here’s what I have learned:
Wealth
“Wealth is not his that has it, but his that enjoys it.”
— Benjamin Franklin
The conventional view of wealth creation often revolves around the idea of "hard work" - putting in long hours, working tirelessly, and grinding away to achieve financial success. However, in Naval Ravikant’s opinion, this notion is misguided. Wealth is not primarily about hard work, but rather about understanding the right things to do, who to do them with, and when to do them.
Ravikant argues that creating wealth is about understanding the right actions, collaborations, and timing. While hard work is essential, it must be directed strategically:
"It's not really about hard work. You can work in a restaurant eighty hours a week, and you're not going to get rich. Getting rich is about knowing what to do, who to do it with, and when to do it. It is much more about understanding than purely hard work. Yes, hard work matters, and you can't skimp on it. But it has to be directed in the right way."
— Naval Ravikant
Rather than hard work, Ravikant believes that wealth creation is a learnable skill set that combines knowledge, strategy and execution. In fact, the core of Naval's philosophy is that true wealth comes from owning assets that generate returns while you sleep, rather than simply trading time for money. He once said, "Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy."
As such, Ravikant believes that the key to wealth generation is to build up a portfolio of income-generating assets rather than just earning a paycheck. In fact, he stresses the importance of equity ownership in wealth creation. He mentions that true financial freedom comes from owning a piece of business rather than simply exchanging time for money.
"You're not going to get rich renting out your time. You must own equity-a piece of a business-to gain your financial freedom."
— Naval Ravikant
Furthermore, Ravikant emphasizes that the key of wealth creation is the concept of leverage. As he explains, "Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media)." Rather than relying solely on your own labor, the real path to wealth is finding ways to scale your efforts through the use of capital (investing in cash-generating companies or real estate), people (starting your own company and hiring people to work for you), and technology (building products with no marginal cost of replication such as software or media).
Naval is particularly enthusiastic about the power of "permissionless leverage" through code and media. As he explains, "Code and media are permissionless leverage. They're the leverage behind the newly rich. You can create software and media that works for you while you sleep." As a matter of fact, the internet has radically expanded the possibilities for individuals to build scalable, leveraged businesses around their unique talents and knowledge without having to invest a large amount of capital.
In essence, Ravikant's approach to wealth creation is about working smarter, not just harder. It involves developing a deep understanding of value creation, leveraging assets and technology, and focusing on long-term wealth building (own equity) rather than short-term monetary gains (employment).
This reminds me of what we have learned previously from Kazuo Inamori, the founder of Kyocera, who once said that working hard is meaningless if one does not have an objective. As Kenichi Omae once said, “Rowing harder doesn’t help if the boat is headed in the wrong direction.”
“Also, it's meaningless to do something persistently if it's done in a vague or aimless manner. The important thing is to consistently apply creativity and ingenuity. You must commit yourself to making today better than yesterday, and tomorrow better than today. The unceasing application of creativity and ingenuity is bound to produce excellent results.”
— Kazuo Inamori
Specific Knowledge
“Think big, start small, then scale or fail fast.”
– Mats Lederhausen
Another core theme in Naval Ravikant's teachings is the importance of developing specific, scalable knowledge that is authentic to you. As he once said, "Apply specific knowledge, with leverage, and eventually you will get what you deserve." He emphasizes that the real path to wealth is not just acquiring generic knowledge or skills, but rather honing in on the unique talents and passions that you can turn into valuable, scalable offerings.
As Naval puts it, "If you're looking toward the long-term goal of getting wealthy, you should ask yourself, 'Is this authentic to me? Is it myself that I am projecting?' And then, 'Am I productizing it? Am I scaling it? Am I scaling with labor or with capital or with code or with media?' So it's a very handy, simple mnemonic." The key is finding what is genuinely meaningful and valuable to you, and then figuring out how to transform that into a scalable business or wealth-generating asset.
He strongly believes that true wealth creation is about providing society with new things it wants, but doesn't yet know how to obtain for itself. As he states, "Society will pay you for creating things it wants. But society doesn't yet know how to create those things, because if it did, they wouldn't need you. They would already be stamped out." The most lucrative opportunities arise when you can identify unmet needs and develop unique solutions.
More importantly, Naval Ravikant cautions against simply trying to imitate or copy what others are doing successfully. This is because everyone’s specific knowledge is unique to him or her:
"The specific knowledge is sort of this weird combination of unique traits from your DNA, your unique upbringing, and your response to it. It's almost baked into your personality and your identity. Then you can hone it. No one can compete with you on being you."
— Naval Ravikant
This perspective encourages individuals to embrace their uniqueness and leverage their personal experiences and innate talents. Instead of trying to fit into predefined roles or following conventional career paths, Ravikant suggests that true success comes from identifying and developing one's unique abilities.
As a matter of fact, Ravikant believes that the pursuit of specific knowledge is closely tied to genuine curiosity and passion. He explains that following one's authentic interests is more likely to lead to the development of valuable specific knowledge than chasing after the latest trends or hot job markets.
"Specific knowledge is found much more by pursuing your innate talents, your genuine curiosity, and your passion. It's not by going to school for whatever is the hottest job; it's not by going into whatever field investors say is the hottest."
— Naval Ravikant
Naval Ravikant points out that the good thing about specific knowledge is that it can be learned. This is especially true with the creation of the internet which has dramatically expanded the potential for leveraging specific knowledge. As Ravikant once said, "The internet has massively broadened the possible space of careers. Most people haven't figured this out yet. You can go on the internet, and you can find your audience. And you can build a business, and create a product, and build wealth, and make people happy just uniquely expressing yourself through the internet."
This democratization of opportunity means that individuals can turn their unique knowledge and skills into successful careers or businesses, regardless of how specialized or unconventional they might seem.
Finally, Ravikant also emphasizes the importance of continuous learning and adaptability in developing and maintaining specific knowledge. In a rapidly changing world, the ability to learn quickly and deeply is itself a crucial form of specific knowledge.
"The most important skill for getting rich is becoming a perpetual learner. You have to know how to learn anything you want to learn. The old model of making money is going to school for four years, getting your degree, and working as a professional for thirty years. But things change fast now. Now, you have to come up to speed on a new profession within nine months, and it's obsolete four years later. But within those three productive years, you can get very wealthy."
— Naval Ravikant
This reminds me of what we have learned from Charlie Munger who once said, “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.” As a matter of fact, Munger once explained that the main reason for Berkshire Hathaway’s success is due to the simple fact that he and Buffett are both voracious readers and perpetual learners.
Buffett and Munger’s track record at Berkshire is exceptional, returning over 19.8% compounded annual gain from 1965 to 2022 compared to only 9.9% for the S&P 500 Index. When asked on what’s the secret to their success, Munger mentions the fact that Warren Buffett never stops learning and that Berkshire Hathaway’s track record wouldn’t be as good if Buffett stopped improving every year. As a matter of fact, Munger mentions that he doesn’t know any single successful investor who do not read voraciously.
“If you take Berkshire Hathaway, which is certainly one of the best-regarded corporations in the world and may have the best long-term investment record in the entire history of civilization, the skill that got Berkshire through one decade would not have sufficed to get it through the next decade with the achievements made. Without Warren Buffett being a learning machine, a continuous learning machine, the record would have been absolutely impossible.”
— Charlie Munger
Think Long-Term
"Compound interest is a very powerful concept. Compound interest applies to more than just compounding capital. Compounding capital is just the beginning."
— Naval Ravikant
A major theme in Naval Ravikant’s teaching is the power of compounding returns and iterative, long-term thinking. He emphasizes that the biggest payoffs in life, whether in terms of wealth, relationships, or knowledge, come from playing "iterated games" and allowing the magic of compounding to work in your favor. In fact, he encourages us to play long-term games with long-term people.
As Naval explains, "All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest." The key is to focus on iterative, long-term endeavors that compound over time, rather than chasing quick wins or one-off transactions.
As a matter of fact, this long-term approach extends to how Ravikant thinks about building successful businesses and professional partnerships. He once said, "Pick business partners with high intelligence, energy, and, above all, integrity." The goal should be to find collaborators who share your long-term vision and values, as these kinds of relationships are what allow compounding returns to really take hold.
"Compounding in business relationships is very important. Look at some of the top roles in society, like why someone is a CEO of a public company or managing billions of dollars. It's because people trust them. They are trusted because the relationships they've built and the work they've done has compounded."
— Naval Ravikant
This concept of compounding also applies to reputation. In fact, Ravikant explains that "Compound interest also happens in your reputation. If you have a sterling reputation and you keep building it for decades upon decades, people will notice. Your reputation will literally end up being thousands or tens of thousands of times more valuable than somebody else who was very talented but is not keeping the compound interest in reputation going."
Ravikant emphasizes on the importance of maintaining integrity and consistently delivering value over time. A good reputation built over years can open doors and create opportunities that far exceed the benefits of short-term gains or shortcuts.
Finally, Ravikant explains that the principle of playing long-term games extends to learning and skill development as well. He encourages us to identify the most important areas for personal growth and invest heavily in them. This approach to personal development aligns with the concept of specific knowledge, that we have learned previously, focusing on developing deep expertise in areas that are personally meaningful and potentially valuable in the long term.
"I'm not saying don't do the 99 percent, because it's very hard to identify what the 1 percent is. What I'm saying is: when you find the 1 percent of your discipline which will not be wasted, which you'll be able to invest in for the rest of your life and has meaning to you-go all-in and forget about the rest."
— Naval Ravikant
This reminds me of what we have previously learned from Edward Thorp. In his book “A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market”, Thorp explains that compound interest is the first and most important mathematical concept to learn. Not only is it important in investing, but it is also useful in terms of seeking wisdom and obtaining good habits. As a matter of fact, a one percent improvement every day leads to 37x improvement in a year.
Similarly, it is very possible to become wealthy even if our investments grow at a small rate as long as it happens on a long period of time. As Thorp once said, “Over a sufficiently long time, compound growth at a small rate will vastly exceed any rate of arithmetic growth, no matter how large!”
The rules of compounding are very simple once you get the concept: start early and do not ever interrupt it. As Charlie Munger famously said, “The first rule of compounding: Never interrupt it unnecessarily.” Thorp understood the importance of compounding beyond the stock market. As a matter of fact, it is this principle that encouraged him to lead a healthier lifestyle. For every hour he spent on fitness was one less day he would spend in a hospital:
“If you are like me and want better health, you can invest time and money on medical care, diagnostic and preventive measures, and exercise and fitness. For decades I have spent six to eight hours a week running, hiking, walking, playing tennis, and working out in a gym. I think of each hour spent on fitness as one day less that I’ll spend in a hospital. Or you can trade money for time by working less and buying goods and services that save time. Hire household help, a personal assistant, and pay other people to do things you don’t want to do.”
— Edward Thorp
Beyond the Book
Read "Leverage: Gaining Disproportionate Strength" by Farnam Street
Read "A Dozen Things Charlie Munger has said about Reading" by Tren Griffin
Read "Compounding Knowledge" by Farnam Street
Read "The Surprising Power of The Long Game" by Farnam Street
Listen to "#18 Naval Ravikant: The Angel Philosopher" by The Knowledge Project
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