Can I tell you about something I've been noodling on? This idea of a natural money maker.
I was going to ask you about this. You made up this term like what is a natural money maker?
A natural money maker is a person who tends to be involved in deals, brokering, and inserting themselves into situations. They tend to not build publicly and they've built multiple businesses ranging from 100 million to many billions in multiple different fields. And there's a distinct difference between a natural money maker and a great founder or a great CEO or a great entrepreneur. I consider myself to be a decent entrepreneur. I'm not a natural money maker. Ted Turner, one of my heroes, he started CNN. He was not a natural money maker. He had vision. He knew how to recruit people. He had a good sense of the market and what products to make. But a natural money maker does all those things plus they're way colder about money and they're way more logical and they're way more rational.
Yeah. I just think of my buddy Sulie. I feel like Sulie is a natural money maker. Meaning a natural money maker. So high hit rate. Whereas it seems like most people fail, fail, fail, fail, fail, finally succeed. It's like this person kind of is like succeed, succeed, fail, succeed, succeed, succeed, right? It's like mostly success which defies the batting averages that you're supposed to have as a business person or entrepreneur. Secondly, if you ask him to explain it, it's not like a lot of words. It's a lot of instinct. So naturally, instinctively figures out where money is going to be made and where money is going to be lost. So I call this having a great nose. They just sort of sniff out where the money is. They sniff out opportunity where opportunity is and they win across multiple categories. Even though they might not be the best manager or the best designer or the best at anything, you can't say like, well, it's because they have that one super skill. The skill is being a natural money maker.
And I listed out some of the attributes that I've noticed they have that are a bit different from an entrepreneur or a great CEO or a great founder. The first one is that they're unemotional about business. I said natural money makers have anxiety like everyone else, but they use their emotions to make money. Being emotional and passionate is actually how a lot of founders typically succeed. It's how they recruit people. But natural money makers are far more cold about money, far more logical. And there's a story about Carl Icahn. Carl Icahn was like a tycoon hedge fund PE guy of the 1980s. And there's this famous story where he buys, I believe, a shipping company. And within two weeks of going to the office every single day, he was like, "There's 12 floors of people here. I don't know what they do. I'm firing all of them today. We're just going to get rid of all of them today." And like four months or five months later, he talks to his team. He's like, "So those 12 floors of people, are you noticing that like they actually were doing something and it's not hurting us that they're gone?" And he's like, "No, didn't even notice that they were gone." And a natural money maker is very good at seeing nonsense and just cutting the fat and being totally unemotional and very rational about it. A lot of emotional people, I would say I'm in that category, would say, "But these people have jobs. You know, we can't do this." A natural money maker is far more rational and he's like, "Well, the numbers show this, therefore we do that."
So the guy I just did a podcast with, it's not out yet, Nick Kakounis, I feel like he's kind of like this. Do you know his story?
No. It's an unbelievable story. So this guy starts as a, he like studies philosophy in college but he likes math and he decides I want to be a trader, like you know, like a stock trader. So he gets offers from like, you know, JP Morgan and you know whoever bankers like that, like a good salary, good job, but not a trader. Trader basically like runs their own book of business. You need to be a natural money maker if you're going to do that because you're basically high-speed making decisions all day. And at the end of the day, he told me, he's like, you would basically walk away and you either won or lost a house. He's like, I'd make like, I'd win or lose like 300 grand in a day. And the emotions of that, imagine like, you know, you go to work and you made 250,000 or you lost 250,000, you only got like 600,000 or a million bucks, like you don't have that much to even work with. You're taking these huge swings every day. Why do I call him a natural money maker? Because he made, you know, tens of millions of dollars as a trader. His best year, his company made 100 million in profit off of one arbitrage that he found. And he basically figured out that like, you know, ETFs were getting popular. And what's the ETF? It's basically you go buy, let's say, the S&P 500 ETF. Well, it's basically like owning all 500 stocks in some proportion and you go buy it. So what he realized was as ETFs were getting popular at the early days, the cost of the ETF, like let's say the 100 stocks that you were trying to buy, was not the same as if you actually go and find each of the hundred stocks of their current price in real time. There was a little spread, a little slippage. And so what did he do? He's like, "Oh, I can basically buy, like I can use options to buy like a future contract on those same stocks and I can with no risk make money every single time somebody buys this." But in order to do that, he had to like figure out how to run like cable fiber from the New York exchange to the Chicago exchange so that he could get the price quotes in real time whereas everybody else was like calling and they would like call a guy, tell him, "Hey, I want to buy this." Then he would write it down on a slip of paper. The guy with the slip of paper would run it over to the traders, be like, "Hey, I got a piece of paper for you." Then he would take the paper, yell it out, and then the trade would get made. And that like 30 seconds he realized was an opportunity. So he sniffed it. He sniffed that one out. Okay. What happens after that? He leaves. He goes into a completely different space. He creates the best restaurant in America. The number one restaurant in America was called Alinea. It was the first Michelin star restaurant outside of New York. At the time he said that the Michelin Guide was not even coming to America anymore to check out restaurants and he goes on a forum and just declares we're gonna create the greatest restaurant in America. So we're, that's our mission. We're going to create the best restaurant in America and we're going to make it so that it looks bad on the Michelin Guide if they're not giving us three stars. Like the fact that we're not three stars will be a reflection on them and not on us. And so just takes this audacious approach, pulls it off, he finds this amazing chef, Grant, partners with him, creates this restaurant, Alinea, and in an industry that famously sucks as a business. Like if you say, what are some of the worst businesses you could start? A restaurant would be up there. And yet as a natural money maker, he goes and creates this thing that at its peak, Alinea was doing, you know, 26 million a year in revenue with almost 20% profit. Even during COVID, when every restaurant shut down, they pivoted and figured it out and made money during COVID by doing like instead of high-end stuff, they were doing like $35 takeaway dinners for people, whatever. Figured it out. And then goes on and does other things. And while I'm talking, as soon as we get off air, he's telling me about this like current arbitrage he's found with wine collections. And he's like, "Dude, I just bought this million-dollar wine collection for 150,000." And I figured, you know, I was like, "How did you even in your spare time find this?" He's like, "Wow, they find deals. They just find deals." And he's just always finding deals.
There is no off button. These natural money makers. I have, we have a friend who I was with one time. He's both of our buddies. And he was on his phone when we were out and I was like, "What are you doing?" He was like, "Well, I just found out that you could buy defaulted or soon to be defaulted credit cards, meaning you could buy the debt and I could just hire this firm to go and collect the money and I could make like a 14% return or something like that." It was like pretty not meaningful. And our friend is very wealthy. And I'm like, are you insane? And what that describes and what you described with your buddy is that natural money makers are maximizers. Diminishing returns are still returns. They don't say that enough is enough. And so what I've noticed with these people is like with your story with your buddy, I buy index funds. You can do this new thing called direct indexing, which is not the same thing as what you're describing, but same sentiment where you're like you get a small like spread, a tiny one. And people like me, I'm like, that's good enough. There's too much trouble. Natural money makers do not say it's too much trouble. They do not say diminishing returns are, they say diminishing returns are still returns. It doesn't matter. And there's this famous story about Jay Gould. So Jay Gould was in the 1800s. John Rockefeller said he was the greatest business mind of all time. And there's a story where his wife had just died. She had died two years ago. He was the patriarch of this like, he had like three daughters and then he had like two or three nieces who he looked after and he had tuberculosis which was a death sentence. He was about to die. He had like a year left. And when he was out to eat with his family, someone came and whispered in his ear and they're like, "Hey, this one railroad is like going out of business. I think you can get it." And his nieces and daughters were like, "Hey, please don't do this. Like, our family is good." And he goes, "I'll think about it." And then the next week he's with his family again. And he gets another call and he puts the phone down. He goes, "Hey family, I've thought about it. I need to do this. I have to return to my first love, which is making money." And he did the deal. And he dies like six months later. And that's like an extreme example, but these natural money makers are extreme maximizers. It never turns off. And the perfect number is more.
So I think Charlie Munger is kind of like this, right? Like he, I think famously like you know a couple weeks before he died, he was still doing deals. He's still doing investments. He made money obviously with Warren Buffett in Berkshire through you know the buying of businesses and stocks but also was an incredibly successful real estate investor. I think also owned a very successful law practice before that. Like I think he made, I think Munger made, yeah, newspapers. I think Munger made money a bunch of different ways and had a very high hit rate, had an incredible nose for money and an incredible nose for opportunity. Had incredible judgment. But can I ask you a question? So because the term is natural money maker, are you basically saying this is nature not nurture? Meaning you either have it or you don't.
I think that you, I think it tends to be people who are brought up in families where they talked about this stuff at a very young age. And I would argue it tends to be instilled or tends to be they're born with and because the last attribute for my natural money makers is that they're very comfortable with complexity. The average entrepreneur, let alone the average Joe, we like simple. We say, how many times do you use that phrase in your business? Let's keep it simple, you know? Let's just like do this, let's just keep it simple. I have noticed that natural money makers have very very very high IQs and they can grasp very complex topics. Our friend Sulie, when he does a variety of deals, I don't know him that well, but I've heard him talk about stuff and they not always, but sometimes the deals tend to have all these contingencies. If this happens, then this, and then if this happens, then this, and they can kind of cut through that and they could see where and how value is locked and they can very quickly in their head compare that to the alternatives. And the natural money maker tends to be really good with very complicated things. And the average Joe is not. A very complicated thing, well, it's kind of, it is simple to explain, but it's very complicated to grasp, is like this idea of compounding. That's what I've noticed amongst the people I know who I describe as natural money makers.
Okay, breaking news. Right when we got done recording this podcast, producer Ari actually went and made a fun quiz with all of these archetypes that Sean and I are talking about on this podcast. The sniffer, the natural money maker, and like six other ones. And so there's a link in the YouTube description or if you're listening on Spotify, there's a link here and it goes to this really funny quiz based off of everything that you're hearing us say now. Which archetype are you? Which will ultimately help you pick a game that you can win that you will have a better life and enjoy it. And so I think this stuff is really interesting and I think you might like it too. So click the link and fill out the quiz now.
But what about the people who are smart, good at math, high IQ but are not natural money makers? What is it that they lack or what is different about them do you think than the people who are also smart, high IQ, good at math but are natural money makers? What do you think that, what's the gap once you have that requirement let's say?
I think that there's this slight gene of like wanting to conquer. You know, Napoleon, Napoleon had this great quote where his peers were like, "Oh, I'm Italian." And he goes like, "Oh, I'm descendants of conquerors." Like he's like, "I just have it in me." And I've noticed that these people, they just tend to have a competitive streak where they want to be the best at a very young age when it comes to making money. I don't know why that happens, but I believe it's probably because of IQ and like this like wanting to win. Another friend of ours, Saad Mohseni, I believe he is kind of the best example of someone we've had on My First Million who's a natural money maker. So, if you guys haven't listened to that podcast, Saad basically started a WordPress blog, which is not sexy, that made some amount of profit and using that profit and influence, he started buying WordPress plugins and then he has since bought tons of real estate. He's a fairly prolific stock investor. He buys a lot of privately held companies as well. And I would say that he's made a lot of money in a variety of ways. And when I have heard him explain why he buys all these gas stations and I'm like, these gas stations are beneath you, right? You're buying like a $200,000 gas station. You're worth hundreds of millions of dollars. I don't get it. And he was like, he has this sentiment of like, but I can get good returns from this and I can just do this, this, this, and this, and this. And I'm like, that sounds really complicated and a lot of work, but they don't have that same like nervousness about that.
Yeah, it's hard to say because when I think of the people that this is maybe the one point you said so far that I'm like, I'm not sure that lines up with my experience, which is all the people you just mentioned that I know say whoever they really pride themselves on simplicity and they really respect simplicity, but you're right that they are willing to chew through what seems to me like complexity, but to them they see it as simple. Like I think if you asked them they'd be like, there's nothing complicated about this, you know, this was the simple way and to me I think it's complicated, you know, like for example one of them, they were selling a product like a DTC brand or DTC product which many people do that e-commerce, it's hard to make money in e-commerce by default sort of like restaurants in that way where you can get revenues but the profit margin is pretty slim, you might be like a 10%, 6%, 14% EBITDA margins, then you pay taxes on that, you know, as you take it out, but you're always buying inventory and you're always kind of living on a knife's edge with the Facebook ad platform and tariffs and other things. So, you know, your life can change at the drop of a hat. So, one of those guys, they had one of these and they ran it ultra profitably at scale. And one of the things that they did along the way was they just, you know, I was like, "Oh, so like what'd you do then?" He's like, "Well, you know, the COGS kept going up. So, then we built our own manufacturing plant." I was like, "What?" And he's like, "Yeah, like I found these guys who do it in Europe and I called them and I said, you know, again, he made it sound simple, but I'm like, you stood up your own manufacturing at scale while you were like in the middle of the whole thing and you've never done anything like that? I've never seen you in the outdoors, you know, like so you have a factory now?" And he's like, "Yeah, like I found these guys in Europe doing it and I called them and I said, 'Hey, can I come see it?' They said, 'Yes.' And I was like, 'How much does this machine cost?'" And he's like, "Cost this much." He's like, "Cool. So, how long does it take to pay back?" They're like, "Oh, it pays back in like, you know, two months or something like that." He's like, "Okay, good. Check. All I needed to know." And he's like, "What scale? What scale do you need to pay that back?" And they're like, "This scale." He's like, "Got it." So, that's a check. Then he's like, "Can I buy this machine? Can I buy yours? Where'd you buy it from?" And they're like, "We buy it from these guys." He's like, "Awesome. Can I pay you to come stand it up in wherever I'm at in the US?" And they're like, "I mean, we don't really do that." He's like, "But how about if I just like really made it worth your while to come stand it up?" And they're like, "Yes." So, he's like, "Great. Done. Factory." You know, and the factory was like up and running a year later with that process. And their COGS dropped in half and like, you know, the business just got even more lucrative. Something that I would have shied away from because it's complex, but in his mind, I don't think he saw it as complex. I think he saw it as simple. And so, I think they view it as simple, whereas I think others shy away from the complexity. I think the truth is somewhere in between, meaning they're willing to do hard things that they're not familiar with, but the reason to do it is very simple. Like they don't need to write a six-page memo to convince themselves. The logic fits on a fortune cookie. And I think that's where simplicity plays in. Like the reason to do it is very simple. Doing it is actually quite difficult, maybe complex, but they'll find the simple version of it. Meaning they'll find the guys who have already done it. They'll find out how much the machine costs. They'll ask the guys to set it up. They'll, you know, they'll do things like that along the way that make it a lot simpler. Like I asked Saad about the gas stations. Like, dude, I don't know anything about gas stations. And he's like, "You just need to have a hard corner in a good area. Here's the track record of the thing." And I was like, "Yeah, but I don't want to manage it." And if you figure out, he's like, "It's a triple net lease. There's nothing to manage." Right? So, he immediately is like, "It's simple. What are you talking about? This whole thing is simple." And I'm like, "Maybe it is simpler than I think on the outside, having never done it because I'm confusing uncertainty with risk. I'm confusing unfamiliarity with complexity."
By the way, little finance nerd thing that I still remember from that episode. Do you remember his advice on like kids and spending?
So, well, the funny thing was he was like, "Every time I'm going to have, every time my wife gets pregnant, I buy a gas station and the gas station will pay for the kid." And we're like, "What?" But he's like, "The best advice I ever got from my mentor when I was very young, like when I didn't have enough money to go buy a gas station, but the core idea is the same, which is you only spend the second derivative." And I was like, "Dude, I don't remember what a derivative is. Like, I don't remember calculus. Can you just explain that?" He goes, "Let's say you make whatever you make, 100 grand. If you make 100 grand, that's not the pool you can spend from. You now invest the 100 grand and whatever the 100 grand is making you, that's what you get to spend as like on whatever you want at that point. See that? That's your you'll never go broke strategy because you are only spending not your income but the investment returns off your income. And at the beginning that sounds small because on 100 grand your income might only be 10 grand or well that's what you get for discretionary, do whatever the hell you want beyond your lifestyle. Like you don't get to upgrade your lifestyle beyond that amount. But as that compounds, you can, you know, the next year you put another 100 grand and now you got 200 grand coming in and now you're making 24 grand off that. And as that compounds basically after five, seven years, you can now live life off of only the interest, off of only the gains of your investment income and not the core, you know, income you have from spending." I don't think most people would ever really do that or think about that rule. Do you do that? You're pretty like conscious and conservative about money.
Yeah, but the way that I do it seems far more simple where it's like I want to, my annual budget is less than 3% of my liquid net worth. And I do that because I can go to bed at night knowing that it won't ever run out. But I think that that is child's play compared to what you're describing.
