Reject Status - Embrace Wealth
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About Us
1. Who is behind DowntheLadder.org?
2. How do I "Move Down the Ladder"?
3. What is DowntheLadder.org's Financial Philosophy?
4. What are the advantages of using this site to learn about personal finances?
Downtheladder.org is owned and operated by Veblen Capital, a personal capital growth firm.
Veblen Capital takes its name from Thorstein Veblen, an early 20th Century economist who coined the now common phrase "conspicuous consumption" in his seminal classic The Theory of the Leisure Class (1899). Veblen wryly noted that people over-consumed material objects (today, Mega-homes, luxury SUVs, and designer clothing) specifically to communicate to others that they were rich. Veblen found untold waste with this approach; however, he could not fathom how his observations would escalate in the 21st Century's debt-ridden, hyper-consumption economy. Veblen Capital, through the auspices of DowntheLadder.org, provides basic consumer financial education and also urges individuals to minimize consumptive spending and choose instead a known but still lightly-traveled path to enduring wealth. That path leads to under-consumption for the express purpose of buying investment assets. Accrual of investment assets is what distinguishes the truly wealthy from the currently well-employed. Most importantly, our path at downtheladder.org calls for people to actively ignore the so-called "social ladder" . . . the very object that compels many people to spend themselves into financial oblivion.
Veblen Capital's primary author, JL Eaton developed an unconventional perspective on money, credit, and investing through both the study of a very wide array of economists, as well as an exceptionally intensive and in-depth study of Warren Buffett, a man universally acknowledged as one of the greatest investors in the annals of American history, as well as currently the World's Richest Person (per Forbes online, March 2008). Warren Buffett's specific investment philosophy and general economic outlook forms the nucleus of JL Eaton's financial world-view. (For more on JL Eaton, please see What is DowntheLadder.org's Financial Philosophy?)
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Q: How do I "Move Down the Ladder"?
A. The term is a play on words concerning the so-called "social ladder". Down the Ladder is a short-hand way of saying, "conscientiously decide against trying to impress others with financial success." The overwhelming bulk of Americans are upper-middle, middle, and lower-middle income earners. And the bulk income earners (all three groups combined) act as their own worst enemy in keeping themselves from wealth. The lower-middle group simply does the same thing by buying an un-affordable flat-screen TV (to impress the football-watching buddies) that the upper-middle group does by promising to pay six times annual income for a home "in the right neighborhood."
Q. I thought that wealth was measured by a person’s income? How can upper-middle income people not be wealthy?
A. Wealth is not what you earn; it’s the amount left over after expenses. In the business world, the remainder is called profit. When a business earns a profit, then those profits are invested. And the invested profits also earn a profit; this is the essence of compounding gains: profits earning profits. No matter how high your income, if you don’t save from it, you cannot earn any profit. And without that profit (money to invest), then you cannot have profits earning profits.
Q. Why does wealth matter? A person with the higher income can buy great stuff.
A. A person with higher-than-median income who also spends it all every month cannot help him or herself in a pinch. Wealth, much like medical insurance, doesn’t matter a whole lot until you desperately need it. You can think of wealth as being your financial insurance policy. If you are diagnosed with cancer, medical insurance acts as a buffer against you losing your car, your home, your jewelry, and all the money in the bank trying to pay for the extreme medical costs. In a like manner, financial insurance will keep you afloat (pay your mortgage, pay your car loan, feed and clothe you)… even if you lose a job and are out of work for many, many months. It is the people who have no wealth (without regard to current income) who cannot withstand a major life event such as a layoff, divorce, or medical emergency. Build up wealth and you will own a great financial insurance policy.
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Here is a background note on the evolution of JL Eaton's financial philosophy as he developed Veblen Capital:
Dear Reader,
The more you read the more you'll hear me repeat Warren Buffett many, many times. I make no excuse for being a close student of Buffett; I consider him one of my very few heroes. He, in turn, has unabashedly seen Benjamin Graham (father of Value Investing) as his hero. Some people have heard me talk here and there about Buffett, but they probably don't understand why I'm such a fan. The natural assumption is to think that I love all the money that he has made. Buffett's fortune is nothing more than a noteworthy by-product of a man who marched to his own drum. His appeal is specifically in the way that he flaunts and consistently proves conventional Wall Street wisdom wrong. The soothsayers who try to predict the stock markets actually facilitate Buffett's Billions. In some ways, it's not inaccurate to say that but for the follies of Wall Street (the incompetence, greed, and otherwise hot air that it produces) . . . Warren Buffett probably would not have but a fraction of the fortune that he does. Wall Street is filled with well-dressed hucksters . . . and the good-natured Midwesterner exposes that fact year after year. As your financial vocabulary expands, you will find that there is a veritable gold mine in Buffett's annual "Letters to Shareholders" (30 of them and counting). They can be found at: www.berkshirehathaway.com
On a related note, I have studied Graham, Fisher, Munger, to better understand Buffett. To dig really deep on understanding Buffett, I have recently studied John Burr Williams. All these men have had a great influence on Buffett (Graham most of all). However, I also understand Buffett's investment philosophy much better because I have studied the fundamentals of Markowitz, Sharpe, and Fama . . . the founding fathers of "Modern Portfolio Theory (MPT)." MPT continues to be the gospel preached in many Finance classes throughout the U.S. today (although it does not warrant the unimpeachable gospel reverence that it hailed in the 1980s). Buffett has quipped that Berkshire Hathaway should endow chairs at universities specifically for the purpose of having MPT continued in the classroom ... so that Berkshire can continue to profit on MPT's fundamental flaws.
The bottom line on MPT is this: if you studied the humanities in college, you can immediately recognize a fundamental flaw of MPT. However, for those who studied the hard sciences . . . rather than people . . . the flaws of MPT may not be readily apparent. The fundamental flaw of MPT is that it relies on advanced mathematical formulas. However, of grave importance, in order for the formulas to work, the mathematician must take certain starting points for granted. That is, certain assumptions about stock market actors must be made. The flawed assumption that is indispensable to MPT is that stock market actors are always perfectly rational. From Political Science and History, all one needs is the most basic understanding of how, exactly, World War I came about to see that people act irrationally, particularly when Group Think gets on a roll.
MPT ignores all of this because you cannot represent a hyper-ventilating, panicky stock speculator or a hand-wringing investor inside of a math formula. MPT is forced to make all the actors behave in a perfectly rational manner. Benjamin Graham (Warren Buffett's mentor) was the first to basically say, "hey, people buying and selling stock are not always acting rationally. And besides, it's not an exact science... you must ensure that there is always a Margin of Safety." Wall Street did not want to hear this... it might hurt business. So, MPT gained tremendous prominence on Wall Street (MPT was good for business); and Benjamini Graham was largely ignored . . . save for Warren Buffett (and a comparatively small handful of fellow-Graham students).
You may reasonably ask, "Why does any of this make a difference to me, the reader?"
The year is 1999: the dot.com revolution has mesmerized the financial wizards that comprise Wall Street. Some of the darling companies of Wall Street are being peddled, yes, touted by Wall Street investment banks at 80 and 90 times earnings (if the company had ANY profits in the first place). Many of these companies have never made a single dollar of profit; nonetheless, the public is told, "it's the new economy" (see "New Era" circa 1929 Wall Street disaster). Among the profitless was e-Toys.com. At its peak stock price, achieved in October 1999, e-Toys, Inc. traded for $84 per share. By February 2001 (just 17 months later), the shares were trading at 3/32 of a dollar (or 9 cents per share). If you paid $10,000 for 119 shares of e-Toys in 1999, and sold your shares in February 2001, you would have received exactly $10.71 of your invested $10,000 back from your brokerage (oh, except you would have OWED money because of transaction fees). But Modern Portfolio Theory and its Wall Street promoters insist that stock prices are always rational. The question for the humanities student: how reasonable is it to assume that stock market actors are always rational? Were e-Toy stock prices rational in October 1999 or February 2001?
Here are the sources for the e-toys information (note the Wall Street firms' commissions):
http://directmag.com/news/marketing_etoys_cease_operations/
http://www.ecommercetimes.com/story/11778.html?welcome=1203526028
What is contained in the note above is what we believe here at DowntheLadder.org; and what sets us apart from many other websites, authors, and the "financial wizards that comprise Wall Street". The fundamental tenets of our financial philosophy include:
- Anti-mainstream on investments and investment philosophy
- Mortgage and property tax deductions are not THAT great
- You don’t run to buy gold when paper currency is deteriorating
- Read Warren Buffett, Benjamin Graham, and John Burr Williams for investment wisdom, the rest will follow (none of them born since 1931).
- Retirement Accounts are a good starting point for building wealth; however, with enough study, the better view is that they are tax management tools.
- Abhorrence of Debt-based consumptive spending
- Consuming more than 90 percent of your income will keep you poor well into the future. (See Rate of Wealth Building)
- If you consume your home, expect it to collapse (credit lines and refinances allow people to take money out of a home and spend, or consume that equity).
- Leave designer clothing, designer jewelry, designer coffee, and new luxury SUVs to Hollywood-types; those carrying graduate and professional degrees should not confuse high income with actual wealth (capital). (See Gaining Wealth)
- A perspective that asserts you can save money by being a better informed consumer
- Even irresponsible credit card holders incur a maximum liability of $50 when a fraudulent charge is made on the card.
- Read and understand the fine print on purchases, including investment purchases (See Interest Earned at Banks)
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to learn about personal finances?
DowntheLadder.org attacks consumer finance and wealth building from multiple directions; and this is what distinguishes our site from popular blogs and other websites that only address such issues as personal savings. The multi-tiered approach is taken so as to build on the great foundation that is laid by many personal savings bloggers. Building up financial freedom comes from an assortment of factors, and saving is just the first step. Our aim is to inform readers about how taxes, inflation, credit, consumer rights, mortgages, and even the way that you think about investments is vital to your financial goals.
Financial information is presented to the reader through an interlinked process:
1. Essays on multiple topics are presented for study
2. A Q & A Discussion is presented on our home page so that readers can ask follow-up questions from the readings (including from having read one of the Best Books below)
3. A Best Books list is presented so that the reader can choose to supplement his or her study of personal finance topics with some of the very best authors from an assortment of time periods.
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DowntheLadder.org is designed to provide relevant financial information
necessary for comprehensive wealth building.
©2008 Veblen Capital