Notes: The Thin Green Line

by Paul Sullivan

Overall a so-so book. It caught my eye because of the subtitle (“The Money Secrets of the Super Wealthy”), but there weren’t many of those included. The empirical references to past studies and quotes from actual wealthy people were useful, but about 60% of the book is the author (a journalist by trade) talking about his own personal journey and understanding of money. What’s here are the interesting/useful anecdotes I found.

What separates the One Percent from everyone else? … When it came to investing, almost all of them had a financial adviser, over 80 percent had an accountant, and two-thirds of them had a lawyer they consulted regularly.

What people and their advisers need to do to get on the right side of the thin green line is to avoid the three things that can ruin any investment plan: optimism, trust, and self-confidence.

Avoid: optimism

He sits down with a financial adviser, who has him pull out 3 marbles from a bowl without looking. The bowl has 6 white marbles and 2 black ones, representing that historically the stock market has gone up 75% of the time (white = rising, black = declining). He happens to get black, black, white, so he made money. In this case, he had 2 declining years before picking the white marble that meant his investments went up (hopefully enough to recoup his losses).

He said what his clients struggle with the most is being fixated on events that have already happened. That’s the point of picking marbles out of the bowl: the color you just picked has no bearing on what color you’re going to get next.

A better strategy is to buy or sell a stock based on information about the future. A savvier investor … would not panic because it went down one day—he might buy more because the lower price made it a deal—he would, just as importantly, sell the stock when it reached the value he thought it should have.

The past does not predict the future.

Avoid: trust

Daylian Cain has found that investors are too trusting, particularly when their adviser tells them he has a conflict of interest. “Even very clear disclosures don’t actually have the intended warning effect. People stick to bad advice even when it’s been disclosed. They adjust, but they don’t adjust enough.”

They don’t want their adviser to think they don’t trust him or consider him dishonest. … What most investors say about their advisers has no correlation to a person’s ablity to advise them. “They’ll always say, ‘He’s such a handsome man. He has a good golf handicap. And he’s got a lovely family.'”

Cain’s advice? Procrastinate. “If the opportunity is gone tomorrow, it may mean that your money and your adviser could be gone tomorrow. There is no investment you need to make right now.”

Avoid: self-confidence

Terrance Odean (Haas biz school at UC Berkeley): “I buy index funds so when you ask me I can say that. People are overconfident about their ability to be an active manager.”

“The thought that you can do part-time what professionals struggle to do full-time and with teams, that’s hubris. Yes, I have a PhD in finance but I don’t think I can come home from work and spend an hour studying the market and do better than those guys at Goldman Sachs who do it all day long.”

Income fluctuates

12% of Americans would be in the top 1% and 39% would be in the top 5% for at least one year in their life. Over half would crack the top 10%—with an income greater than $115,000 a year—during their lives. But those years wouldn’t last. Only 0.6% of Americans will be in the top 1% for ten consecutive years.

Half of the people who earned more than $1m betwen 1999 and 2007 did so for just 1 year; only 6% did it for the entire period.

In the research Klontz and I did on the spending habits of the One Percent and the Five Percent, we found that the wealthy and the rich spent about the same portion of their income on housing—22 to 24 percent—and that their spending was roughly the same percentage of their income in almost every category, including credit-card debt, vacations, philanthropy, and their children. The two exceptions were eating out and saving for retirement. Of their income, the One Percent spent 30% less eating out and saved 30% more for the retirement. Over years those differences became enormous.

Debt diet

The only viable solution [with debt] is to create a plan with moderation, not abstention. People can’t live in voluntary deprivation. … If you took what was left [after expenses] and put it all toward the credit-card debt, you would be on a diet doomed to failure. … Rather than swearing off debt one morning and announcing your epiphany to everyone you know, taking a more moderate approach will get you to a healthier place. The latter is management, not banishment.


A wealthy person will use an accountant and a financial adviser to find the best ways to minimize taxes throughout the year, from saving for retirement to owning investments that don’t incur a lot of tax in brokerage accounts and putting investments that are heavily taxed in tax-deferred accounts. The differences will be small year to year, but over decades they will add up.

Social Security

Among retirees receiving Social Security, 53% of married couples and 74% of unmarried people depend on those benefits for half of their income. … A subset—23% of married couples and about 46% of single people—rely on Social Security for 90% of their income, when the average monthly payment works out to about $14,400 a year.


The typical advice for someone who has stopped working is to spend 4% of his or her savings per year. But that only works if the person has saved many millions of dollars and is older.

Tim Noonan (Russell Investments):

“It’s inaccurate. If you consider increased tax rates and interest rates, it depends on your age. If you’re 40, have $10m, and you think you’re done, you say, ‘I want to spend $400k a year.’ But you’re too young to do that. But if I’m 80, I should probably take 9%/year.” … He believes most people should be 125-135% funded.

Spend a different percentage of your savings based on your age.

Soft skills

At the Perry Preschool in Ypsilanti, Michican, Heckman and Kautz did an experiment with three- and four-year-olds with IQs below 85 and worked on their social skills, giving them specific tasks to complete.

“Success in life depends on personality traits that are not well captured by measures of cognition,” they wrote. “Conscientiousness, perseverance, sociability, and curiosity matter. While economists have largely ignored these traits, personality psychologists have studied thm over the last century.”

What did Perry do? Heckman:

That iconic program didn’t raise IQs. What it did do was actually create soft skills. Kids were brought in a few hours a day for three years before they entered kindergarten. They were given a task every day. They were told, “You have a project. You have to define the project. You have to execute the project. And then you have to review it collectively with your peers.” This wasn’t a Baby Einstein project. They tried a strictly academic curriculum and it didn’t work.

He asked Heckman why children seem to burn out in school more now:

“It happens because it’s a very structured existence,” he said. “They haven’t experimented. They haven’t failed. Life is trial and error. But many of these kids are afraid to experiment. It gets to be very imbalanced, more so now with the emphasis on test scores. You need to learn that you can experiment and you can fail. Some of the most effective early-childhood programs have encouraged experimentation. They get kids to stay on task and solve novel problems.”

As the Jesuits said, “Give me the child until he is seven, and I will show you the man.”


The author ran into Kurt Vonnegut at one point and started chatting. Seventy-seven at the time, he was worried about people becoming uninteresting:

“The whole excitement of life is becoming,” he told me. “Becoming is the process by which a person becomes a person, or an artist an artist.”


For someone to save at least some of their inheritance, the amount had to be at least $100,000, Jay Zagorsky told me. “My research shows the typical person spends half of their inheritance.”

Money scripts

He undertook some studies to compare affluent people with people most would consider rich, even if they are not wealthy.

In their ways of thinking, the One Percent were better off. They were less likely to sabotage their financial success by overspending, gambling away their money, or failing to stick to a budget—all classic traits of money avoidance. They were savers. If anything they worried about not having enough money. They would tell friends that they made less than they did. The equated financial success with a desire to make more money—and focused on that goal. This showed that had money vigilance and a coterie of advisers. They were significantly less likely to mow their own lawn, but they still cooked for themselves: less than 5% had a personal chef. Yet as a percentage of their income, they spent about the same on their home as everyone else—23% versus 21%. The One Percent did drive nicer cars, wear nicer watches, and spend more on vacations. They were also generally happier about life and their prospects for the future.

Two things were significantly different about the One Percent that helped put them on the right side of the thin green line. They had what Klontz termed an “internal locus of control." This meant they believed they were in charge of what happened in their lives, good or bad, and if it was bad, they could fix it. They were not at the whim of external forces that controlled their lives, truthfully or not. This internal locus of control meant they took more credit for the success they had in life and personal responsibility for their failures. Beyond being a helathier way to think about their lives, this state of mind meant they were less likely to repeat their mistakes. … The second area of difference was their aversion to losses in their investments. … They make the same foolish mistakes as everyone else when it comes to investing money. But they did not let those losses linger in their portfolios. They were okay with selling the investment at a loss and not hoping the investment would rebound over time. In this, they could also avoid greater losses if that investment continued heading down and put that money into a new investment. They took more control. They accepted contradictory information.

The gap

The gap between the haves and the have-nots is widening to where it was at the start of the twentieth century. But another gap was widening as well: the one between the haves and the have-mores. According to the 2013 World Wealth Report, 128,000 people—out of the more than 14m with more than $1m in the world—control 34.6% of the world’s wealth.