Booked: Billionaires always figure out how to head off the competition

'The rich are different from you and me,' F Scott Fitzgerald famously wrote in the 1920s. There has certainly been a fascination with the wealthy over the years and what sets them apart from ordinary mortals. It's the subject of this lengthy book by Sam Wilkin, head of research at Oxford Economics, described by his publicists as one of the world's foremost global forecasting and research consultancies.

One of the key reasons for the long length is that Wilkin delves back into history in some detail with extensive chapters on ancient Rome and the robber barons of the 19th century before looking at the more modern superwealthy in areas such as finance and IT.

One common theme throughout the book is that the rich leverage their power. The extremely wealthy are good at doing one thing above all else: preventing other people doing what they are doing.

Take Microsoft's Bill Gates, for example. As the book illustrates, his wealth has come from finding a way to protect intellectual property rights for software.

Microsoft's software was not especially innovative and lagged in graphical user interfaces, multitasking and networking but Microsoft was the first to put in ironclad legal contracts preventing anyone from copying its software. Gates had one crucial advantage over other technology founders in that his father was a lawyer.

Barriers to competition

It’s not being a genius that makes you rich – it’s barriers to competition, it seems. Law and medicine provide ample examples of this with many wealthy people in this sphere. Warren Buffett’s technique for evaluating other people’s businesses relies on the same idea. Buffett speaks of looking to find a ‘moat’ which, he says, is something that will keep competition at bay for a decade or two. A good business is one with a moat.

While moats may seem increasingly rare, Wilkin points to a classic Buffett investment – Moody’s, which is protected by a government policy that essentially limits competition in the industry to three companies.

The list of the world’s 1,600 billionaires is dominated by individuals from the emerging world, including India, China and Russia. Wilkin notes that in the United States and Europe, well crafted and well enforced law and regulations make it increasingly difficult to become a billionaire.

Having said that, a good crop of established world billionaires have found a way to make it to the top. The top 100 in the Forbes Global Rich List contains 61 individuals from Europe, the US, Japan and Australia. Most of these fortunes fall into two categories. The first is finance, including hedge funds, private equity and fund management. The second relates to intellectual property. These include consumer goods companies that own valuable brands, such as LVMH and Mars.

Observations

Wilkin’s best observations come late in the book when he looks for common themes in the personal qualities of some of the billionaires he profiles. The first is a love of maths, not the theoretical kind but the more prosaic kind – figures, accounting and spreadsheets.

John D Rockefeller

described it perfectly when he said that his first office job was “delightful to me – all the method and systems of the office”. Later, after becoming vastly wealthy, he claimed: “I chartered my course by figures, nothing but figures.”

Not surprisingly, a love of money comes next but the third characteristic is more interesting – a willingness to throw out one’s early business partners. The final characteristic identified, meanwhile, brings elements of the others together – the capacity to be ruthless in all aspects of business.

Among the other ‘secrets’ Wilkin’s uncovers are that scale is a great way of creating an effective monopoly; emerging markets, without strong incumbents, can be great places to create wealth; and the accumulated ownership of income-generating assets, such as property, mines or intellectual property, is a great way to produce long-term wealth.