Almanack of Naval Ravikant: A Guide to Wealth and Happiness

Why Read The Almanack of Naval Ravikant?

‘I like to think that if I lost all my money and you dropped me on a random street in any English speaking country, I’d be wealthy again within 5-10 years. Because it’s just a skill I’ve developed and anyone can develop.’ — Naval Ravikant

The Almanack of Naval Ravikant will teach you how to get rich without getting lucky. Inspired by his experience throughout the last decade, Naval Ravikant shares his guide to gaining wealth and happiness in this book.

Naval Ravikant is an entrepreneur, philosopher, and investor who has captivated the world with his principles for building wealth and creating long-term happiness. Making money isn’t just a mandatory task to survive, but it is a skill that you learn. Getting rich is about knowing what to do, who to do it with, and when to do it.

It’s especially important to arm yourself with the following skills:

1. Specific Knowledge
2. Leverage
3. Accountability

Specific Knowledge

The best jobs are neither decreed nor degreed. They are creative expressions of continuous learners in free markets.

— Naval (@naval) January 29, 2019

 

5 Points about specific knowledge:

• It is the knowledge you can’t train for. If society can train you, it can train someone else and replace you.
• You discover it by pursuing your curiosity and passion rather than just following the current trends.
• Building specific knowledge will feel like a playful experiment to you, but look like work to others.
• Specific knowledge is taught through apprenticeships, not schools.
• Specific knowledge is often highly technical or creative. It can’t be outsourced or automated.

As an example, sales skills are a form of specific knowledge. Once in a while, you would meet someone who is natural with their sales pitches. They definitely didn’t learn it in the classroom setting. Perhaps in their childhood or schoolyard, or maybe it’s even in the DNA. Having said that, it doesn’t mean you can’t improve your sales skills. You can read Robert Cialdini, you can go to a sales training seminar, or you can do door to door sales. It is brutal but it will train you very quickly. Nobody can teach you specific knowledge, but you can certainly learn it.

Follow your intellectual curiosity more than whatever is ‘hot’ right now. If your curiosity ever leads you to a place where society eventually wants to go, you’ll get paid extremely well. You’re more likely to have skills that society doesn’t know how to train other people to do. You want to know how to do something other people don’t know how to do, at the time period when those skills are in demand.

Leverage

‘Forget rich versus poor, white-collar vs blue. It’s now leveraged vs unleveraged.’— Naval Ravikant

There are three broad classes of leverage:

• LABOUR: Other humans working for you. This is the oldest form of leverage and doesn’t work really well in the modern world. Managing other people can be incredibly messy as it requires tremendous leadership skills.
• MONEY: Money is another form of leverage. It means every time you make a decision, you multiply it with money. It’s probably been the dominant form of leverage in the last century.
• PRODUCTS: The final form of leverage is new in our world: products without the marginal cost of replication. This includes books, media, movies, and code. Code is probably the most powerful form of permissionless leverage. All you need is a computer, and you don’t need anyone’s permission to create.

The most interesting and the most important form of leverage is the idea of products without the marginal cost of replication.  This was only invented in the last 100 years and started with the printing press. It accelerated with broadcast media, but now the internet and coding have blown it up. Today you can multiply your efforts without involving other humans or needing money from other humans.

This is how all the new billionaires are born. For the last generations, fortunes were made by capital for people like Warren Buffet. But the new generation’s fortunes are all made through code or media. For example, Joe Rogan makes $50 million to $100 million a year from his podcast and holds more power than the news. Inputs don’t match outputs, especially for leveraged workers.

Accountability – Naval Ravikant Style

If you don’t own a piece of a business, you don’t have a path towards financial freedom. You may be paid a lot in roles like lawyers or doctors, but you may not have passive income where a business is earning for you while you are on vacation. People seem to think you can create wealth by making money through work alone. But there are many reasons why that wouldn’t work.

Without ownership, your inputs are very closely tied to your outputs. You only get paid for the hour you’re working, but you’re not earning anything out of those hours. So you have to work up to the point where you can own equity in a business. Maybe you can own it as a small shareholder when you buy stock. Or you can also own it as an owner where you start a company. Real wealth is created by starting your own company or even by investing in an investment firm and buying equity.

To get rich, you need leverage. Leverage comes in labour and capital, or through code or media. But these aspects are only fruitful when you’ve earned trust from others. Therefore building credibility is important, and you have to do it under your own name as much as possible. Embrace accountability and take business risks under your own name; then society will reward you with responsibility, equity, and leverage.

Up until about 2013, Naval’s public persona was built around startups and investing. Only around 2015 did he start talking about philosophy and psychology a little more broadly. It made him nervous because it was out of his usual niche and there were people in the industry who doubted him. But he took the risk and reaped the benefits in the end.

Bringing It All Together With Naval Ravikant

Let’s talk about the real estate business from the lens of someone who is doing labour to repair a house. They go to the client’s house at 8 am (as instructed by the boss), and they repair the house for $10-$20 an hour. In this situation, they have zero leverage. They have some accountability, but only to their boss and not the client. They don’t have any real specific knowledge since what they’re doing is a type of labour many people can do.

The next level up might be the general contractor working on the house for the owner. They may be getting paid $50,000 to do the whole project. So they’re paying the labour $15 an hour and keeping the difference. A general contractor obviously seems like a better role to take, but remember, this person holds more accountability for the outcome of the house. Contractors have leverage through labourers working for them, and they have a little more specific knowledge in organising and leading a team or dealing with city regulations.

The next step up might be the real estate developer. A developer is someone who’s going to buy the property, hire a bunch of contractors, and transform it into something of higher value. Instead of earning $50,000 like the general contractor, or $15 an hour like the labourer, the developer might be able to make a million dollars or half a million dollars in profit when they sell the house for more than they bought it for. But a developer takes on more risk and accountability and holds more leverage and specific knowledge. They need to understand fundraising, city regulations, where the real estate market is headed, and whether they should take on the risk or not.

The next level up might be someone who’s managing money in a real estate fund. They might have an enormous amount of capital leverage—dealing with a large number of developers and buying huge amounts of housing inventory.

Another level beyond that might be somebody who says: ‘Actually I want to bring the maximum leverage to bear in this market and the maximum specific knowledge.’ That person might understand everything—from basic housing construction, building properties and selling them, how real estate markets move and thrive, and the technology business. But obviously, not a single person knows how to do all of this. They need to pull a team together to do it where each person contributes different skill sets. This person would have massive accountability because people would devote their lives to the company’s name and take on significant risks to gain high rewards.

Conclusion

Each level has increasing leverage, accountability, and specific knowledge. You may start as a salaried employee, but you want to work your way up to gain higher leverage, more accountability, and specific knowledge. The combination of those with the magic of compound interest over a long period of time will make you wealthy.