Wednesday, February 7, 2007

How To Become "Rich"

Method 1
Start with someone else's money, known as OPM (Other People's Money). Sell lots and lots of naked credit derivatives and volatility calls on margin, backed by said OPM as collateral. Book the proceeds as profits, take out your 25% cut quarterly. Repeat until:

a) Your "rich" goal is reached or,
b) Success goes to your head and you think you are as smart as Warren Buffett - so why not be just as rich? or,
c) It all collapses. You do not care because all those previous 25% cuts have added up to a nifty sum. The losses on OPM are OPP (Other People's Problem).

Method 2

You are the CEO of a medium-to-large listed company "A" whose stock is widely distributed. Find suitable takeover target, preferably a tightly controlled unlisted company "B" and have a friendly chat with its owner (a listed company will do even better, if it is tightly controlled). Get "A" to borrow or sell shares for a few $ billion in OPM. Make inflated cash tender offer for "B" and take a kickback from "B"s owner, in cash. DO NOT repeat too often. In fact, better to gracefully retire soon thereafter.

Method 2a (Variation on a theme)

You are the principal in a private equity fund "A", well provided with equity OPM and borrowed OPM. Repeat same steps as "Method 2", only DO NOT retire. As soon as market conditions allow after the conclusion of the deal with "B", find another suitable large public company "C" and have a friendly chat with its CEO. Arrange to sell "B" to "C" at an inflated cash price by applying the proper cash incentive to "C"'s boss. Book profit and take your 25% share. Repeat as often as possible until the (a), (b) or (c) conditions above are met.

Method 3 (Time-tested and bullet proof)

Start with lots and lots of money of your own, enough to qualify you as "super-rich". Meet anyone of the characters above and agree to provide OPM. Stay put while they present mark-to-market evidence that you are now "filthy rich" and do not attempt to exit. It won't be long before it all goes up in smoke and you are relegated to the ranks of the merely "rich". If you are truly dumb enough to believe that wealth is repeatedly created from thin air and attempt to double up as the smoke starts rising, you will be further downgraded from "rich" to "destitute".

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