How to Make $3 Billion a Year or More

Here's a very interesting story. It details the life of hedge-funder John Paulson who made between $3 billion and $4 billion in 2007. There are several details that make this story interesting. The first, of course, is the size of the earnings:

To put that in perspective, Mr. Paulson’s salary equals the incomes of 62,500 Americans earning the national median income of $48,000 a year. It also puts him instantly among the top 150 richest Americans, as measured by Forbes. Mr. Paulson made more in one year than The Donald has made in a lifetime.

Next, he's got a lower-than-you'd-expect tax rate on his earnings:

Because his income is based in part on carried interest, or a cut of the trading gains made by his fund, he likely will pay the lower capital-gains rate (15%) rather than the usual 35% rate for everyday salary workers.

Finally, he didn't really "earn" it -- he "lucked" into it:

Mr. Paulson made his pile by betting against the housing market at just the right time. Lots of people bet their money on a housing crash, but they were too early — his bets happened to coincide with a crash in the debt markets. Like most rich people have told me over the years, timing is everything. Or at least it’s a big part of success.

Unfortunately, you and I can't count on earning $3 billion, paying lower taxes, and luck landing us a windfall. So we have to earn our money the old-fashioned way. Fortunately, I've got some suggestions on how we can do this. See 11 Great Ways to Earn More Money for specifics. Following these tips has really helped me grow my income.

Comments

[Keith @ Coddleshell]

How do I get that job? Sheesh

[Chris]

This is why a low Capital Gains tax is ridiculous. I make $1000 in the market I pay 15% (unless you earn less than $32k a year, then it is 5%) He makes $3,000,000,000 and he pays 15%.

Either way, you will never ever work your way to being rich. Your capital can always work harder.

[Credit Card Reviews]

I agree.
I just need enough capital to work with :)

[beastlike]

Chris - If you raise the capital gains tax you lower the incentive to invest. Thus, if you think we have a bad economy now, think again.

[Dave]

What the WSJ article also notes at the end is that for every 1 John Paulson in the world, there are probably hundreds of thousands who aren't as lucky. Does Paulson "deserve" $3 billion dollars? Maybe not. But what about the guy who wins the powerball lottery?

The great thing about this country is that anyone can go out and invest in markets. Now it's of course obvious that large institutions and hedge funds clearly have many advantages over little guys. But if you work hard, get an education, and take some risks, then nothing is stopping you from rolling the dice and trying to capitalize on the markets like Paulson did.

[MonkeyMonk]

Nothing is stopping you from going to Las Vegas either. :)

[Steve]

I think its completely unfair to say he didn't earn that money. He's like a commissioned salesperson. People pay him to allocate their capital and when his decisions cause that capital to appreciate, he gets a slice. That's the way the game is and he just played it extremely well. And its not like he is responsible for our country's tax structure.

[Sarah]

Steve, he didn't just happen to get his compensation in a lightly-taxed form. The hedge funds spent a lot of time figuring out this scheme and, believe me, any attempt to close this loophole has been and will be bitterly fought by them (and their wealth). Every single middle-class person who gets hit by the AMT this year should wise up: while the feds are effectively jacking up *your* taxes, they are allowing these incredibly highly-compensated individuals to keep a bigger slice of their own earnings than their secretaries get to keep of their salaries which are orders of magnitude less.

And anyone who thinks that, knowing he would "only" make $195 million, he would have worked less hard, is being a little silly.

[thomas]

I don't like how you used "luck" in this post. His job is to invest in the right things at the right time. He saw the market coming to a cliff and he took advantage of it. He didn't hit the powerball, he made an educated guess and it paid out, handsomely.