Let us get one thing out of the way. This is NOT a bad book. In fact, it is a well-done, interesting, and much needed study that gives us all new insights about what millionaires are really like as opposed to people’s misconceptions of them. If this was merely a study of what millionaires are like, I would give it five stars.
The problem begins when people see this book as a recommendation: "most millionaires are frugal, hard-working, well-educated, and diligent investors – so if I will act like that I will be a millionaire". This is simply not true – and for a very simple reason discussed below.
Indeed, most millionaires ARE like that. Indeed, it is good advice to be frugal, hard-working, and well-educated as opposed to the opposite. It is also gratifying to see that sometimes "doing the right thing", the protestant work ethic, and the "nose to the grindstone" attitude sometimes pay off not only in "being a better person", but in concrete monetary success. Apparently good guys DON’T finish last after all.
But the book suffers from a double survivorship bias. "Survivoship bias" is what happens when one only pays attention to those who survive a certain activity, peril, or risk, and makes ungounded conclusions about cause and effect from that. One famous example is Neitzsche’s famous saying, "what doesn’t kill me makes me stronger". It is based on the survivorship bias that those who survive terrible calamities tend to be stronger than other people. But it doesn’t mean the calamity MADE them stronger – it might mean simply that only those who were strong to begin with survived the calamity.
What survivorship bias do we see here? First, it interviews ONLY millionaires. It doesn’t interview ALL of those who are frugal, hard-working, and concerned about education – it only interviews those of them WHO BECAME MILLIONAIRES. It could very will be (it probably is) that 99% of those who are hard-working, frugal, and concerned about education still fail to become millionaires.
This, of course, doesn’t mean that being hard-working and educated is "bad"; it just doesn’t mean that it is the CAUSE of becoming a millionaire. If anything, only the opposite that is true: that if you are lazy, a big spender, and a cropout, you probably will NOT become a millionaire. But that is NOT that same thing!
A second survivorship bias is the time of the survey. The people interviewed were, almost to a man, "dilligent investors" – especially in the stock market – who started investing at least 20 years before. They were interviewed in the late 1990. This means that, by sheer coincidence, they started investing in what turned out to be the largest bull market in US history. On the average, $1 invested in the stock market in 1980 would be worth about $20 when the Dow hit its high in 1999. Naturally, this significantly increased the net worth of many of these people. But was this due to any foresight on their part, or sheer luck? If the stock market had gone the other way, how many of them would still be millionaires?
Furthermore, what about all the hard-working, diligent investors who started investing at the same time (early 1980s)… but unluckily invested in the wrong companies or industries, such as the "safe" oil or car industry which tanked, ruining many people? How could you tell – BEFORE it happened – that one investing method was better than the other, that one will make you a millionaire and the other leave you broke? You coudln’t.
Once again, this doesn’t mean that investing is "bad". It is NECESSARY to invest well and succeed in your investments in order to become a millionaire – if you don’t invest, you won’t become a millionaire. But again, this isn’t the same thing: you might very well invest with all due dilligence, safety, and careful planning – and still lose everything.
In summary, good book? Yes. Interesting book? Yes. Teaches you things you didn’t know? Yes. Shows that the old protestant work ethics is good after all? Yes. But does it show you how to become a millioniare? NO! Buy it, by all means… follow its advice… but do so because it is generally good advice on how to live, NOT because it will make you rich. That is just an illusion based on survivorship bias.
