The Wealth Elite

Hello, and welcome to The Investor’s Bookshelf.Today, the book I will be introducing to you is The Wealth Elite. I’ll take about 20 minutes to share the essence of this work: the reason wealthy people are able to accumulate vast fortunes is that they possess an extraordinary way of thinking and reasoning.

When we talk about making money through investing, many people immediately think of the stock market. But in 2012, German scholar Heike Schmoll-Brooks conducted a survey. She interviewed 472 wealthy individuals whose average assets exceeded two million euros, and discovered that fewer than 2.4% of them said the stock market was their primary source of wealth.

From this survey we can see that, when it comes to creating wealth, there are significant cognitive differences between ordinary people and the rich. The Wealth Elite explains these differences in detail. For example, ordinary people like to seek quick riches in the stock market, prefer to diversify broadly, and often believe that entrepreneurs are those who take the biggest risks. Wealthy people, however, tend to think in the opposite way. It is precisely because they have an uncommon logic of cognition that they ultimately achieve financial freedom. Financial freedom means not relying on passive labor to make a living, but instead living the life one wants through investment income and similar sources.

The author of this book, Rainer Zitelmann, is a senior editor at Germany’s renowned newspaper Die Welt. He is quick-witted, and through his position at the paper he built a wide network in the real estate industry while also learning the tricks of the trade. Later, Zitelmann founded a communications consulting company specializing in real estate, which has now become well known in the German market. He has written 17 books in total, among which the most influential is Dare to Be Different and Grow Rich, which has been translated into six languages.

Having introduced the background of this book and its author, let me now walk you through its contents in detail. The book mainly emphasizes three key points:

1. If you equate wealth simply with a large income, you will never achieve financial freedom.
2. To become truly wealthy, you must learn how to make wealth continuously grow—but there are five habitual misconceptions that can block this path, and we must break them.
3. Those who aspire to wealth should cultivate five essential traits.

Part One:

Let us begin by asking why having a large sum of money does not necessarily mean being wealthy. The author argues that money can disappear far faster than we imagine. Without understanding the principles of financial management, even a fortune will eventually be squandered.

Let’s look at a true story. In 2001, an unemployed American named David Lee Edwards won a lottery jackpot of 27 million dollars. Overnight he became rich. He began buying villas, cars, collectibles, private jets, and even took up drug use. Within just one year, Edwards had already spent 12 million dollars. Not long after, he burned through the rest of his fortune. The bank repossessed his properties and drove him into a warehouse. In the end, he died in loneliness. In fact, examples of sudden wealth followed by poverty are numerous—not only among ordinary people like him, but also among celebrities. For instance, when American superstar Whitney Houston passed away in 2012, she was still 4 million dollars in debt.

Research has shown that most lottery winners find themselves worse off a few years after their windfall than before. The reason is a fundamental cognitive error: they believe that possessing a huge sum of money means they can live without worry.

In his book, Rainer Zitelmann makes a calculation. He worked out how much savings a German would need to rely solely on interest income to match the average net income in 2014, which was €24,000. The answer: €800,000 in savings—and that only under very high interest rates, with no inflation devaluing the money. This demonstrates that having a large sum does not equate to true wealth. In fact, preserving money is often harder than earning it. Whether you have one million, ten million, or even one hundred million, without financial management you will still end up squandering it. Money disappears far faster than we can imagine.

When ordinary people come into some money, they typically indulge in luxury spending without thinking of investing—or, if they do invest, it is often blind. In 2001, an Austrian warehouse keeper named Günter Schlatner received a prize of more than €700,000. At that time, a financial advisor from a prestigious Austrian insurance company approached him, promising a safe investment that would at least double his wealth. Schlatner handed over more than €500,000 for investment. But his advisor clearly lacked the ability he claimed, using the money for stock and currency speculation. Within ten years, Schlatner had not only lost his entire fortune but had also incurred €100,000 in debt.

Many people, like Schlatner, trust financial advisors from banks or insurance companies. Yet, as Zitelmann points out, most of these advisors are essentially salespeople. Their job is to generate revenue for their banks or insurance firms by selling financial products, not to provide advice from the customer’s perspective. While handing money to them may seem convenient, it also means relinquishing responsibility for one’s investments and reducing the chance of successful returns.

The wealthy do not spend lavishly the moment they acquire money, nor do they hand over investment decisions to others. Instead, they focus on making their own investment choices to grow their wealth, ensuring they can sustain the life they enjoy. Rich people understand one crucial truth: how much money you have matters far less than what you do with it. This is the greatest distinction between the wealthy and the ordinary.

This, then, is the first key point of today’s discussion: having a large sum of money does not mean being wealthy. True wealth lies in continuously growing your assets so that you can live freely and on your own terms.

Part Two:

To achieve substantial growth in wealth, one must first break free from five common cognitive misconceptions.

The first misconception—and a phrase we often hear—is: “Don’t put all your eggs in one basket.” This suggests spreading funds as widely as possible, such as buying many different stocks or investing in various real estate assets. This idea stems from portfolio theory, introduced in the 1950s by economist Harry Markowitz. According to this theory, if we carefully balance the proportions of different investments, we can minimize overall risk and secure returns. The less correlated these investments are, the smaller the combined risk.

There is some truth to this, but when it comes to building wealth, the reasoning does not fully hold. Zitelmann argues that diversification actually hinders wealth creation. Diversification does reduce the chance of making disastrous mistakes, but it does little to significantly grow wealth. Fifteen years ago, Zitelmann chose to focus on Berlin’s real estate market. His returns have since been in the double digits. Had he opted for diversified real estate funds instead, his returns would have been only a few percent.

If we don’t diversify, how can we make precise investments like the author did? Zitelmann believes the key lies in understanding the chosen market deeply. Market information is often uncertain, and its outcome can be interpreted in opposite ways. For example, if the government reports rising unemployment, some may see this as bad news—suggesting economic weakness and a likely decline in stocks. Others may see it as good news—believing that the central bank will cut interest rates, boosting the market. Transactions happen because opposing views coexist: some buy while others sell. But ultimately, only one side will be correct. The deeper your understanding of a market, the greater your chances of being on the winning side.

The second misconception is believing that low market volatility equals low risk. Volatility, simply put, is the degree of fluctuation in returns. According to Markowitz’s theory, lower volatility means lower risk.

But this logic is flawed. Economist Michael Keppler illustrated this with an example: imagine a stock that rises 10% in the first month, 5% in the second, and 15% in the third. At the same time, another stock declines 15% every month. By volatility standards, the first stock is highly volatile, while the second is stable. Thus, the theory suggests the first stock carries higher risk. Yet in reality, the first stock gains 32.8% over three months, while the second loses 38.6%. The lesson: low volatility does not necessarily mean low risk.

The third misconception is the belief that one should invest primarily at home. Many assume domestic investments are safer than foreign ones. Zitelmann calls this home bias. A 2014 study found that over 60% of German institutional investors’ real estate holdings were within Germany, while only 1.4% were in the Asia-Pacific region—even though the Asia-Pacific economy was performing better and investing there was relatively straightforward.

This pattern is not unique to Germany. Surveys show that investors in the UK, Japan, and the US also believe their domestic stock markets outperform others. Yet, home bias ignores profitable overseas opportunities, leading to lost returns. Data in the book show that home bias reduces potential gains by 1.48% to 9.79%. Over large, long-term investments, this loss becomes enormous.

No authoritative study has fully explained why home bias exists. Some German researchers suggest national pride may play a role, noting that overseas investments drop when patriotism rises. But Zitelmann emphasizes that home bias is an emotional prejudice, one that obstructs rational investment strategy. We must resist the assumption that familiar markets are safer, and instead base decisions on sound reasoning.

The fourth misconception is relying on past market data to guide future investments—what Zitelmann calls the rearview mirror perspective. Driving requires looking forward, but the rearview mirror only shows the road behind.

Take Germany’s stock market in 1998: it broke the 5,000-point index mark. Germans rushed to buy in, investing €35.3 billion in stock funds that year, compared with just €1.3 billion two years earlier. The index rose further until March 2002, when it collapsed. In the following two years, investors dumped shares. Those who entered at the peak lost at least two-thirds of their principal. By 2003, the market began recovering, and by 2008 it surged again. Investors who bought at the 2002 trough doubled their money.

Economist Robert Shiller studied stock markets in five-year cycles across countries. He found that two-thirds of markets that surged for five years declined in the next five, while 94% of those that dropped the most in the first five years rose by 122% in the next. Such swings show the danger of relying on past performance for investment decisions. Yet, during Germany’s market cycles, most investors did just that. Psychologists confirm that herd mentality prevents people from going against the majority. This crowd-driven behavior is typical among small investors—and a major barrier to wealth accumulation.

The fifth misconception is the belief that one can consistently outperform most other investors. Zitelmann highlights this particularly in stock markets. A 2012 survey found that 70% of German private investors believed their skills were above average. But their actual returns did not support this belief. Such optimism often leads to failure.

A dice-rolling experiment illustrates this bias. Before rolling the dice, participants wagered larger sums. But once the dice were cast—before the outcome was revealed—they bet much smaller amounts. This suggests that people think they can influence random events. Before the dice are rolled, they believe they have control; once rolled, they feel powerless. Scientists call this phenomenon the illusion of control. It causes investors to overestimate their chances of success in the stock market.

Zitelmann notes that 95% of stock trades are executed by professional traders—people who live off the markets with sophisticated systems. Individual investors stand little chance of beating them, especially in short-term trading. To counter the illusion of control, Zitelmann recommends adopting a Ulysses strategy. In Greek mythology, Ulysses bound himself to his ship’s mast to resist the Sirens’ deadly song. Similarly, investors should accept that markets are uncontrollable and instead commit to a fixed plan—such as investing a set amount monthly regardless of short-term fluctuations. This long-term discipline is like tying oneself to the mast, helping resist the temptations and risks of the market.

To recap, the second major point of the book is this: if you want your wealth to grow, avoid these five misconceptions.

1. Do not over-diversify; instead, focus on a market you understand deeply enough to predict accurately.
2. Do not assume low volatility means low risk.
3. Do not fall into the trap of home bias—invest with a broader global perspective.
4. Do not use past market data as the basis for future investments.
5. Do not overestimate your investment skills—avoid the illusion of control.
   

Part Three:

Finally, let us look at the five qualities one must possess to create wealth.

The first quality is entrepreneurial spirit.
In 2015, UBS and PwC published a joint survey showing that the vast majority of billionaires around the world did not inherit their fortunes but built them through entrepreneurship and investment.

So what is entrepreneurial spirit? Zitelmann believes the most important aspect is open-mindedness. Surveys show that ordinary people often view trying new experiences as risky. Yet more than 60% of German entrepreneurs actively embrace new experiences. To entrepreneurs, doing nothing is the real risk, because it means missing opportunities. American psychologist Albert Bandura introduced the concept of self-efficacy—the confidence in one’s ability to handle difficult situations. German scholars Rauch and Frese found that successful entrepreneurs generally exhibit higher self-efficacy than others: the more complex the situation, the more confident they are.

The second quality is cautious entrepreneurship.
Many people confuse risk-taking with gambling—this is a misconception. While successful entrepreneurs are willing to take risks, their risks are calculated strategies with built-in safeguards. In the Terman Life-Cycle Study, which tracked participants over 60 years, researchers found that scoring high on conscientiousness was one key to entrepreneurial success. Zitelmann advises that anyone wishing to start a business should first give themselves a transition period. During this time, one should not neglect their existing job, as those who fail in their primary work are more likely to fail in entrepreneurship. Next comes the question of funding. Start-up costs almost always turn out to be far higher than expected. Since unforeseen challenges abound, a rigid business plan will eventually collapse.

The third quality is honesty.
Many believe the rich become wealthy through dishonesty, and that they themselves fail to get rich because they are too honest. This is a misconception rooted in the belief that business is a zero-sum game, where one person’s gain is another’s loss. But Zitelmann argues that sustainable business relationships must be mutually beneficial.

Warren Buffett once purchased a furniture store. On the first day, he asked the owner what the store was worth. The owner replied, “$40 million.” The very next day, Buffett brought a check for that amount—without conducting any due diligence. The owner was astonished, but Buffett explained that he trusted the man even more than he trusted his own accountant. To him, the store was worth that price, with no tricks involved. Buffett has also said that when hiring people, he looks for three traits: integrity, intelligence, and energy. Of these, integrity is the most important. If an employee lacks honesty, their intelligence and energy could destroy the company.

The fourth quality is frugality.
People often assume the wealthy love to live in luxury. However, surveys from the United States and Germany reveal that most millionaires do not engage in conspicuous consumption. They often repair worn-out shoes, or switch telecom providers to save on long-distance fees. This is because successful wealthy individuals prioritize asset growth over consumption.

The fifth quality is setting financial goals.
Is aiming to earn one million unrealistic? If you believe so, then you have already failed on the path to wealth. Research shows that the higher the goals entrepreneurs set for their companies, the greater the growth those companies ultimately achieve. The first step toward financial freedom is having a clear sense of what you want to achieve—and why.

Zitelmann offers practical advice: write down your financial goals for the next ten years. He believes people often overestimate what they can achieve in one year but underestimate what they can achieve in ten. A 2008 study by U.S. scholar Geoff Colvin and others showed that many of humanity’s greatest achievements were accomplished within a decade. Thus, ten years is an ideal horizon for setting financial goals.

After setting a ten-year goal, break it down into smaller annual targets. For example, if your aim is to earn one million in ten years, it is unlikely you will earn exactly $100,000 each year. More often, your income will be modest in the early years and then grow exponentially. Your stage-by-stage targets should reflect this pattern. Zitelmann concludes that your current financial situation reflects your current mindset. If you do not change your way of thinking—and continue to let fear of failure convince you that you are incapable—you will never create wealth.

Conclusion:

To conclude, we have now covered all three key points, so let’s briefly review them.

The first key point is the true meaning of wealth. If we equate wealth merely with a large income, we will never attain financial freedom. Only by ensuring that wealth continues to grow can we avoid the fear of it being depleted.

The second key point is learning how to grow wealth by breaking free from five habitual misconceptions:

1. Avoid excessive diversification—focus instead on a market you understand deeply enough to make accurate predictions.
2. Do not assume that low volatility means lower risk.
3. Overcome home bias and invest with a broader global perspective.
4. Do not adopt a rearview-mirror approach—avoid relying on past data as the basis for future investments.
5. Do not overestimate your own investment skills; beware of the illusion of control in stock trading.

The third key point is the five essential qualities for creating wealth:

1. Entrepreneurial spirit.
2. Cautious and disciplined entrepreneurship.
3. Honesty.
4. Frugality.
5. The courage to set ambitious financial goals.

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