(This article first appeared in Real Estate Investor's Monthly.)

In the 9/98 issue, I wrote about the book The Millionaire Next Door by Doctors Tom Stanley and William Danko. Dr. Stanley ditched Danko and wrote a follow-up book, The Millionaire Mind. Like the first one, it is based on the often surprising results of extensive surveys and interviews of real millionaires. Although I never thought of it that way, I have been interviewing millionaire real-estate investors for decades. As a result, I think Stanley and his millionaires are wrong on a number of real-estate issues.

Sparing use of credit

Contrary to the nothing-down crowd, real millionaires are averse to credit. Or at least they try to get rid of it early in their careers. I have lately been pushing lowering your loan-to-value ratio as your career progresses. See “God willing and the creek don’t rise” in the 10/98 issue.

Fine old homes

Stanley found that millionaires generally do not buy new homes (only 27% ever did). Rather, they buy the most solid values in housing: fine homes in old, established, attractive neighborhoods. There is some virtue to that. New construction neighborhoods may not become desirable.

On the other hand, my wife and I had our current home built new in 1983 and we love it. It was the only way we could get what we wanted: five bedrooms, a family room, a home office, and no pool. Existing homes that came close cost far more than we paid. Also, we had the most respected builder in the area and our development was tacked onto the back of an established development by that same builder, so we did not seem to be taking much of a chance on the way the neighborhood would turn out.


Stanley distinguishes between the Income Statement Affluent (ISA) and the Balance Sheet Affluent (BSA). Balance Sheet Affluent have high net worths. The Income Statement Affluent have high incomes, but they live so high off the hog that their net worths are not high.

I intended to be BSA and was, but I had quasi-ISA status thrust upon me by the ’80s Texas real-estate debacle.

If someone is a phony who struggles financially behind a facade of wealth, I’m with Stanley. But there is a less extreme ISA. According to Stanley, my wife and I should sell our $925,000 home and move to a smaller one.

Our home has given us 17 years of satisfaction. We had the cash and income to buy it in 1983. Why shouldn’t we start enjoying it then? Is net worth an end in itself or a means to ends like having a nice home? I say the latter. Stanley and his millionaires lean toward the former. They deprive themselves and their families of certain real benefits in order to feed their balance sheets. That’s fine up to a point, but I think they go beyond the point of diminishing returns. In general, Stanley’s millionaires made too much money and live too low off the hog, e.g., buying clothes in thrift shops.


According to his surveys, millionaires are 54, have been married to the same spouse for 28 years, and have three children. Median net worth: $4.3 million. Median annual income: $436,000. Only 2% inherited any part of their net worth. 97% own their homes. Median home purchase price and year: $435,000, 1988. Median current value: $750,000. Median mortgage balance: under $100,000.

32% own businesses and they have the highest net worths among millionaires; 16% are senior corporate executives; 10%, attorneys,; and 9%, doctors; 33%, retired or other occupations. 90% are college graduates; 52%, graduate school grads.

Not the smartest

Stanley found that millionaires aren’t the sharpest knives in the drawer. The average millionaire had a 2.92 grade point average in college (about a B) and an SAT score of 1190. (Minimum, 400; max, 1600; median, 1000.)

Does this prove one of the most cherished beliefs of the not very bright: that smart people lack common sense? No. Some don’t, and you do need common sense to become wealthy. But Stanley has another explanation which I find plausible.

People who get good grades and test scores disproportionately go into smart-people occupations like medicine and law. The reason is status. The problem with that as far as accumulating net worth is concerned is twofold: competition in those two fields is brutal and there is peer pressure in those two fields to live an affluent life style.

The folks with the 2.92 GPAs and 1190 SAT scores are saved from those two problems by being rejected by medical and law schools. So they end up in professions where their intelligence is high relative to the competition. They prosper from that competitive advantage. Because they are selling junked truck parts, carpet padding etc., they feel no peer pressure to keep up with Dr. Jones or Jones, Esq., conspicuous consumptionwise.

Choice of vocation

Stanley says, and it makes sense, that the most important thing to wealth accumulation is choice of vocation. Normally, the smartest people would accumulate the most wealth. But they pursue status, wrongly assuming that wealth will follow, and end up poorer than their less intelligent brethren.


In his first book, Stanley used the football term “offense” to refer to making money and “defense” to refer to holding down expenses. I’ve written four books on football coaching. The basic principle of football offense is strength against weakness. For example, you try to get a fast receiver matched up in man-to-man pass coverage with a slower linebacker.

For a smart person to become a doctor or lawyer is strength against strength, not strength against weakness. People who hope to make money should go into a vocation where their talents, intelligence and otherwise, give them the best comparative advantage. Smart people who want to maximize wealth accumulation, should go where the dumb competitors are, not where the highest concentrations of smart people are.

The curse of talent

Another good point Stanley makes is that intelligence tends to make school too easy for smart people. To succeed in life generally requires multiple talents, like a decathlon. But to succeed in junior high, high school, or college, generally requires only one of three talents: academic intelligence, athletic ability, or social skills. For girls, beauty will suffice.

The people who have one of those talents bubble to the top in school with relatively little effort, then wrongly assume that is where they will end up in life for the same reasons. The classic case is the beautiful girl who never had to develop her personality.

Meanwhile, the less intelligent, less athletic, less socially adept, and the ordinary-looking girls are frantically developing multiple aspects of their talents to try to catch up to the beautiful people. When the whole bunch of them get into the real world, it turns out that the beautiful people are relatively ill-equipped to meet the multifaceted challenges of wealth accumulation. Essentially, the less talented show up for the decathlon of life having worked on all ten sports, while the talented show up having gotten very good, but only at one, which does not get them the gold.

Love their work

Another aspect of achieving millionaire status is that the typical millionaire loves what he does for a living. I discussed that in detail in “You gotta love it” in the 1/97 issue. Stanley’s research confirms the link.


Stanley’s millionaires are big on attributing their success to their integrity. I can see some logic to that. Being self-employed permits you to make an honest living, something I would not believe of the 16% senior corporate executives. Being honest with your customers and suppliers is also good policy.

However, sadly, it appears to me that dishonesty pays more that honesty. In my business—real-estate-investment advice—the guys who make the most are the most dishonest. Mass-market business, to a large extent, is like politics—you can usually prosper most by telling people what they want to hear rather than the truth. Bill Clinton, the most successful politician of the last half century, proves that. Stanley used surveys. People do not always answer surveys honestly, even when they are anonymous.

Never pay asking price

One thing I disagree with in Stanley’s book is that 80% to 91% of millionaires never pay asking price for a home. In this case, I think my research talking to successful real-estate investors gives better results. I believe every successful investor I have ever discussed it with said he had paid full price on occasion in his career—because the price was right. I paid full price three times, and never regretted doing so. To say you should never pay asking price implies that no seller has ever priced his home at or below market value. The correct advice is to pay market or less. To do that, you must know value. When you find the home you want and the asking price is right, you say, “Sold.” Otherwise, you are likely to lose the house to another buyer. Only the ignorant use asking price as a gauge of value. In this instance, both Stanley and his millionaires are showing their ignorance.


Throughout …Mind, Stanley commits the cardinal sin of referring to himself as the “author” of the previous book, Millionaire Next Door. In fact, he is the co-author with Dr. William Danko. This is dishonest.

His only acknowledgment of Danko in this book is a parenthetical “with William D. Danko, PhD” on the “also by Stanley” page. Even the “with” is less than honest. In publishing, the word “with” refers to a writer who helped a non-writer write a book.

‘The Home’

My other complaint about …Mind is Stanley’s chapter on “The home” wherein he tells how millionaires go about buying homes. The chapter is almost entirely crackpot ideas that Stanley apparently dreamed up on his own, then “confirmed” by phrasing his survey questions to encourage responses supporting his theories.

Here are some of the things he says that I disagree with:

This is an interesting and worthwhile book—when he’s not talking about real estate. JTR