Comments on: The Millionaire Next Door is misleading http://advancedpersonalfinance.com/the-millionaire-next-door-is-misleading/ Moving beyond the basics Fri, 25 Jul 2008 18:31:30 +0000 http://wordpress.org/?v=2.2.2 By: samerwriter http://advancedpersonalfinance.com/the-millionaire-next-door-is-misleading/#comment-6 samerwriter Fri, 30 Mar 2007 21:45:08 +0000 http://advancedpersonalfinance.com/the-millionaire-next-door-is-misleading/#comment-6 I'm not sure survivorship bias applies to TMND. I don't believe they argue that starting a business is a free ride to milloinaire-land. In fact, though it's been several (maybe 10?) years since I've read TMND, I seem to recall they mentioned that many of the people they surveyed had failed several times before becoming successful. Rather I think they remarked on how a large percentage of the millionaires they surveyed were business owners. Allow me to make up some numbers here (again, since I haven't read the book in eons).. If your goal is to become a millionaire, and 100% of the millionaires they could find were business owners, then owning a business is probably the best way to become a millionaire. If 75% of the millionaires they could find were business owners, and only 5% of the general population are business owners, then again, in aggregate, owning a business is probably a pretty reasonable way to become a millionaire. That's not to say I don't think there are flaws in their methodology. I don't recall if they addressed this concern, but I think their survey has self-selection bias. I.e. perhaps those who would choose to participate in a forum on millionaires happen to be business owners. I'm also not convinced that the millionaires they discuss really *are* millionaires. How do you value a business? I don't recall if these 'millionaires' actually had millions in the bank. For example, personally, I don't consider someone with a $300K mortgage and $100K in other debts, but whose southern california house has allegedly appreciated from $500K to $1.5M, to be a millionaire. I’m not sure survivorship bias applies to TMND. I don’t believe they argue that starting a business is a free ride to milloinaire-land. In fact, though it’s been several (maybe 10?) years since I’ve read TMND, I seem to recall they mentioned that many of the people they surveyed had failed several times before becoming successful.

Rather I think they remarked on how a large percentage of the millionaires they surveyed were business owners. Allow me to make up some numbers here (again, since I haven’t read the book in eons).. If your goal is to become a millionaire, and 100% of the millionaires they could find were business owners, then owning a business is probably the best way to become a millionaire.

If 75% of the millionaires they could find were business owners, and only 5% of the general population are business owners, then again, in aggregate, owning a business is probably a pretty reasonable way to become a millionaire.

That’s not to say I don’t think there are flaws in their methodology. I don’t recall if they addressed this concern, but I think their survey has self-selection bias. I.e. perhaps those who would choose to participate in a forum on millionaires happen to be business owners. I’m also not convinced that the millionaires they discuss really *are* millionaires. How do you value a business? I don’t recall if these ‘millionaires’ actually had millions in the bank.

For example, personally, I don’t consider someone with a $300K mortgage and $100K in other debts, but whose southern california house has allegedly appreciated from $500K to $1.5M, to be a millionaire.

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