My views on the market, tech, and everything else

A Dozen Things I’ve Learned from Benjamin Franklin About Money and Investing


Benjamin Franklin was an amazing person measured by any standard. His story is worth learning about in detail and there are some wonderful biographies available. It is hard to do justice to Franklin’s accomplishments and his life story in a a blog post, but here is a highly simplified summary of the basics:

“Franklin was born in Boston in 1706. He was legally indentured to work in his brother’s print shop when he was 12 years old, and he did so until he turned 17. Then Franklin skipped Boston for Philadelphia, where he became a successful printer and writer. He [founded] Philadelphia’s first lending library, first fire department, and first post office. He was always active in colonial politics. Along the way, he became a world-famous scientist. He served as Pennsylvania’s colonial regent in England from 1757 to 1762. Franklin helped draft both the Declaration of Independence and the Constitution.”

“Franklin started the American Philosophical Society, which was this country’s first scientific society and maintained the first science library, first museum, and first patent office; more than 90 members of this society went on to win Nobel Prizes. On his eight trans-Atlantic crossings, Franklin made measurements that helped chart the Gulf Stream. He pioneered the study of water flowing around a hull—hydrodynamics. He investigated meteorology. He invented bifocal spectacles. He was most famous, of course, for his experiments with electricity, especially lightning. His lightning rod helped banish the terror of thunderstorms.”

Franklin is a hero to many people including Charlie Munger:

“There is the sheer amount of Franklin’s wisdom… And the talent. Franklin played four instruments. He was the nation’s leading scientist and inventor, plus a leading author, statesman, and philanthropist. There has never been anyone like him…. Franklin was quite old when he was ambassador to France. This was after he was world famous and rich, and he was more self-indulgent than when he was young and making his way in the world. But he was a very good ambassador and whatever was wrong with him from John Adams’s point of view helped him with the French. I think Franklin was a marvelous steward. I’m willing to take the fellow as he averaged out. And certainly I’m in favor of old people having a little enjoyment.”

As is usual, the dozen quotes from Ben Franklin follow in bold text:

1. “In 1732 I first published my Almanack under the name of Richard Saunders; it was continued by me about twenty-five years, and commonly called Poor Richard’s Almanack. I endeavoured to make it both entertaining and useful, and it accordingly came to be in such demand, that I reaped considerable profit from it, vending annually near ten thousand.” Franklin learned the printing trade working for his brother and including time he later spent in London working for other printers. As the story goes:

“At length the harmony between himself and brother was interrupted, and he left his service and went on board a vessel in the harbor, bound for New York. In that city he could not obtain employment, and he proceeded on foot to Philadelphia, where he arrived on a Sabbath morning. He was then but seventeen years old, friendless and alone, with but a single dollar in his pocket… It is said that his first appearance in Philadelphia attracted considerable attention in the streets. With his spare clothing in his pocket, and a loaf of bread under each arm, he wandered about until he came to a Quaker meeting, where he entered, sat down, went to sleep, and slept soundly until worship was closed.”

Franklin, who started his business with very little capital, needed to generate customers in a cost-effective way. He found his solution in the form of what today would be called “content marketing.” It has been argued that Benjamin Franklin was the first American and it can similarly be argued that he was the first American content marketer. By printing and distributing his Poor Richard’s Almanack Franklin was able to spread the word about his business and acquire a reasonable customer acquisition cost (CAC) in relation to the revenue his business could generate from that customer. Franklin’s book was published before other content marketing efforts like August Oetker’s cookbooks promoting Backin baking powder (1891) or John Deere’s magazine, The Furrow. Franklin’s advice for others following in his footsteps was simple and to the point: “Either write something worth reading or do something worth writing.” It is an interesting exercise to keep track of what you read during a day and think about how much of what you read on a daily basis is content marketing. There is so much content marketing that it is crowding out other forms of writing with different business models. Why read a book when you can read a blog for free, especially if that blog maps to the typical attention span of about six minutes? Would Poor Richard’s Almanack today be a blog offered for free as part of a freemium business model?

2. “An investment in knowledge always pays the best interest.” Buffett has made a similar point to the one being made by Franklin in the previous quote. Buffet said: “Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold.” Through self-directed reading and self-education Franklin turned himself into an “expert generalist” which I wrote about in my previous blog post. Franklin said: “This library afforded me the means of improvement by constant study, for which I set apart an hour or two each day, and thus repaired in some degree the loss of the learned education my father once intended for me. Reading was the only amusement I allowed myself. I spent no time in taverns, games, or frolics of any kind; and my industry in my business continued as indefatigable as it was necessary.”

3. “Money is of a prolific generating Nature. Money can beget Money, and its Offspring can beget more, and so on. Five Shillings turn’d, is Six: Turn’d again, ’tis Seven and Three Pence; and so on ’til it becomes an Hundred Pound. The more there is of it, the more it produces every Turning, so that the Profits rise quicker and quicker.” Franklin understood that not only is compound interest powerful, but “cumulative advantage” is a highly advantageous phenomenon. Success in almost any domain inevitably creates more success as the process feeds back on itself. The classic essay on this is from Duncan Watts entitled: “Is Justin Timberlake a Product of Cumulative Advantage” (find a link to this essay in the notes). In my blog post on Julian Robertson I wrote:

“The basic idea is that once a person or business gains a small advantage over others, that advantage will compound over time into an increasingly larger advantage. This is sometimes called ‘the rich get richer and the poor get poorer’ or ‘the Matthew effect’ based on a biblical reference. Merton used this cumulative advantage concept to explain advancement in scientific careers, but it is far broader in it application. Cumulative advantage operates as a general mechanism which increases inequality and explains why wealth and incomes follow a power law.”

4. “If a Man lets his Money lie in my Hands after it is due, he gives me the Interest, or so much as I can make of it during that Time. This amounts to a considerable Sum where a Man has good and large Credit, and makes good Use of it.” Franklin understood the financial value of what is called “float,” which Buffett once described as “free money — and, better yet, getting paid for holding it.” Buffett has also said: “Float is money that doesn’t belong to us but that we temporarily hold. Float is wonderful – if it doesn’t come at a high price.” On float Charlie Munger has said:

“Growing float at a sizeable rate at low cost is almost impossible — but we intend to do it anyway.”

“I’ve been amazed by the growth and cost of our float. It’s wonderful to generate billions of dollars of float at a cost way below Treasury notes.”

“We were always opportunistic and wanted to buy the best thing conveniently available that we could understand. Early on, we looked a lot at float businesses in the public markets, but nowadays we have so much float it isn’t as useful, and Europe and Japan rates are negative, so we can’t get great returns on the cash that the float gives us. We made so much money off those float businesses it was obscene.”

It is interesting that both Buffett and Munger have said that the ability to profit from float in the insurance business is not what it used to be. Carol Loomis has written: “Float has been rising at Berkshire for eons, but Buffett began a couple of years ago to warn that future gains would be tough to get. But still they’ve kept coming.” One way to look at the importance of float is to use the inversion approach. For example, as Buffett does here:  “[Depreciation] is reverse float — you lay out money before you get cash. Any management that doesn’t regard depreciation as an expense is living in a dream world.”

5. “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” The other way to put this is that nothing is certain except risk, uncertainty and ignorance. Michael Mauboussin describes the right taxonomy well by saying: “Risk is when we don’t know what the outcome is going to be, but we do know the definable distribution… Uncertainty, by contrast, is when we don’t know what the outcome is, but we actually don’t know what the underlying distribution looks like.” Ignorance exists when you do not even know the potential outcome is possible or can’t even conceive of it. As is that case with many of Franklin’s axioms, it is unlikely that Franklin was the first person make the point in the quotation, but was unique in his phrasing. For example, the Yale Book of Quotations quotes “Tis impossible to be sure of any thing but Death and Taxes,” from Christopher Bullock, The Cobler of Preston (1716) and also quotes “Death and Taxes, they are certain,” from Edward Ward, The Dancing Devils (1724). Daniel Defoe The Political History of the Devil 1726 wrote: “Things as certain as Death and Taxes, can be more firmly believ’d.”

6. “Success has ruined many a man.” This Franklin phrase was probably borrowed from Samuel Richardson:

“In great Prosperity, as well as in great Calamity, we ought to look into ourselves, and fear. Success has blown up, and undone many a man. Who is there that Wealth does not mislead? Prosperity sets up merit as a mark for envy to shoot its shafts at. The greatly Prosperous bear controul and disappointments with difficulty. Great acquirements are great snares.”

Mark Twain wrote about Franklin and his borrowing of the writing of others:

“Franklin the immortal axiom-builder, who used to sit up at nights reducing the rankest old threadbare platitudes to crisp and snappy maxims that had a nice, varnished, original look in their regimentals; who said, “Virtue is its own reward;” who said, “Procrastination is the thief of time;” who said, “Time and tide wait for no man” and “Necessity is the mother of invention;” good old Franklin, the Josh Billings of the eighteenth century–though, sooth to say, the latter transcends him in proverbial originality as much as he falls short of him in correctness of orthography. What sort of tactics did Franklin pursue? He pondered over his last words for as much as two weeks, and then when the time came, he said, ‘None but the brave deserve the fair,” and died happy. He could not have said a sweeter thing if he had lived till he was an idiot.’”

Franklin believed that a person should try to avoid hubris. You should also try to avoid fooling yourself, which is hard since it is easy to do. If you understand that more of success in life is luck than you imagine it is easier to remain humble. Many people attribute what is really luck to skill and then assign themselves an undeserved moral halo. That someone has become rich does not always correlate well to whether they have anything valuable to say.

7. “Necessity never made a good bargain.” The best negotiating position exists when you have what Roger Fisher called a BATNA (best alternative to negotiated agreement) in his best-selling book Getting to Yes. In short, it is your alternatives that matter. Without some alternative to what you seek in the negotiation the other negotiator has a very strong  lever to get what they want. This is really just simple opportunity cost thinking.

8. “A penny saved is a penny earned.” “Rather go to bed without dinner than to rise in debt.” “Think what you do when you run in debt; you give to another power over your liberty.” “If you would know the value of money, go and try to borrow some; for he that goes a borrowing goes a sorrowing.” “The Way to Wealth, if you desire it, is as plain as the Way to Market. It depends chiefly on two Words, INDUSTRY and FRUGALITY; i.e. Waste neither Time nor Money, but make the best Use of both.” “Beer is living proof that God loves us and wants us to be happy.” Franklin worked hard and read widely to populate the pages of his books and other writings. As was previously stated, did he borrow from people who came before him? Sure. But by any standard Franklin gave us vastly more than he borrowed. We all stand on the shoulders of giants. Mark Twain humorously said that he resented Franklin’s example since the principles he talked and wrote about were used in Twain’s upbringing:

“If it had not been for him, with his incendiary ‘Early to bed and early to rise,’ and all that sort of foolishness, I wouldn’t have been so harried and worried and raked out of bed at such unseemly hours when I was young. With a malevolence which is without parallel in history, he would work all day, and then sit up nights, and let on to be studying algebra by the light of a smoldering fire, so that all other boys might have to do that also, or else have Benjamin Franklin thrown up to them. Not satisfied with these proceedings, he had a fashion of living wholly on bread and water, and studying astronomy at meal time–a thing which has brought affliction to millions of boys since, whose fathers had read Franklin’s pernicious biography.”

9. “Time is money. He that can earn Ten Shillings a Day by his Labour, and goes abroad, or sits idle one half of that Day, tho’ he spends but Sixpence during his Diversion or Idleness, ought not to reckon That the only Expence; he has really spent or rather thrown away Five Shillings besides.” The phrase “time is money” was used by Franklin in a 1746 essay entitled Advice to a Young Tradesman, Written by an Old One (an essay reproduced in full in the notes). The key point being made again by Franklin here is that it is wise to think in terms of opportunity cost. How early was Franklin in making points related to opportunity cost?  Frédéric Bastiat did not write his essay What is Seen and What is not Seen until 1848. David Ricardo’s writing on the importance of comparative advantage and opportunity cost did not appear until the early 1800s. Combine this quotation with Franklin advancing ideas like (1) “no nation was ever ruined by trade” and his essays on  “paper money” when he was only 23 years old and an argunet can be made that Franklin was a pioneering economic thinker too. Was Franklin the first American economist?  Why not? Historical accounts say that Adam Smith sent chapters of his book The Wealth of Nations to Franklin for comments while they both were in London and the two men certainly met and discussed the ideas in the book. One writer notes that: “During [Franklin’s] sojourn of five years in England he had made many valuable friends outside of court and political circles, among whom David Hume and Adam Smith were conspicuous.”

10. “If everyone is thinking alike, then no one is thinking.” Franklin knew that if you adopt a contrarian view and are right about that view, you can both profit and create innovation. Being a contrarian doesn’t produce anything valuable if you are wrong. Thinking is required. Bill Gurley has put it this way: “Being ‘right’ doesn’t lead to superior performance if the consensus forecast is also right.” Michael Mauboussin describes the goal:

“the simple act of being a contrarian will make no one rich. In fact, conforming generally makes the most strategic sense. If you’re in a theatre that catches on fire, you’re best served running out in contrast to the contrarian tack of running into the theatre. If being different is not the sole goal, what should the aspiring contrarian focus on? Here I turn to a common sense distinction that I would argue is the single most common error in the investment business: failure to distinguish between the fundamentals of the situation (of a company in the case of stocks) and the expectations reflected in the asset price. Horse racing provides a good metaphor. There are two issues: how well the horse will likely run – you look at the horse’s record, the stable it came from, the jockey, the track conditions, etc – and the expectations, which show up as the odds posted on the board. A contrarian investor focuses not only on the general sentiment, but more importantly on how that sentiment can lead to disconnects between the fundamentals and market expectations.

11. “Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants.” “He that is of the opinion money will do everything may well be suspected of doing everything for money.” What is as interesting as anything about Franklin is that he worked hard to become wealthy and then retired at age 42 and use his wealth to do what he wanted. Charlie Munger is said to have used both Franklin and Robinson Crusoe as a model for the value of being independent. What Munger strove for with his investing was accumulating enough wealth to enable his independence, so he could spend as much time reading and learning as he wanted. In the case of Franklin:

“His printing business made him a wealthy man. But by the age of 42, he had as much money as he needed. He found an able managing partner in whose hands he put the business, and he retired to study philosophy. And philosophy in those days, of course, encompassed science and the general study of the natural world. He thought that was a better use of his time at that point.”

On the topic of wealth, the National Humanities Center notes:

“Franklin is well-known for his aphorisms—usually printed in his almanacs and public essays—promoting frugality, hard work, and plain living as the road to success. This does not mean that Franklin was opposed to wealth in itself, nor that his later acquisition of luxury goods was hypocritical. What mattered to Franklin was how one achieved wealth (honestly) and how one displayed it (unostentatiously).”

12. “When I was a child of seven years old, my friends, on a holiday, filled my pocket with coppers. I went directly to a shop where they sold toys for children; and being charmed with the sound of a whistle, that I met by the way in the hands of another boy, I voluntarily offered and gave all my money for one. I then came home, and went whistling all over the house, much pleased with my whistle, but disturbing all the family. My brothers, and sisters, and cousins, understanding the bargain I had made, told me I had given four times as much for it as it was worth; put me in mind what good things I might have bought with the rest of the money; and laughed at me so much for my folly, that I cried with vexation; and the reflection gave me more chagrin than the whistle gave me pleasure. This, however, was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don’t give too much for the whistle; and I saved my money. As I grew up, came into the world, and observed the actions of men, I thought I met with many, very many, who gave too much for the whistle. When I saw one too ambitious of court favor, sacrificing his time in attendance on levees, his repose, his liberty, his virtue, and perhaps his friends, to attain it, I have said to myself, this man gives too much for his whistle. When I saw another fond of popularity, constantly employing himself in political bustles, neglecting his own affairs, and ruining them by that neglect, “He pays, indeed,” said I, “too much for his whistle.” If I knew a miser, who gave up every kind of comfortable living, all the pleasure of doing good to others, all the esteem of his fellow-citizens, and the joys of benevolent friendship, for the sake of accumulating wealth, “Poor man,” said I, “you pay too much for your whistle.” When I met with a man of pleasure, sacrificing every laudable improvement of the mind, or of his fortune, to mere corporeal sensations, and ruining his health in their pursuit, “Mistaken man,” said I, “you are providing pain for yourself, instead of pleasure; you give too much for your whistle.” If I see one fond of appearance, or fine clothes, fine houses, fine furniture, fine equipages, all above his fortune, for which he contracts debts, and ends his career in a prison, “Alas!” say I, “he has paid dear, very dear, for his whistle.” When I see a beautiful sweet-tempered girl married to an ill-natured brute of a husband, “What a pity,” say I, “that she should pay so much for a whistle!” In short, I conceive that great part of the miseries of mankind are brought upon them by the false estimates they have made of the value of things, and by their giving too much for their whistles.” Franklin is saying in this parable that too much focus on acquiring things (materialism) can result in a lower quality of life. Materialism, jealously and other dysfunctional emotions can cause you to pay too much for anything. Franklin again is talking about opportunity cost. Of course, the hard question is: how much is too much? Franklin did work hard to become wealthy but he used that wealth to create financial freedom for himself to do what he wanted in life. The wealth from his business enabled him to contribute to society and become one of the greatest Americans who ever lived, if not one of the greatest humans who ever lived.


Franklin bio (by Gordy): http://www.legendsofamerica.com/ah-benjaminfranklin.html

Mike Volpi on Franklin: http://fortune.com/2011/03/31/ben-franklin-and-the-art-of-business-development/

Franklin as a Marketer http://www.pbs.org/benfranklin/l3_wit_master.html

Van Doren’s Franklin bio: http://www.amazon.com/Benjamin-Franklin-Volume-Carl-Doren/dp/193154185X

Isaacson’s Franklin bio http://www.amazon.com/gp/product/074325807X/ref=pd_lpo_sbs_dp_ss_1?pf_rd_p=1944687722&pf_rd_s=lpo-top-stripe-1&pf_rd_t=201&pf_rd_i=193154185X&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=0GSFY00H4GNR33JN67X1

Bio of Franklin by Brands: http://www.amazon.com/gp/product/0385495404/ref=pd_lpo_sbs_dp_ss_2?pf_rd_p=1944687722&pf_rd_s=lpo-top-stripe-1&pf_rd_t=201&pf_rd_i=193154185X&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=0GSFY00H4GNR33JN67X1

NNDB Franklin bio: http://www.nndb.com/people/578/000026500/

Good Reads – Franklin Quotes: https://www.goodreads.com/author/quotes/289513.Benjamin_Franklin

Essays: http://nationalhumanitiescenter.org/pds/becomingamer/economies/text4/franklinwealth.pdf

Duncan Watts: http://www.nytimes.com/2007/04/15/magazine/15wwlnidealab.t.html?pagewanted=all&_r=0

Loomis: http://fortune.com/2016/02/27/berkshire-hathaway-buffett-2015-earnings/

National Humanities Center:  http://nationalhumanitiescenter.org/pds/becomingamer/economies/text4/text4read.htm

To my Friend A. B.
As you have desired it of me, I write the following Hints, which have been of Service to me, and may, if observed, be so to you.
Remember that TIME is Money. He that can earn Ten Shillings a Day by his Labour, and goes abroad, or sits idle one half of that Day, tho’ he spends but Sixpence during his Diversion or Idleness, ought not to reckon That the only Expence; he has really spent or rather thrown away Five Shillings besides.
Remember that CREDIT is Money. If a Man lets his Money lie in my Hands after it is due, he gives me the Interest, or so much as I can make of it during that Time. This amounts to a considerable Sum where a Man has good and large Credit, and makes good Use of it.
Remember that Money is of a prolific generating Nature. Money can beget Money, and its Offspring can beget more, and so on. Five Shillings turn’d, is Six: Turn’d again, ’tis Seven and Three Pence; and so on ’til it becomes an Hundred Pound. The more there is of it, the more it produces every Turning, so that the Profits rise quicker and quicker. He that kills a breeding Sow, destroys all her Offspring to the thousandth Generation. He that murders a Crown, destroys all it might have produc’d, even Scores of Pounds.
Remember that Six Pounds a Year is but a Groat a Day. For this little Sum (which may be daily wasted either in Time or Expence unperceiv’d) a Man of Credit may on his own Security have the constant Possession and Use of an Hundred Pounds. So much in Stock briskly turn’d by an industrious Man, produces great Advantage.
Remember this Saying, That the good Paymaster is Lord of another Man’s Purse. He that is known to pay punctually and exactly to the Time he promises, may at any Time, and on any Occasion, raise all the Money his Friends can spare. This is sometimes of great Use: Therefore never keep borrow’d Money an Hour beyond the Time you promis’d, lest a Disappointment shuts up your Friends Purse forever.
The most trifling Actions that affect a Man’s Credit, are to be regarded. The Sound of your Hammer at Five in the Morning or Nine at Night, heard by a Creditor, makes him easy Six Months longer. But if he sees you at a Billiard Table, or hears your Voice in a Tavern, when you should be at Work, he sends for his Money the next Day. Finer Cloaths than he or his Wife wears, or greater Expence in any particular than he affords himself, shocks his Pride, and he duns you to humble you. Creditors are a kind of People, that have the sharpest Eyes and Ears, as well as the best Memories of any in the World.
Good-natur’d Creditors (and such one would always chuse to3 deal with if one could) feel Pain when they are oblig’d to ask for Money. Spare ’em that Pain, and they will love you. When you receive a Sum of Money, divide it among ’em in Proportion to your Debts. Don’t be asham’d of paying a small Sum because you owe a greater. Money, more or less, is always welcome; and your Creditor had rather be at the Trouble of receiving Ten Pounds voluntarily brought him, tho’ at ten different Times or Payments, than be oblig’d to go ten Times to demand it before he can receive it in a Lump. It shews, besides, that you are mindful of what you owe; it makes you appear a careful as well as an honest Man; and that still encreases your Credit.
Beware of thinking all your own that you possess, and of living accordingly. ’Tis a Mistake that many People who have Credit fall into. To prevent this, keep an exact Account for some Time of both your Expences and your Incomes. If you take the Pains at first to mention Particulars, it will have this good Effect; you will discover how wonderfully small trifling Expences mount up to large Sums, and will discern what might have been, and may for the future be saved, without occasioning any great Inconvenience.
In short, the Way to Wealth, if you desire it, is as plain as the Way to Market. It depends chiefly on two Words, INDUSTRY and FRUGALITY; i.e. Waste neither Time nor Money, but make the best Use of both.4 He that gets all he can honestly, and saves all he gets (necessary Expences excepted) will certainly become RICH; If that Being who governs the World, to whom all should look for a Blessing on their honest Endeavours, doth not in his wise Providence otherwise determine.

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