How to Think About Stock Options, Healthcare Without Insurance, and Handling Rejection
Audio Brief
Show transcript
This episode covers strategies for maximizing wealth through incentive stock options, rethinking healthcare insurance, and building resilience against rejection.
There are three key takeaways from this conversation. First, prioritize and negotiate for equity in compensation packages. Second, consider self-insuring for healthcare if your net worth allows. Third, embrace rejection as a necessary component of success.
Incentive Stock Options, or ISOs, are a primary vehicle for wealth creation, allowing tax-deferred growth. Most individuals spend their entire salary, but real wealth compounds through equity ownership. Prioritizing equity over current income can significantly accelerate financial growth.
The American healthcare system often diverts a substantial portion of insurance premiums to profit and administration. For those with significant net worth, self-insuring against catastrophic health events can be a financially sound strategy, avoiding high insurance overhead. This approach requires the ability to cover worst-case scenarios out-of-pocket.
Success frequently results from enduring a high volume of rejection. Developing the ability to absorb "no's" without personalizing them is crucial for achieving significant "yes's". Increasing the volume of attempts, followed by swift pivoting from failures, builds essential resilience.
These insights offer practical approaches to financial growth and personal resilience.
Episode Overview
- Prof G offers advice to a recent mechanical engineering graduate on how to value and navigate incentive stock options (ISOs) as part of a compensation package.
- He discusses his personal strategy of paying out-of-pocket for healthcare, analyzing the economics of the US insurance industry and when it might make sense to self-insure.
- The episode concludes with practical mindset shifts and techniques for overcoming failure and rejection, framing it as a necessary component of success.
Key Concepts
- Incentive Stock Options (ISOs): Stock options are a form of equity compensation that allows employees to buy company stock at a predetermined price. They are a primary vehicle for wealth creation, as their value grows tax-deferred until exercised and sold.
- Current Income vs. Equity: Most people spend their entire current income (salary). Real wealth is built through equity, which compounds in value without being taxed annually like income.
- US Healthcare Economics: The American healthcare system is framed as a for-profit industry where a significant portion (around 45%) of insurance premiums goes toward profits and administration rather than care. This creates a system where the wealthy receive world-class care, while others face significant financial burdens.
- Self-Insuring: For individuals with a high net worth who can afford a catastrophic health event, forgoing traditional health insurance and paying out-of-pocket can be a financially sound strategy, avoiding the "scam" of high insurance overhead.
- Resilience to Rejection: Success is often a direct result of enduring a high volume of rejection. Developing the ability to absorb "no's" without personalizing them is crucial for achieving significant "yes's" in one's career and life.
Quotes
- At 03:25 - "Equity is how you get wealthy." - Explaining that salary typically covers living expenses, while ownership in an asset that appreciates, like stock options, is the path to significant financial success.
- At 08:50 - "Insurance is one of the biggest scams in history." - Sharing his perspective that the insurance industry, particularly healthcare, takes a large percentage of premiums for profit and administration, returning only a fraction of the value to the consumer.
- At 14:04 - "The only thing that people you admire, unless they were smart enough to be born rich, have in common, is they've endured a shit ton of 'no's' to get to great 'yes's'." - Highlighting that the ability to withstand and move past rejection is a universal trait among successful people who were not born into wealth.
Takeaways
- Negotiate for Equity: When evaluating job offers, prioritize and negotiate for a larger equity (stock options) package. This component of your compensation has the greatest potential for wealth creation due to its tax-deferred growth.
- Assess Your Healthcare Strategy: If you have a net worth of several million dollars, evaluate the financial benefits of self-insuring for healthcare instead of paying high insurance premiums. This requires being able to cover a worst-case scenario out-of-pocket.
- Embrace Rejection as a Process: To build resilience, increase the volume of your attempts—whether applying for jobs, pitching ideas, or asking people out. Set a specific, limited time to mourn failures, then immediately pivot to taking action to find the next opportunity.
