How to make big money

5. Great ideas, but not necessarily the first implementers
Ralph Waldo Emerson supposedly said, “If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he builds his house in the woods the world will make a beaten path to his door.”

Example: Ever hear of Seattle Computer Works? That company developed a computer operating system in the 1970s that Bill Gates bought in 1980. IBM was late in realizing the potential of PCs after Apple led the way, and knew that its engineers were too tradition-bound to develop an operating system quickly. So Gates paid $50,000 for Seattle Computer Works and licensed MS-DOS to IBM for use in every one of its PCs.

6. Small slices of very big pies
Fortunes can be made by taking small slices of very big pies, especially if those ultimately granting the slices are making money. Fees of, say, 0.1 percent of the transaction’s price don’t sound big, but they add up to big numbers.

Example: The term "leveraged buyout" got a bad connotation with the discrediting of Michael Milken and the collapse of his company, Drexel Burnham, in 1990. So they’re now called "private equity deals." Nevertheless, those involved still treat themselves to huge fees in dollar terms, but still minor percentages of the deal size. Equity Office Properties Trust, a Real Estate Investment Trust, was recently acquired by Blackstone Group after a takeover battle with Vornado Realty, which forced Blackstone to increase the price to $39 billion, including debt.

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On a deal of that size, investment banking fees would normally run around $40 million, or 0.1 percent. But Blackstone, like other private equity firms, acted as both client and banker with no party on the other side to resist bigger fees. So Blackstone charged a net $100 million.

7. Cartels and monopolies
Cartels and oligarchies are great ways to make big money — as long as they last. Of course, a cartel only works when demand is so insensitive to price that higher prices will actually increase the seller’s total revenue. The purpose of cartels is to exercise monopolistic control — to raise prices and revenues by limiting production, restricting exports, setting prices, dividing up markets among the cartel members, setting up standards of accounting and markups, etc.

Example: Until 1978, airlines were controlled by the Civil Aeronautics Board, which controlled airline routes, with specific airlines pretty much dominating specific geographic areas. Fares were also controlled by the CAB, which essentially rubber-stamped whatever airlines wanted.

Since passengers paid through the nose, the industry thrived even though costs were high. Airline personnel were well paid, and senior pilots made more than $200,000 per year — a king's ransom in the 1970s — for working less than 40 hours per month. This allowed many of them to live in, say, Montana, and commute at company expense to their flight bases in New York and other major cities.

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