A ranking of the richest traders. What do we know about them

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Trading News Events and Fundamental Analysis – We asked 7 successful traders what reports they rely on most. Here’s what they said.


Carl Larry is the president of Oil Outlooks and Opinions LLC.

Along with the release of Nonfarm Payroll is Wage Growth data which has slowly taken more merit than in the past and has been a focus of Janet Yellen’s more recently. We at iiTRADER have always followed both ISM Manufacturing (survey of 300 manufacturing firms and monitors employment, production inventories, new orders and supplier deliveries) and ISM Non-Manufacturing data (surveys 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation). This ISM data can help indicate sustainable growth and better than expected data should have a positive effect on the stock market.

Rich Ilczyszyn is Founder and Chief Market Strategist of iiTRADER.com


John Caiazzo has over 40 years of experience at brokerage firms across the United States.

Kara Boniecka
Copious research has been done to try to determine which numbers have real predictive value for future equity market values. You wouldn’t necessarily know which numbers merit careful consideration from the coverage in the financial media because they must report on every number. Many macroeconomic factors may have only limited relevance for you as a trader.

As with so many things in life, the 80/20 rule applies. In this time of information overload, it’s helpful to focus on the most meaningful factors so you can be nimble in your response to changing market currents.

Kara Boniecka is the founder of LakeshoreATS and the author of Avoiding Bear Traps: Easy Macro Factors for Smart Traders, which provides concise guidelines for deciphering economic news and navigating market corrections of all sizes.

Matt Weller
It’s easy to get lost in the cacophony of global fundamental reports that are released on a monthly basis, so it’s important for traders to identify what data points the market is focusing on at any given time. While jobs and economic activity have been strengthening for years, the fundamental laggard in the post-GFC recovery has been inflation.

Therefore, I am most focused on central banks’ preferred measures of inflation. For U.S. traders, this means keeping an eye on the Fed’s preferred Core Personal Consumption Expenditures (PCE) readings, rather than the more widely-followed Consumer Price Index (CPI) readings. Likewise, European traders should keep an eye on the Harmonized Index of Consumer Prices (HICP), the ECB’s favorite measure of prices.

Matt Weller is the Senior Technical Analyst for FOREX.com

Dan Gramza
Before we begin looking at specific reports, it is important to keep in mind that different reports will have different influences depending on where the market is in its development cycle. For example, is the market turning from a down move as in March 2009, or at all time highs in 2020?

It is also important to keep in a global context how this report compares to other economic and geopolitical news occurring in other parts of the world. This is why there may be a very bullish report in the United States, but the market trades lower because other events or reports have occurred in other parts of the world and has dampened the impact of the U.S. report.

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Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC.

Matt McKinney
For me two of the most important reports that I can follow that are specific to one sector, the energies, is the API report or the American Petroleum Institute report that comes out at 3:30 p.m. central on Tuesday afternoon and the EIA report or Energy Information Agency report that comes out on Wednesday mornings at 9:30 a.m. central.

These reports show us where we stand as far as supplies from week to week in crude oil, unleaded gasoline, and distillates (diesel, jet fuel, and heating oil). These reports will also let us know how the refineries are operating and at what capacity. Please understand that this afore mention information isn’t all that these reports disclose, but that’s all I really care about.

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market.

Recruiting

Social media makes it easy to identify potential candidates for job openings, but that’s led companies to focus too much on “passive” candidates who aren’t looking to move—a strategy that hurts retention because internal candidates feel overlooked. And when businesses do make a hire, they don’t know how effective their approaches are because they don’t track the results.

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May–June 2020 Issue

Executive Summary

Goldman Sachs is a people-centric business—every day our employees engage with our clients to find solutions to their challenges. As a consequence, hiring extraordinary talent is vital to our success and can never be taken for granted. In the wake of the 2008 financial crisis we faced a challenge that was, frankly, relatively new to our now 150-year-old firm. For decades investment banking had been one of the most sought-after, exciting, and fast-growing industries in the world. That made sense—we were growing by double digits and had high returns, which meant that opportunity and reward were in great supply. However, the crash took some of the sheen off our industry; both growth and returns moderated. And simultaneously, the battle for talent intensified—within and outside our industry. Many of the candidates we were pursuing were heading off to Silicon Valley, private equity, or start-ups. Furthermore, we were no longer principally looking for a specialized cadre of accounting, finance, and economics majors: New skills, especially coding, were in huge demand at Goldman Sachs—and pretty much everywhere else. The wind had shifted from our backs to our faces, and we needed to respond.

Not long ago the firm relied on a narrower set of factors for identifying “the best” students, such as school, GPA, major, leadership roles, and relevant experience—the classic résumé topics. No longer. We decided to replace our hiring playbook with emerging best practices for assessment and recruitment, so we put together a task force of senior business leaders, PhDs in industrial and organizational psychology, data scientists, and experts in recruiting. Some people asked, “Why overhaul a recruiting process that has proved so successful?” and “Don’t you already have many more qualified applicants than available jobs?” These were reasonable questions. But often staying successful is about learning and changing rather than sticking to the tried-and-true.

Each year we hire up to 3,000 summer interns and nearly as many new analysts directly from campuses. In our eyes, these are the firm’s future leaders, so it made sense to focus our initial reforms there. They involved two major additions to our campus recruiting strategy—video interviews and structured interviewing.

Asynchronous video interviews.

Traditionally we had flown recruiters and business professionals to universities for first-round interviews. The schools would give us a set date and number of time slots to meet with students. That is most definitely not a scalable model. It restricted us to a smaller number of campuses and only as many students as we could squeeze into a limited schedule. It also meant that we tended to focus on top-ranked schools. How many qualified candidates were at a school became more important than who were the most talented students regardless of their school. However, we knew that candidates didn’t have to attend Harvard, Princeton, or Oxford to excel at Goldman Sachs—our leadership ranks were already rich with people from other schools. What’s more, as we’ve built offices in new cities and geographic locations, we’ve needed to recruit at more schools located in those areas. Video interviews allow us to do that.

At a time when companies were just beginning to experiment with digital interviewing, we decided to use “asynchronous” video interviews—in which candidates record their answers to interview questions—for all first-round interactions with candidates. Our recruiters record standardized questions and send them to students, who have three days to return videos of their answers. This can be done on a computer or a mobile device. Our recruiters and business professionals review the videos to narrow the pool and then invite the selected applicants to a Goldman Sachs office for final-round, in-person interviews. (To create the video platform, we partnered with a company and built our own digital solution around its product.)

This approach has had a meaningful impact in two ways. First, with limited effort, we can now spend more time getting to know the people who apply for jobs at Goldman Sachs. In 2020, the year before we rolled out this platform, we interviewed fewer than 20% of all our campus applicants; in 2020 almost 40% of the students who applied to the firm participated in a first-round interview. Second, we now encounter talent from places we previously didn’t get to. In 2020 we interviewed students from 798 schools around the world, compared with 1,268 for our most recent incoming class. In the United States, where the majority of our student hires historically came from “target schools,” the opposite is now true. The top of our recruiting funnel is wider, and the output is more diverse.

Being a people-driven business, we have worked hard to ensure that the video interviews don’t feel cold and impersonal. They are only one component of a broader process that makes up the Goldman Sachs recruitment experience. We still regularly send Goldman professionals to campuses to engage directly with students at informational sessions, “coffee chats,” and other recruiting events. But now our goal is much more to share information than to assess candidates, because we want people to understand the firm and what it offers before they tell us why they want an internship or a job.

Our structured interview questions are designed to assess 10 core competencies.

We also want them to be as well prepared as possible for our interview process. Our goal is a level playing field. To help achieve it, we’ve created tip sheets and instructions on preparing for a video interview. Because the platform doesn’t allow videos to be edited once they’ve been recorded, we offer a practice question before the interview begins and a countdown before the questions are asked. We also give students a formal channel for escalating issues should technical problems arise, though that rarely occurs.

We’re confident that this approach has created a better experience for recruits. It uses a medium they’ve grown up with (video), and most important, they can do their interviews when they feel fresh and at a time that works with their schedule. (Our data shows that they prefer Thursday or Sunday night—whereas our previous practice was to interview during working hours.) We suspected that if the process was a turnoff for applicants, we would see a dip in the percentage who accepted our interviews and our offers. That hasn’t happened.

Structured questioning and assessments.

How can you create an assessment process that not only helps select top talent but focuses on specific characteristics associated with success? Define it, structure it, and don’t deviate from it. Research shows that structured interviews are effective at assessing candidates and helping predict job performance. So we ask candidates about specific experiences they’ve had that are similar to situations they may face at Goldman Sachs (“Tell me about a time when you were working on a project with someone who was not completing his or her tasks”) and pose hypothetical scenarios they might encounter in the future (“In an elevator, you overhear confidential information about a coworker who is also a friend. The friend approaches you and asks if you’ve heard anything negative about him recently. What do you do?”).

Essentially, we are focused less on past achievements and more on understanding whether a candidate has qualities that will positively affect our firm and our culture. Our structured interview questions are designed to assess candidates on 10 core competencies, including analytical thinking and integrity, which we know correlate with long-term success at the firm. They are evaluated on six competencies in the first round; if they progress, they’re assessed on the remaining four during in-person interviews.

We have a rotating library of questions for each competency, along with a rubric for interviewers that explains how to rate responses on a five-point scale from “outstanding” to “poor.” We also train our interviewers to conduct structured interviews, provide them with prep materials immediately before they interview a candidate, and run detailed calibration meetings using all the candidate data we’ve gathered throughout the recruiting process to ensure that certain interviewers aren’t introducing grade inflation (or deflation). We’re experimenting with prehire assessment tests to be paired with these interviews; we already offer a technical coding and math exam for applicants to our engineering organization.

We decided not to pilot these changes and instead rolled them out en masse, because we realized that buy-in would come from being able to show results quickly—and because we know that no process is perfect. Indeed, what I love most about our new approach is that we’ve turned our recruiting department into a laboratory for continuous learning and refinement. With more than 50,000 candidate video recordings, we’re now sitting on a treasure trove of data that will help us conduct insightful analyses and answer questions necessary to run our business: Are we measuring the right competencies? Should some be weighted more heavily than others? What about the candidates’ backgrounds? Which interviewers are most effective? Does a top-ranked student at a state school create more value for us than an average student from the Ivy League? We already have indications that students recruited from the new schools in our pool perform just as well as students from our traditional ones—and in some cases are more likely to stay longer at the firm.

What’s next for our recruiting efforts? We receive almost 500,000 applications each year. From this pool we hire approximately 3%. We believe that many of the other 97% could be very successful at Goldman Sachs. As a result, picking the right 3% is less about just the individual and increasingly about matching the right person to the right role. That match may be made straight out of college or years later. We’re experimenting with résumé-reading algorithms that will help candidates identify the business departments best suited to their skills and interests. We’re looking at how virtual reality might help us better educate students about working in our offices and in our industry. And we’re evaluating various tools and tests to bring even more data into the hiring decision process. Can I imagine a future in which companies rely exclusively on machines and algorithms to rate résumés and interviews? Maybe, for some. But I don’t see us ever eliminating the human element at Goldman Sachs; it’s too deeply embedded in our culture, in the work we do, and in what we believe drives success.

I’m excited to see where this journey takes us. Our 2020 campus class is shaping up to be the most diverse ever—and it’s composed entirely of people who were selected through rigorous, objective assessments. There’s no way we aren’t better off as a result.

Your Approach to Hiring Is All Wrong

Idea in Brief

The Problem

Employers continue to hire at a high rate and spend enormous sums to do it. But they don’t know whether their approaches are effective at finding and selecting good candidates.

The Root Causes

Businesses focus on external candidates and don’t track the results of their approaches. They often use outside vendors and high-tech tools that are unproven and have inherent flaws.

The Solution

Return to filling most positions by promoting from within. Measure the results produced by vendors and new tools, and be on the lookout for discrimination and privacy violations.

Businesses have never done as much hiring as they do today. They’ve never spent as much money doing it. And they’ve never done a worse job of it.

For most of the post–World War II era, large corporations went about hiring this way: Human resources experts prepared a detailed job analysis to determine what tasks the job required and what attributes a good candidate should have. Next they did a job evaluation to determine how the job fit into the organizational chart and how much it should pay, especially compared with other jobs. Ads were posted, and applicants applied. Then came the task of sorting through the applicants. That included skills tests, reference checks, maybe personality and IQ tests, and extensive interviews to learn more about them as people. William H. Whyte, in The Organization Man, described this process as going on for as long as a week before the winning candidate was offered the job. The vast majority of non-entry-level openings were filled from within.

Today’s approach couldn’t be more different. Census data shows, for example, that the majority of people who took a new job last year weren’t searching for one: Somebody came and got them. Companies seek to fill their recruiting funnel with as many candidates as possible, especially “passive candidates,” who aren’t looking to move. Often employers advertise jobs that don’t exist, hoping to find people who might be useful later on or in a different context.

The recruiting and hiring function has been eviscerated. Many U.S. companies—about 40%, according to research by Korn Ferry—have outsourced much if not all of the hiring process to “recruitment process outsourcers,” which in turn often use subcontractors, typically in India and the Philippines. The subcontractors scour LinkedIn and social media to find potential candidates. They sometimes contact them directly to see whether they can be persuaded to apply for a position and negotiate the salary they’re willing to accept. (The recruiters get incentive pay if they negotiate the amount down.) To hire programmers, for example, these subcontractors can scan websites that programmers might visit, trace their “digital exhaust” from cookies and other user-tracking measures to identify who they are, and then examine their curricula vitae.

At companies that still do their own recruitment and hiring, managers trying to fill open positions are largely left to figure out what the jobs require and what the ads should say. When applications come—always electronically—applicant-tracking software sifts through them for key words that the hiring managers want to see. Then the process moves into the Wild West, where a new industry of vendors offer an astonishing array of smart-sounding tools that claim to predict who will be a good hire. They use voice recognition, body language, clues on social media, and especially machine learning algorithms—everything but tea leaves. Entire publications are devoted to what these vendors are doing.

The big problem with all these new practices is that we don’t know whether they actually produce satisfactory hires. Only about a third of U.S. companies report that they monitor whether their hiring practices lead to good employees; few of them do so carefully, and only a minority even track cost per hire and time to hire. Imagine if the CEO asked how an advertising campaign had gone, and the response was “We have a good idea how long it took to roll out and what it cost, but we haven’t looked to see whether we’re selling more.”

Hiring talent remains the number one concern of CEOs in the most recent Conference Board Annual Survey; it’s also the top concern of the entire executive suite. PwC’s 2020 CEO survey reports that chief executives view the unavailability of talent and skills as the biggest threat to their business. Employers also spend an enormous amount on hiring—an average of $4,129 per job in the United States, according to Society for Human Resource Management estimates , and many times that amount for managerial roles—and the United States fills a staggering 66 million jobs a year. Most of the $20 billion that companies spend on human resources vendors goes to hiring.

Why do employers spend so much on something so important while knowing so little about whether it works?

Where the Problem Starts

Survey after survey finds employers complaining about how difficult hiring is. There may be many explanations, such as their having become very picky about candidates, especially in the slack labor market of the Great Recession. But clearly they are hiring much more than at any other time in modern history, for two reasons.

The first is that openings are now filled more often by hiring from the outside than by promoting from within. In the era of lifetime employment, from the end of World War II through the 1970s, corporations filled roughly 90% of their vacancies through promotions and lateral assignments. Today the figure is a third or less. When they hire from outside, organizations don’t have to pay to train and develop their employees. Since the restructuring waves of the early 1980s, it has been relatively easy to find experienced talent outside. Only 28% of talent acquisition leaders today report that internal candidates are an important source of people to fill vacancies—presumably because of less internal development and fewer clear career ladders.

Less promotion internally means that hiring efforts are no longer concentrated on entry-level jobs and recent graduates. (If you doubt this, go to the “careers” link on any company website and look for a job opening that doesn’t require prior experience.) Now companies must be good at hiring across most levels, because the candidates they want are already doing the job somewhere else. These people don’t need training, so they may be ready to contribute right away, but they are much harder to find.

The second reason hiring is so difficult is that retention has become tough: Companies hire from their competitors and vice versa, so they have to keep replacing people who leave. Census and Bureau of Labor Statistics data shows that 95% of hiring is done to fill existing positions. Most of those vacancies are caused by voluntary turnover. LinkedIn data indicates that the most common reason employees consider a position elsewhere is career advancement—which is surely related to employers’ not promoting to fill vacancies.

The root cause of most hiring, therefore, is drastically poor retention. Here are some simple ways to fix that:

Track the percentage of openings filled from within.

An adage of business is that we manage what we measure, but companies don’t seem to be applying that maxim to tracking hires. Most are shocked to learn how few of their openings are filled from within—is it really the case that their people can’t handle different and bigger roles?

Require that all openings be posted internally.

Internal job boards were created during the dot-com boom to reduce turnover by making it easier for people to find new jobs within their existing employer. Managers weren’t even allowed to know if a subordinate was looking to move within the company, for fear that they would try to block that person and he or she would leave. But during the Great Recession employees weren’t quitting, and many companies slid back to the old model whereby managers could prevent their subordinates from moving internally. JR Keller, of Cornell University, has found that when managers could fill a vacancy with someone they already had in mind, they ended up with employees who performed more poorly than those hired when the job had been posted and anyone could apply. The commonsense explanation for this is that few enterprises really know what talent and capabilities they have.

Protecting Against Discrimination

Finding out whether your practices result in good hires is not only basic to good management but the only real defense against claims of adverse impact and discrimination. Other than white males under age 40 with no disabilities or work-related health problems, workers have special protections under federal and state laws against hiring practices that may have an adverse impact on them. As a practical matter, that means if members of a particular group are less likely to be recruited or hired, the employer must show that the hiring process is not discriminatory.

The only defense against evidence of adverse impact is for the employer to show that its hiring practices are valid—that is, they predict who will be a good employee in meaningful and statistically significant ways—and that no alternative would predict as well with less adverse impact. That analysis must be conducted with data on the employer’s own applicants and hires. The fact that the vendor that sold you the test you use has evidence that it was valid in other contexts is not sufficient.

Recognize the costs of outside hiring.

In addition to the time and effort of hiring, my colleague Matthew Bidwell found, outside hires take three years to perform as well as internal hires in the same job, while internal hires take seven years to earn as much as outside hires are paid. Outside hiring also causes current employees to spend time and energy positioning themselves for jobs elsewhere. It disrupts the culture and burdens peers who must help new hires figure out how things work.

None of this is to suggest that outside hiring is necessarily a bad idea. But unless your company is a Silicon Valley gazelle, adding new jobs at a furious pace, you should ask yourself some serious questions if most of your openings are being filled from outside.

Employers are obsessed with new technologies and driving down costs.

A different approach for dealing with retention (which seems creepy to some) is to try to determine who is interested in leaving and then intervene. Vendors like Jobvite comb social media and public sites for clues, such as LinkedIn profile updates. Measuring “flight risk” is one of the most common goals of companies that do their own sophisticated HR analytics. This is reminiscent of the early days of job boards, when employers would try to find out who was posting résumés and either punish them or embrace them, depending on leadership’s mood.

Whether companies should be examining social media content in relation to hiring or any other employment action is a challenging ethical question. On one hand, the information is essentially public and may reveal relevant information. On the other hand, it is invasive, and candidates are rarely asked for permission to scrutinize their information. Hiring a private detective to shadow a candidate would also gather public information that might be relevant, yet most people would view it as an unacceptable invasion of privacy.

The Hiring Process

When we turn to hiring itself, we find that employers are missing the forest for the trees: Obsessed with new technologies and driving down costs, they largely ignore the ultimate goal: making the best possible hires. Here’s how the process should be revamped:

Don’t post “phantom jobs.”

It costs nothing to post job openings on a company website, which are then scooped up by Indeed and other online companies and pushed out to potential job seekers around the world. Thus it may be unsurprising that some of these jobs don’t really exist. Employers may simply be fishing for candidates. (“Let’s see if someone really great is out there, and if so, we’ll create a position for him or her.”) Often job ads stay up even after positions have been filled, to keep collecting candidates for future vacancies or just because it takes more effort to pull the ad down than to leave it up. Sometimes ads are posted by unscrupulous recruiters looking for résumés to pitch to clients elsewhere. Because these phantom jobs make the labor market look tighter than it really is, they are a problem for economic policy makers as well as for frustrated job seekers. Companies should take ads down when jobs are filled.

Design jobs with realistic requirements.

Figuring out what the requirements of a job should be—and the corresponding attributes candidates must have—is a bigger challenge now, because so many companies have reduced the number of internal recruiters whose function, in part, is to push back on hiring managers’ wish lists. (“That job doesn’t require 10 years of experience,” or “No one with all those qualifications will be willing to accept the salary you’re proposing to pay.”) My earlier research found that companies piled on job requirements, baked them into the applicant-tracking software that sorted résumés according to binary decisions (yes, it has the key word; no, it doesn’t), and then found that virtually no applicants met all the criteria. Trimming recruiters, who have expertise in hiring, and handing the process over to hiring managers is a prime example of being penny-wise and pound-foolish.

Reconsider your focus on passive candidates.

The recruiting process begins with a search for experienced people who aren’t looking to move. This is based on the notion that something may be wrong with anyone who wants to leave his or her current job. (Of the more than 20,000 talent professionals who responded to a LinkedIn survey in 2020, 86% said their recruiting organizations focused “very much so” or “to some extent” on passive candidates; I suspect that if anything, that number has since grown.) Recruiters know that the vast majority of people are open to moving at the right price: Surveys of employees find that only about 15% are not open to moving. As the economist Harold Demsetz said when asked by a competing university if he was happy working where he was: “Make me unhappy.”

Fascinating evidence from the LinkedIn survey cited above shows that although self-identified “passive” job seekers are different from “active” job seekers, it’s not in the way we might think. The number one factor that would encourage the former to move is more money. For active candidates the top factor is better work and career opportunities. More active than passive job seekers report that they are passionate about their work, engaged in improving their skills, and reasonably satisfied with their current jobs. They seem interested in moving because they are ambitious, not because they want higher pay.

Employers spend a vastly disproportionate amount of their budgets on recruiters who chase passive candidates, but on average they fill only 11% of their positions with individually targeted people, according to research by Gerry Crispin and Chris Hoyt, of CareerXroads. I know of no evidence that passive candidates become better employees, let alone that the process is cost-effective. If you focus on passive candidates, think carefully about what that actually gets you. Better yet, check your data to find out.

Understand the limits of referrals.

The most popular channel for finding new hires is through employee referrals; up to 48% come from them, according to LinkedIn research. It seems like a cheap way to go, but does it produce better hires? Many employers think so. It’s hard to know whether that’s true, however, given that they don’t check. And research by Emilio Castilla and colleagues suggests otherwise: They find that when referrals work out better than other hires, it’s because their referrers look after them and essentially onboard them. If a referrer leaves before the new hire begins, the latter’s performance is no better than that of nonreferrals, which is why it makes sense to pay referral bonuses six months or so after the person is hired—if he or she is still there.

A downside to referrals, of course, is that they can lead to a homogeneous workforce, because the people we know tend to be like us. This matters greatly for organizations interested in diversity, since recruiting is the only avenue allowed under U.S. law to increase diversity in a workforce. The Supreme Court has ruled that demographic criteria cannot be used even to break ties among candidates.

Measure the results.

Few employers know which channel produces the best candidates at the lowest cost because they don’t track the outcomes. Tata is an exception: It has long done what I advocate. For college recruiting, for example, it calculates which schools send it employees who perform the best, stay the longest, and are paid the lowest starting wage. Other employers should follow suit and monitor recruiting channels and employees’ performance to identify which sources produce the best results.

Persuade fewer people to apply.

The hiring industry pays a great deal of attention to “the funnel,” whereby readers of a company’s job postings become applicants, are interviewed, and ultimately are offered jobs. Contrary to the popular belief that the U.S. job market is extremely tight right now, most jobs still get lots of applicants. Recruiting and hiring consultants and vendors estimate that about 2% of applicants receive offers. Unfortunately, the main effort to improve hiring—virtually always aimed at making it faster and cheaper—has been to shovel more applicants into the funnel. Employers do that primarily through marketing, trying to get out the word that they are great places to work. Whether doing this is a misguided way of trying to attract better hires or just meant to make the organization feel more desirable isn’t clear.

The Grass Is Always Greener…

Organizations are much more interested in external talent than in their own employees to fill vacancies. Here are the top channels for quality hires.

Much better to go in the other direction: Create a smaller but better-qualified applicant pool to improve the yield. Here’s why: Every applicant costs you money—especially now, in a labor market where applicants have started to “ghost” employers, abandoning their applications midway through the process. Every application also exposes a company to legal risk, because the company has obligations to candidates (not to discriminate, for example) just as it does to employees. And collecting lots of applicants in a wide funnel means that a great many of them won’t fit the job or the company, so employers have to rely on the next step of the hiring process—selection—to weed them out. As we will see, employers aren’t good at that.

Once people are candidates, they may not be completely honest about their skills or interests—because they want to be hired—and employers’ ability to find out the truth is limited. More than a generation ago the psychologist John Wanous proposed giving applicants a realistic preview of what the job is like. That still makes sense as a way to head off those who would end up being unhappy in the job. It’s not surprising that Google has found a way to do this with gamification: Job seekers see what the work would be like by playing a game version of it. Marriott has done the same, even for low-level employees. Its My Marriott Hotel game targets young people in developing countries who may have had little experience in hotels to show them what it’s like and to steer them to the recruiting site if they score well on the game. The key for any company, though, is that the preview should make clear what is difficult and challenging about the work as well as why it’s fun so that candidates who don’t fit won’t apply.

It should be easy for candidates to learn about a company and a job, but making it really easy to apply, just to fill up that funnel, doesn’t make much sense. During the dot-com boom Texas Instruments cleverly introduced a preemployment test that allowed applicants to see their scores before they applied. If their scores weren’t high enough for the company to take their applications seriously, they tended not to proceed, and the company saved the cost of having to process their applications.

If the goal is to get better hires in a cost-effective manner, it’s more important to scare away candidates who don’t fit than to jam more candidates into the recruiting funnel.

Test candidates’ standard skills.

How to determine which candidates to hire—what predicts who will be a good employee—has been rigorously studied at least since World War I. The personnel psychologists who investigated this have learned much about predicting good hires that contemporary organizations have since forgotten, such as that neither college grades nor unstructured sequential interviews (hopping from office to office) are a good predictor, whereas past performance is.

Since it can be difficult (if not impossible) to glean sufficient information about an outside applicant’s past performance, what other predictors are good? There is remarkably little consensus even among experts. That’s mainly because a typical job can have so many tasks and aspects, and different factors predict success at different tasks.

There is general agreement, however, that testing to see whether individuals have standard skills is about the best we can do. Can the candidate speak French? Can she do simple programming tasks? And so forth. But just doing the tests is not enough. The economists Mitchell Hoffman, Lisa B. Kahn, and Danielle Li found that even when companies conduct such tests, hiring managers often ignore them—and when they do, they get worse hires. The psychologist Nathan Kuncel and colleagues discovered that even when hiring managers use objective criteria and tests, applying their own weights and judgment to those criteria leads them to pick worse candidates than if they had used a standard formula. Only 40% of employers, however, do any tests of skills or general abilities, including IQ. What are they doing instead? Seventy-four percent do drug tests, including for marijuana use; even employers in states where recreational use is now legal still seem to do so.

Be wary of vendors bearing high-tech gifts.

Into the testing void has come a new group of entrepreneurs who either are data scientists or have them in tow. They bring a fresh approach to the hiring process—but often with little understanding of how hiring actually works. John Sumser, of HRExaminer, an online newsletter that focuses on HR technology, estimates that on average, companies get five to seven pitches every day—almost all of them about hiring—from vendors using data science to address HR issues. These vendors have all sorts of cool-sounding assessments, such as computer games that can be scored to predict who will be a good hire. We don’t know whether any of these actually lead to better hires, because few of them are validated against actual job performance. That aside, these assessments have spawned a counterwave of vendors who help candidates learn how to score well on them. Lloyds Bank, for example, developed a virtual-reality-based assessment of candidate potential, and JobTestPrep offers to teach potential candidates how to do well on it. Especially for IT and technical jobs, cheating on skills tests and even video interviews (where colleagues off camera give help) is such a concern that eTeki and other specialized vendors help employers figure out who is cheating in real time.

Revamp your interviewing process.

The amount of time employers spend on interviews has almost doubled since 2009, according to research from Glassdoor. How much of that increase represents delays in setting up those interviews is impossible to tell, but it provides at least a partial explanation for why it takes longer to fill jobs now. Interviews are arguably the most difficult technique to get right, because interviewers should stick to questions that predict good hires—mainly about past behavior or performance that’s relevant to the tasks of the job—and ask them consistently across candidates. Just winging it and asking whatever comes to mind is next to useless.

More important, interviews are where biases most easily show up, because interviewers do usually decide on the fly what to ask of whom and how to interpret the answer. Everyone knows some executive who is absolutely certain he knows the one question that will really predict good candidates (“If you were stranded on a desert island…”). The sociologist Lauren Rivera’s examination of interviews for elite positions, such as those in professional services firms, indicates that hobbies, particularly those associated with the rich, feature prominently as a selection criterion.

Interviews are most important for assessing “fit with our culture,” which is the number one hiring criterion employers report using, according to research from the Rockefeller Foundation. It’s also one of the squishiest attributes to measure, because few organizations have an accurate and consistent view of their own culture—and even if they do, understanding what attributes represent a good fit is not straightforward. For example, does the fact that an applicant belonged to a fraternity reflect experience working with others or elitism or bad attitudes toward women? Should it be completely irrelevant? Letting someone with no experience or training make such calls is a recipe for bad hires and, of course, discriminatory behavior. Think hard about whether your interviewing protocols make any sense and resist the urge to bring even more managers into the interview process.

Recognize the strengths and weaknesses of machine learning models.

Culture fit is another area into which new vendors are swarming. Typically they collect data from current employees, create a machine learning model to predict the attributes of the best ones, and then use that model to hire candidates with the same attributes.

As with many other things in this new industry, that sounds good until you think about it; then it becomes replete with problems. Given the best performers of the past, the algorithm will almost certainly include white and male as key variables. If it’s restricted from using that category, it will come up with attributes associated with being a white male, such as playing rugby.

Interviews are where biases most easily show up.

Machine learning models do have the potential to find important but previously unconsidered relationships. Psychologists, who have dominated research on hiring, have been keen to study attributes relevant to their interests, such as personality, rather than asking the broader question “What identifies a potential good hire?” Their results gloss over the fact that they often have only a trivial ability to predict who will be a good performer, particularly when many factors are involved. Machine learning, in contrast, can come up with highly predictive factors. Research by Evolv, a workforce analytics pioneer (now part of Cornerstone OnDemand), found that expected commuting distance for the candidate predicted turnover very well. But that’s not a question the psychological models thought to ask. (And even that question has problems.)

The advice on selection is straightforward: Test for skills. Ask assessments vendors to show evidence that they can actually predict who the good employees will be. Do fewer, more-consistent interviews.

The Way Forward

It’s impossible to get better at hiring if you can’t tell whether the candidates you select become good employees. If you don’t know where you’re going, any road will take you there. You must have a way to measure which employees are the best ones.

Why is that not getting through to companies? Surveyed employers say the main reason they don’t examine whether their practices lead to better hires is that measuring employee performance is difficult. Surely this is a prime example of making the perfect the enemy of the good. Some aspects of performance are not difficult to measure: Do employees quit? Are they absent? Virtually all employers conduct performance appraisals. If you don’t trust them, try something simpler. Ask supervisors, “Do you regret hiring this individual? Would you hire him again?”

Organizations that don’t check to see how well their practices predict the quality of their hires are lacking in one of the most consequential aspects of modern business.

Editor’s Note: A previous version of this article named three recruitment process outsourcing companies, and stated that they utilized subcontractors in India and the Philippines. We have removed the company names after learning that the specifics of their subcontracting practices had not been verified.

Peter Cappelli is the George W. Taylor Professor of Management at the Wharton School and a director of its Center for Human Resources. He is the author of several books, including Will College Pay Off? A Guide to the Most Important Financial Decision You’ll Ever Make (PublicAffairs, 2020).

Data Science Can’t Fix Hiring (Yet)

Recruiting managers desperately need new tools, because the existing ones—unstructured interviews, personality tests, personal referrals—aren’t very effective. The newest development in hiring, which is both promising and worrying, is the rise of data science–driven algorithms to find and assess job candidates. By my count, more than 100 vendors are creating and selling these tools to companies. Unfortunately, data science—which is still in its infancy when it comes to recruiting and hiring—is not yet the panacea employers hope for.

Vendors of these new tools promise they will help reduce the role that social bias plays in hiring. And the algorithms can indeed help identify good job candidates who would previously have been screened out for lack of a certain education or social pedigree. But these tools may also identify and promote the use of predictive variables that are (or should be) troubling.

Because most data scientists seem to know so little about the context of employment, their tools are often worse than nothing. For instance, an astonishing percentage build their models by simply looking at attributes of the “best performers” in workplaces and then identifying which job candidates have the same attributes. They use anything that’s easy to measure: facial expressions, word choice, comments on social media, and so forth. But a failure to check for any real difference between high-performing and low-performing employees on these attributes limits their usefulness. Furthermore, scooping up data from social media or the websites people have visited also raises important questions about privacy. True, the information can be accessed legally; but the individuals who created the postings didn’t intend or authorize them to be used for such purposes. Furthermore, is it fair that something you posted as an undergrad can end up driving your hiring algorithm a generation later?

Another problem with machine learning approaches is that few employers collect the large volumes of data—number of hires, performance appraisals, and so on—that the algorithms require to make accurate predictions. Although vendors can theoretically overcome that hurdle by aggregating data from many employers, they don’t really know whether individual company contexts are so distinct that predictions based on data from the many are inaccurate for the one.

Yet another issue is that all analytic approaches to picking candidates are backward looking, in the sense that they are based on outcomes that have already happened. (Algorithms are especially reliant on past experiences in part because building them requires lots and lots of observations—many years’ worth of job performance data even for a large employer.) As Amazon learned, the past may be very different from the future you seek. It discovered that the hiring algorithm it had been working on since 2020 gave lower scores to women—even to attributes associated with women, such as participating in women’s studies programs—because historically the best performers in the company had disproportionately been men. So the algorithm looked for people just like them. Unable to fix that problem, the company stopped using the algorithm in 2020. Nonetheless, many other companies are pressing ahead.

The underlying challenge for data scientists is that hiring is simply not like trying to predict, say, when a ball bearing will fail—a question for which any predictive measure might do. Hiring is so consequential that it is governed not just by legal frameworks but by fundamental notions of fairness. The fact that some criterion is associated with good job performance is necessary but not sufficient for using it in hiring.

Take a variable that data scientists have found to have predictive value: commuting distance to the job. According to the data, people with longer commutes suffer higher rates of attrition. However, commuting distance is governed by where you live—which is governed by housing prices, relates to income, and also relates to race. Picking whom to hire on the basis of where they live most likely has an adverse impact on protected groups such as racial minorities.

Unless no other criterion predicts at least as well as the one being used—and that is extremely difficult to determine in machine learning algorithms—companies violate the law if they use hiring criteria that have adverse impacts. Even then, to stay on the right side of the law, they must show why the criterion creates good performance. That might be possible in the case of commuting time, but—at least for the moment—it is not for facial expressions, social media postings, or other measures whose significance companies cannot demonstrate.

In the end, the drawback to using algorithms is that we’re trying to use them on the cheap: building them by looking only at best performers rather than all performers, using only measures that are easy to gather, and relying on vendors’ claims that the algorithms work elsewhere rather than observing the results with our own employees. Not only is there no free lunch here, but you might be better off skipping the cheap meal altogether.

Peter Cappelli is the George W. Taylor Professor of Management at the Wharton School and a director of its Center for Human Resources. He is the author of several books, including Will College Pay Off? A Guide to the Most Important Financial Decision You’ll Ever Make (PublicAffairs, 2020).

Expanding the Pool

Goldman Sachs is a people-centric business—every day our employees engage with our clients to find solutions to their challenges. As a consequence, hiring extraordinary talent is vital to our success and can never be taken for granted. In the wake of the 2008 financial crisis we faced a challenge that was, frankly, relatively new to our now 150-year-old firm. For decades investment banking had been one of the most sought-after, exciting, and fast-growing industries in the world. That made sense—we were growing by double digits and had high returns, which meant that opportunity and reward were in great supply. However, the crash took some of the sheen off our industry; both growth and returns moderated. And simultaneously, the battle for talent intensified—within and outside our industry. Many of the candidates we were pursuing were heading off to Silicon Valley, private equity, or start-ups. Furthermore, we were no longer principally looking for a specialized cadre of accounting, finance, and economics majors: New skills, especially coding, were in huge demand at Goldman Sachs—and pretty much everywhere else. The wind had shifted from our backs to our faces, and we needed to respond.

Not long ago the firm relied on a narrower set of factors for identifying “the best” students, such as school, GPA, major, leadership roles, and relevant experience—the classic résumé topics. No longer. We decided to replace our hiring playbook with emerging best practices for assessment and recruitment, so we put together a task force of senior business leaders, PhDs in industrial and organizational psychology, data scientists, and experts in recruiting. Some people asked, “Why overhaul a recruiting process that has proved so successful?” and “Don’t you already have many more qualified applicants than available jobs?” These were reasonable questions. But often staying successful is about learning and changing rather than sticking to the tried-and-true.

Each year we hire up to 3,000 summer interns and nearly as many new analysts directly from campuses. In our eyes, these are the firm’s future leaders, so it made sense to focus our initial reforms there. They involved two major additions to our campus recruiting strategy—video interviews and structured interviewing.

Asynchronous video interviews.

Traditionally we had flown recruiters and business professionals to universities for first-round interviews. The schools would give us a set date and number of time slots to meet with students. That is most definitely not a scalable model. It restricted us to a smaller number of campuses and only as many students as we could squeeze into a limited schedule. It also meant that we tended to focus on top-ranked schools. How many qualified candidates were at a school became more important than who were the most talented students regardless of their school. However, we knew that candidates didn’t have to attend Harvard, Princeton, or Oxford to excel at Goldman Sachs—our leadership ranks were already rich with people from other schools. What’s more, as we’ve built offices in new cities and geographic locations, we’ve needed to recruit at more schools located in those areas. Video interviews allow us to do that.

At a time when companies were just beginning to experiment with digital interviewing, we decided to use “asynchronous” video interviews—in which candidates record their answers to interview questions—for all first-round interactions with candidates. Our recruiters record standardized questions and send them to students, who have three days to return videos of their answers. This can be done on a computer or a mobile device. Our recruiters and business professionals review the videos to narrow the pool and then invite the selected applicants to a Goldman Sachs office for final-round, in-person interviews. (To create the video platform, we partnered with a company and built our own digital solution around its product.)

This approach has had a meaningful impact in two ways. First, with limited effort, we can now spend more time getting to know the people who apply for jobs at Goldman Sachs. In 2020, the year before we rolled out this platform, we interviewed fewer than 20% of all our campus applicants; in 2020 almost 40% of the students who applied to the firm participated in a first-round interview. Second, we now encounter talent from places we previously didn’t get to. In 2020 we interviewed students from 798 schools around the world, compared with 1,268 for our most recent incoming class. In the United States, where the majority of our student hires historically came from “target schools,” the opposite is now true. The top of our recruiting funnel is wider, and the output is more diverse.

Being a people-driven business, we have worked hard to ensure that the video interviews don’t feel cold and impersonal. They are only one component of a broader process that makes up the Goldman Sachs recruitment experience. We still regularly send Goldman professionals to campuses to engage directly with students at informational sessions, “coffee chats,” and other recruiting events. But now our goal is much more to share information than to assess candidates, because we want people to understand the firm and what it offers before they tell us why they want an internship or a job.

Our structured interview questions are designed to assess 10 core competencies.

We also want them to be as well prepared as possible for our interview process. Our goal is a level playing field. To help achieve it, we’ve created tip sheets and instructions on preparing for a video interview. Because the platform doesn’t allow videos to be edited once they’ve been recorded, we offer a practice question before the interview begins and a countdown before the questions are asked. We also give students a formal channel for escalating issues should technical problems arise, though that rarely occurs.

We’re confident that this approach has created a better experience for recruits. It uses a medium they’ve grown up with (video), and most important, they can do their interviews when they feel fresh and at a time that works with their schedule. (Our data shows that they prefer Thursday or Sunday night—whereas our previous practice was to interview during working hours.) We suspected that if the process was a turnoff for applicants, we would see a dip in the percentage who accepted our interviews and our offers. That hasn’t happened.

Structured questioning and assessments.

How can you create an assessment process that not only helps select top talent but focuses on specific characteristics associated with success? Define it, structure it, and don’t deviate from it. Research shows that structured interviews are effective at assessing candidates and helping predict job performance. So we ask candidates about specific experiences they’ve had that are similar to situations they may face at Goldman Sachs (“Tell me about a time when you were working on a project with someone who was not completing his or her tasks”) and pose hypothetical scenarios they might encounter in the future (“In an elevator, you overhear confidential information about a coworker who is also a friend. The friend approaches you and asks if you’ve heard anything negative about him recently. What do you do?”).

Essentially, we are focused less on past achievements and more on understanding whether a candidate has qualities that will positively affect our firm and our culture. Our structured interview questions are designed to assess candidates on 10 core competencies, including analytical thinking and integrity, which we know correlate with long-term success at the firm. They are evaluated on six competencies in the first round; if they progress, they’re assessed on the remaining four during in-person interviews.

We have a rotating library of questions for each competency, along with a rubric for interviewers that explains how to rate responses on a five-point scale from “outstanding” to “poor.” We also train our interviewers to conduct structured interviews, provide them with prep materials immediately before they interview a candidate, and run detailed calibration meetings using all the candidate data we’ve gathered throughout the recruiting process to ensure that certain interviewers aren’t introducing grade inflation (or deflation). We’re experimenting with prehire assessment tests to be paired with these interviews; we already offer a technical coding and math exam for applicants to our engineering organization.

We decided not to pilot these changes and instead rolled them out en masse, because we realized that buy-in would come from being able to show results quickly—and because we know that no process is perfect. Indeed, what I love most about our new approach is that we’ve turned our recruiting department into a laboratory for continuous learning and refinement. With more than 50,000 candidate video recordings, we’re now sitting on a treasure trove of data that will help us conduct insightful analyses and answer questions necessary to run our business: Are we measuring the right competencies? Should some be weighted more heavily than others? What about the candidates’ backgrounds? Which interviewers are most effective? Does a top-ranked student at a state school create more value for us than an average student from the Ivy League? We already have indications that students recruited from the new schools in our pool perform just as well as students from our traditional ones—and in some cases are more likely to stay longer at the firm.

What’s next for our recruiting efforts? We receive almost 500,000 applications each year. From this pool we hire approximately 3%. We believe that many of the other 97% could be very successful at Goldman Sachs. As a result, picking the right 3% is less about just the individual and increasingly about matching the right person to the right role. That match may be made straight out of college or years later. We’re experimenting with résumé-reading algorithms that will help candidates identify the business departments best suited to their skills and interests. We’re looking at how virtual reality might help us better educate students about working in our offices and in our industry. And we’re evaluating various tools and tests to bring even more data into the hiring decision process. Can I imagine a future in which companies rely exclusively on machines and algorithms to rate résumés and interviews? Maybe, for some. But I don’t see us ever eliminating the human element at Goldman Sachs; it’s too deeply embedded in our culture, in the work we do, and in what we believe drives success.

I’m excited to see where this journey takes us. Our 2020 campus class is shaping up to be the most diverse ever—and it’s composed entirely of people who were selected through rigorous, objective assessments. There’s no way we aren’t better off as a result.

Dane E. Holmes is the global head of human capital management at Goldman Sachs.

Who Are the Richest of the Rich?

Sitting at a table, grinding his pinkie into the corner of his mouth and staring at the screen, Dr. Evil announces he is holding the world ransom for $1 million. Having been cryogenically frozen for 30 years, the comic villain created by the actor Mike Myers is shocked when he is told that $1 million isn’t a lot of money in 1997.

Trying to regain his composure, he turns to the screen, voice cracking with uncertainty, and says, “O.K. then, we hold the world ransom for $100 billion.”

Twenty years after the movie “Austin Powers: International Man of Mystery” was released, billions of dollars aren’t what they used to be, either.

Bill Gates alone is just $10 billion shy of Dr. Evil’s ransom demand, according to a list of the world’s top 10 billionaires compiled by Wealth-X, a financial research firm. Mr. Gates, the Microsoft founder, tops the list at $89.3 billion, followed by his friend Warren Buffett at $73.5 billion.

The top 10 — nine from the United States, one from Spain — have a combined net worth of $582 billion. While their wealth would certainly be enough to save the world from Dr. Evil, what they do with it in real life is the subject of great interest and debate.

That is true now more than ever. Issues around money — like wealth inequality and talk of tax cuts for the rich — are among the hottest topics of the day. And the richest president in history is sitting in the Oval Office, with billionaires sprinkled throughout his cabinet.

To some, today’s billionaires are like Dr. Evil: selfish, rapacious and bent on world domination. To others, billionaires are worthy of respect for having put their names and fortunes behind an array of philanthropic endeavors, many aimed at improving the lives of people at the very base of the wealth pyramid.

There were 2,473 billionaires in the world, as of Wealth-X’s last count through 2020. That was a 6.4 percent increase in billionaires from the year before.

But who these billionaires are and what they’re like is more difficult to discern. Many may seem as ordinary as the guy sitting next to you on the train — or in Michael Bloomberg’s case, standing beside you on the subway, when he was mayor of New York. (Mr. Bloomberg is No. 9 on Wealth-X’s list.)

There are certainly billionaires who want to save the world, like Mr. Gates, Mr. Buffett and Mr. Bloomberg, who have pledged to give their fortunes away. Others in the top 10 are also philanthropic, but they are still focusing on their day jobs, like Jeff Bezos of Amazon, Mark Zuckerberg of Facebook and Larry Page of Alphabet (the parent of Google) — Nos. 4, 5 and 10.

Yet many of the billionaires beyond the top 10 or 20 have a much lower profile. Who outside of finance or hockey knew of Vincent Viola, a former oil trader and current owner of the Florida Panthers, before President Trump nominated him to be secretary of the Army? Now that he has withdrawn, he can return to relative anonymity.

For that matter, Wilbur L. Ross, Mr. Trump’s choice for commerce secretary, is the wealthiest of the president’s billionaire cabinet picks. He would pop up in the headlines every few years for a deal he was making but then return to what could be called the quiet opulence of the billionaire class.

“We know that things are quite different for a billionaire individual or a billionaire family than they are for even a very wealthy ultra-high-net-worth family,” said Belinda Sneddon, national practice executive in the family office group at U.S. Trust.

“They’re different in how they can invest their assets and what their portfolio may look like,” Ms. Sneddon said. “In many ways, they face different risks, both personal risks and cyber risks, than the average individual does. They often think about structuring decisions differently from a succession-planning standpoint as well as the structure they create around themselves and their family.”

Yet for most people, billionaires are just wealthy beyond belief. And these days, they are also much wealthier (and getting even more so) than the broader ultra-high-net-worth population.

That group is defined as anyone with more than $30 million. In 2020, there were 212,615 of them. On the lower end, the 155,050 people worth between $30 million and $99 million had a combined $8.4 trillion. At the top, the world’s 2,473 billionaires were worth $7.68 trillion.

“There is growing inequality around the world, but there is also inequality among the ultrawealthy,” said Maya Imberg, director of custom research at Wealth-X.

Billionaires also matter because of the outsize influence they have, or believe they can have, on policy and public life. They can give millions to a political campaign, as Peter Thiel, a founder of PayPal and a director of Facebook, did with Mr. Trump, or as George Soros, the hedge fund manager and philanthropist, has done with liberal causes.

They can also give millions to combat disease, as the industrialist Jon Huntsman Sr. has done with cancer, or to start schools in Africa, as Pierre Omidyar, a founder of eBay, has done.

But billionaires are as different from one another as members of any other economic group. How they amassed their billions, and how that pile is growing, tells a lot about the economy today.

Road to Billions

Just as the best teacher in the country is going to earn less money than a mediocre investment banker, the industries in which future billionaires begin their careers determine the magnitude of their wealth and how quickly it is going to grow.

Six of the top 10 billionaires made their money in technology. But in Wealth-X’s research, technology ranks sixth overall for the number of billionaires on the list, with 114 around the world.

Finance has created the most billionaires, with 377, or 15 percent of the world’s billionaires. It is followed by industrial conglomerates, with 317, or 13 percent.

After that, the concentration in particular industries drops. Real estate is third with 141. The group of people who identify their industry as nonprofits (meaning they made their money some other way or inherited it) is fourth, with 122. Manufacturing, in fifth place, has 120.

“Globalization has been a big trend,” said Benjamin Kinnard, a research analyst at Wealth-X. “The market is now seven billion people, not just the size of your domestic country.”

He added that finance had a bigger lead in first place several years ago, but it has been losing ground as industries like technology boom.

A tougher route to becoming a billionaire is through keeping track of other people’s billions. Accountants have just one person on the list, who was not identified.

The railroad sector, a source of so much wealth in the last Gilded Age, has but two billionaires, the same number those in as consumer finance.

And while billionaires in the United States are often better known than those elsewhere, there are more billionaires in Europe (though they have less total wealth than their American counterparts).

Asia is gaining ground quickly. Research from UBS calculated that a new billionaire is created every three days in Asia, with 65 percent of the region’s billionaires in China.

While the number of billionaires in China is rising at a fast clip, the pace of growth in billionaires worldwide is slowing. Wealth-X said the number will be 3,250 by 2020, down 16 percent from an earlier prediction of 3,873. This is because economic growth is expected to slow around the world.

From $1 Billion to $100 Billion

Across the billionaire spectrum, the biggest proportion of billionaires’ wealth — about half — is in the business that created the wealth in the first place, according to Wealth-X’s research. After that, they have about a quarter of their money in public securities and a little less than a quarter in cash. Just 4 percent is in real estate and luxury assets, the research found.

There are common strains to how they cross the billionaire line, regardless of industry: 57 percent are self-made, according to Wealth-X, and another 31 percent received an inheritance and grew it into billions.

“Timing has a lot to do with it,” said John Mathews, head of private wealth management and the ultra-high-net-worth group at UBS. “If we looked back 100 years, it would have been a really great time to be in steel, railroad or infrastructure businesses. Today, it’s a good time to be in technology and finance.”

But there is a difference from the bottom of the billionaire ladder to the top: Most are on that first rung.

Over half of all billionaires are worth between $1 billion and $2 billion. Go up to $5 billion and there are 2,101.

And not all billionaires are household names.

Ma Jianrong, executive chairman of Shenzhou International Group Holdings, which is the leading textile company in China and manufactures clothing for Nike, Adidas, Puma and Uniqlo, is worth $4.3 billion.

Patrice Motsepe, executive chairman of African Rainbow Minerals, built his wealth through mining in South Africa after starting his career as a lawyer in the United States. He is now worth $2.1 billion.

Kevin Systrom, chief executive of Instagram, is surely well known in Silicon Valley — and among students at Stanford University (his alma mater) who want to emulate his route to a net worth of $1.2 billion by age 33. But he is not as recognizable as Mr. Zuckerberg of Facebook.

But being a billionaire, as opposed to a very wealthy millionaire, can make a huge difference in the loss of privacy for a family. “It’s a lot more difficult to be anonymous,” Ms. Sneddon said.

And being known as billionaires opens them up to risks, she said, like cybersecurity breaches and attacks on their families.

How single-digit billionaires add additional billions isn’t always up to them.

One way to become even wealthier is to have picked the right global industry in which to make your billions and hang on to your stake in your company as it booms — and avoids busts. Right now, the technology and finance industries are leading the growth. Another way is to make your money in the right region, which is Asia.

Then, of course, there are the investment opportunities that only get presented to the wealthiest people, and that only they have the resources to take a chance on. “They can diversify their holdings to protect themselves,” Mr. Kinnard said.

And the big investments that are needed in private equity deals, for example, are a smaller portion of overall wealth for billionaires than for someone with, say, $100 million.

“The common thread with billionaires is the incredibly focused drive these people have in whatever business they go into,” Mr. Mathews said. “It’s dogged determination. You can say everyone is like that, but with billionaires everything else gets blocked out. You see it today with tech the way you saw it with steel barons 100 years ago.”

Ups and Downs

Yet getting across the billionaire line does not mean a person will always be there.

“Once a billionaire doesn’t mean you’ll stay a billionaire,” Mr. Mathews of UBS said. “Last year alone there were 41 new billionaires created in the United States, but 36 also dropped out of billionaire status in the U.S. Our billionaire population is growing but only by a net of five.”

In the United States, Mr. Mathews said, most people fall off the billionaire list because they sell the company that created their wealth. “When you sell it, there are tax issues,” he said. “There are estate-planning issues.”

The latter results in chunks of money being given to heirs to get it out of the wealth creator’s estate.

Selling family firms happens less often in Europe and Asia. People end up holding on to them and creating family holding companies to continue to operate that original business and expand into others.

Of course, people who sell their $1 billion company and end up with $500 million after taxes — or whose wealth tops out at $800 million — aren’t scraping by. But being a billionaire gives you entry into an exclusive club that being a millionaire does not. After all, in Mr. Trump’s cabinet, Secretary of State Rex W. Tillerson’s wealth from his career at Exxon Mobil looks positively modest. He’s worth just a few hundred million.

Expectations and Obligations

What is expected of people who have more money than they could spend in several lifetimes? It depends on whom you ask.

A recent report from Oxfam International, the antipoverty charity, argued that eight billionaires had as much wealth as half of the world’s population — or 3.6 billion people — and that that was a travesty.

“It is obscene for so much wealth to be held in the hands of so few when one in 10 people survive on less than $2 a day,” Winnie Byanyima, executive director of Oxfam, said in a statement. “Inequality is trapping hundreds of millions in poverty. It is fracturing our societies and undermining democracy.”

Yet the anger against the superrich has abated since the Occupy Wall Street protests in 2020. Protesters seem to be more concerned with the actions of Mr. Trump (who is likely a billionaire, although he has provided little proof of his real wealth) than with his cabinet of plutocrats.

One of his tax proposals would keep billionaires from having to part with more of their wealth, by eliminating the estate tax. Without it, generational wealth would be easier to preserve and perpetuate.

Philanthropy has become important to many billionaires, and not just through the Giving Pledge, Mr. Buffett’s compact to get the wealthiest to give away at least half of their fortunes. Nor is it confined to the United States, with its tradition of charitable giving.

“You’re starting to see where philanthropy is becoming more and more important to billionaires regardless of where they live,” Mr. Mathews said. “I don’t know if 10, 12 years ago, it was much of a conversation in Asia. Now all billionaires, regardless of where they live, are worried about the next generation. ”

But there are limits to what even a billionaire can do. Mr. Bloomberg, in an interview in 2020, recalled the time he was approached at a conference in Sun Valley, Idaho, by a hedge fund manager offering him $1 billion over five years to change public education in New York.

“When I explained to him that New York City’s annual school budget was $22 billion a year,” Mr. Bloomberg said, “that was the last time we ever heard from him.”

A PERIOD OF EXPLORATION

Imagine a time many thousands of years ago. A group of hunters came to a huge, unexplored land. They were the first people in America.

For many thousands of years the descendants of those hunters moved farther into the new territory. Finally they settled in all parts of the land. Different groups developed different languages and customs. These people were American Indians, or Red Indians.

Then, one day, a new group of travellers came to the land. They had new customs, new languages and a very different way of life. They were Europeans.

The first inhabitants. No one knows exactly how people first came to North America. However, many scientists believe that America’s first settlers were hunters who came from Siberia. These hunters followed big animals over a land bridge into what is now Alaska.

About two million years ago the weather in the northern half of the earth changed greatly. It grew colder. The snow that fell did not melt in summer. Much of the land was covered with huge glaciers. This period of time is called the Ice Age because so much of the North was covered with ice. Sea water froze, and the water level in the sea dropped. There is a narrow strait between the Bering and Chukchi Seas. During the Ice Age this strait probably became very shallow. In some places it dried up completely and formed a land bridge from Asia to North America.

The scientists think that the people of Asia found this land bridge between 15,000 and 40,000 years ago. Group after group moved across the bridge to the unexplored continent of North America. They passed through what is now Alaska and western Canada.

Ways of Indian life. North America is a land of many geographic features. There are mountains and deserts. There are forests, plains, lakes and oceans. American Indians, descendants of the first settlers, lived in or near all these regions.

The Indians’ way of life depended on the geography of the area they lived in. The Indians who settled near the ocean fished. On the Great Plains, where there were many animals, the Indians were hunters. In places with rich soil the Indians farmed.

There were hundreds of different American Indian tribes. Each tribe had its own territory. Tribes had different languages and customs, too.

The American Indians can be divided into five groups, according to where they lived.

The Northwest Indianslived near the forests of the Pacific coast. They sailed along the Pacific coast in very long boats (up to 18 metres) called canoes, and fished.

The California Indianssettled between the Rocky Mountains and the California coast. They fished in the Pacific Ocean and hunted in the forests. They also gathered acorns and other nuts in the forests.

The Plains Indianshunted in the central part of the continent.

The Southwest Indianslived in what is now Nevada, Arizona and New Mexico. They were farmers and grew corn and beans. In dry areas they developed irrigation. The Eastern Woodlands Indianslived in the eastern part of the continent. They fished in the Atlantic Ocean and in the rivers, hunted in the forests. Many of them built villages and became farmers.

Europe’s first explorers. From the very first, Europeans who explored North America were looking for riches. It took a lot of courage to be an explorer a thousand years ago. Every trip was a journey into the unknown. Slowly, however, explorers began to learn more about the world. With each voyage they could draw maps more accurately. The early explorers made travelling easier for those who came later.

Viking voyages.In the late 900’s the Vikings, who lived in Scandinavia 1 , were the best sailors and shipbuilders in Europe. Each year they left their homes and sailed to foreign lands in search of food and riches. They discovered Iceland and Greenland.

In 1001 a Viking called Leif Ericssonsailed west of Greenland and came to the shore of Newfoundland. Most of what we know about Ericsson’s voyage comes from stories that the Vikings told. These stories, called sagas, were histories of Viking leaders and their adventures. The sagas of Ericsson’s trip describe a land in which Ericsson found grapes, wheat and trees. He called this place Vinland. The sagas also describe a house that Ericsson built there. But Ericsson’s settlement did not last long. Because of problems with the American Indians the Vikings sailed away from Vinland.

Riches from the East.While the Vikings were sailing west, other Europeans were travelling east. Some went to the areas around the Mediterranean Sea.

Others went as far east as India and China. They found these lands rich in gold, gems and silk. They tasted new spices that could be used to better the taste of food.

One traveller to the East was an Italian named Marco Polo.He went to China in 1275 and stayed for seventeen years. When he returned to Italy, he wrote a book about his journey. In his book Marco Polo described the places he had visited and the customs of the people he had met. Many people first learned about China from Marco Polo’s book.

At that time routes from Europe to the East crossed both land and water. Land travel was slow and often dangerous. Sometimes bandits attacked the traders. Sometimes the traders were not allowed to pass through certain lands. The traders wanted a fast and safe route to the East. European traders thought that an all-water route would be better.

In 1498 one Portuguese captain, Vasco da Gama,sailed around the southern tip of Africa. The Portuguese called the tip the Cape of Good Hope. Da Gama sailed to India and then back to Portugal. At last an all-water route to the East had been found.

Spain and the New World. In the late 1400’s Spain began searching for another water route to the East. Instead of it, Spanish explorers found a new continent. A mapmaker called it the New World – the land across the Atlantic that was not part of Asia.

The great explorer. Christopher Columbuswas born in Italy and grew up near the sea. As a boy, he loved to go to the port and listen to the sailors’ stories.

In 1476, when he was 24 years old, Columbus sailed on a ship bound for England. His ship sank near the coast of Portugal, but he managed to get to the shore.

Columbus remained in Portugal and learned Latin, geography and shipbuilding there. He became a mapmaker and then a sea captain. Like many other Europeans, Columbus began to think that the earth was round. He decided to try to find a quick route to the East by sailing west.

The King of Portugal thought that the plan was too dangerous and refused to pay for the voyage. So, in 1485, Columbus went to Spain for help. Queen Isabella and King Ferdinand of Spain liked Columbus’s plan and agreed to give him money for sailors, ships and supplies.

On August 3, 1492, three ships left Spain and sailed to the west. The three small ships sailed for weeks with no sight of land. The sailors became nervous. They asked Columbus to turn back. “Sail on,” was the reply.

As time passed, the sailors grew angry. They threatened to rebel, but finally agreed to sail on for three more days. Columbus promised that if they did not see land, they would turn back. On the morning of the third day they saw birds flying in the sky. Then a sailor saw land. On October 12, 1492, Columbus stepped ashore, holding the Spanish flag. Columbus thought that he had reached a group of islands near the coasts of China and India which were called the Indies. That’s why he called the people he saw Indians. Columbus made three more voyages to the New World. But he never knew that he had discovered a new world. He was sure that he had approached China and India from the east.

Cortés in Mexico.In the early 1500’s a number of Spanish soldiers and adventurers went to Hispaniola 3 and Cuba 4 , islands in the West Indies. From these islands they were planning to explore other parts of the New World. These adventurers called themselves conquistadors, which meant conquerors. One of the conquistadors was Hernando Cortés.

Many of the conquistadors came to the New World after hearing rumours that there was much gold to be found there. In 1519 Cortes led an expedition to find out if the rumours were true. He went to a land west of Cuba, called Mexico.

In Mexico Cortes met an Indian woman who told him about the rich and powerful Aztec Indians. These Indians lived in Central Mexico, in a huge city, she told Corte’s. They had much gold and silver.

Cortes led an army to conquer the Aztecs. The march was long and difficult. Along the way, other Indians who wanted to fight the Aztecs joined Cortes. Finally, Corte’s and his army came to a land with beautiful blue lakes. On an island in one of the lakes was Tenochtitlan,the Aztec capital city.

The Spaniards were amazed by the Aztec city and its people. The city had fine architecture and sculpture. Aztec doctors could cure many diseases. The Aztecs also had well-trained soldiers and an efficient government.

Montezuma,the Aztec leader, treated Cortes as an honoured guest. He gave Cortes gold and silver.

He offered Cortes a palace to stay in. Montezuna treated Cortes so well because he thought that Cortes was the great Aztec god Quetzalcoatl. Aztec legends described Quetzalcoatl as white-skinned and bearded, just like Cortes.

Soon Montezuma understood that he had been wrong. Corte’s was not a god. The Aztec leader gave the Spaniards gifts to make them leave. The Spaniards, however, did not want to .leave. They captured Tenochtitlan and took Montezuma prisoner.

The Aztecs tried to get their leader back. Meanwhile, fighting between conquistadors and Aztecs began in other parts of Mexico. The fighting went on for months. Montezuma was killed in Tenochtitlan.

In the end, the Spaniards defeated the Aztecs. They declared themselves masters of Mexico and sent shiploads of gold and silver to Spain. King Carlos I of Spain was pleased. It seemed that the rumours about the New World’s riches were true.

Around the world. Ferdinand Magellan 2 was the first European who got to the Spice Islands (Indonesia), sailing to the west. He found a passage around South America to the Pacific Ocean. Four ships were lost on the dangerous journey. Magellan himself was killed by natives in the Philippine Islands.

In 1522 a single ship returned to Spain. Of the 265 men who had left in 1519, only 18 returned. They had been gone three years. But they had sailed around the world. They proved that Columbus had been right. Ships could, indeed, reach the East by sailing west.

Other European explorers. There were other European explorers who tried to find a water route through or around America. After Magellan’s voyage Spain controlled the southern parts of America. So the new explorers decided to look for a water route in the North.

English exploration. John Cabotwas an Italian sea captain who explored for England. The English also hoped that Cabot could reach the Spice Islands by sailing west.

In 1447 Cabot set sail with one small ship and eighteen men. After five weeks at sea he reached land and claimed it for England. Cabot thought he was in China.

In fact, Cabot had landed in what is now Newfoundland. Instead of spices, he found one of the richest fishing areas in the world.

The next year Cabot made another trip. He explored much of the north-eastern coast of North America. It was Cabot’s last trip. He and his crew were lost at sea.

French exploration.The French 1 explorer, Jacques Cartier,made three voyages to the New World between 1534 and 1542. Cartier was looking for the Northwest Passage – a water route through North America to Asia. He found the St. Lawrence River and explored it as far as present-day Montreal, Canada.

French explorers kept trying to find the Northwest Passage. In 1603, Samuel de Champlainexplored much of what is now eastern Canada and Northern New York State. He claimed this land for Prance. He set up a settlement at Quebec and sailed II kiss Lake Huron and Lake Ontario. But he did not find the Northwest Passage.

Some French explorers thought that the Mississippi River might be a passage west to the Pacific Ocean. In 1673 Louis Joliet 3 and Jacques Marquekte travelled down the Mississippi by raft and canoe. Robert La Salle,another French explorer, travelled to the mouth of the Mississippi in 1682. He called the surrounding area Louisiana and claimed he entire Mississippi Valley for France.

Dutch exploration. Henry Hudsonwas an English navigator who made important explorations for the Dutch and English. In 1609 he set sail from The Netherlands. Reaching North America, he explored the Atlantic shore and sailed up the river that was later named for him – the Hudson. He claimed the territory around the Hudson River for The Netherlands. It became New Netherlands – the first Dutch colony in the New World.

The next year a group of English merchants hired Hudson to explore northern Canada. He found what is now known as Hudson Bay and claimed all the surrounding land for England.

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