If You Want Financial Freedom, Learn About Financial Entropy
The System Is Rigged to Keep You Poor Forever
I'm increasingly convinced that the system is designed so that, within just a few generations, you inevitably end up poor. This becomes quite evident when you closely observe how everything around us operates. The system doesn't want individuals stepping outside of certain predefined standards, and if for some reason you manage to stand out or accumulate more than the rest, it will try to push you back into the general mass as quickly as possible.
Michael Saylor calls this phenomenon "financial entropy," and it's a very accurate concept: any financial asset that can lose value will eventually do so. Everything inevitably tends toward deterioration and dispersion, and if we're not aware of this and don't act cautiously, it's highly likely that all of us will eventually fall victim to this process sooner or later.
Although some of us might think Michael Saylor is going crazy with his massive accumulation of Bitcoin, in reality he isn't. To put this into perspective, just a few weeks ago he issued $21 billion worth of debt; to grasp the true scale of this figure, we're talking about roughly 5% of Walmart's total market capitalization—a globally massive company.
Now let me explain why I believe Saylor is right in a certain way, and I'm confident that if there's any engineer in the audience, they'll quickly reach the same conclusion.
I don't know if you recall that a few weeks ago I briefly mentioned the talk Michael Saylor gave in Nashville during the Bitcoin 2024 conference. In that talk, he explained how long financial assets typically last and how quickly they actually lose their purchasing power over time.
Some readers criticized me and even sent emails arguing that this didn't apply to index funds. They claimed that these funds don't lose value over the long term and shared specific ISINs with me showing very low Total Expense Ratios (TER), between 0% and 0.07%. But that's not the whole story.
As I mentioned before, financial entropy causes energy—in this case our money—to gradually dissipate along the way. Every asset naturally tends toward deterioration and a progressive loss of value.
I'm neither going crazy nor exaggerating. In the specific case of index funds, exactly the same thing happens. Let me give you a very simple example that's applicable to all cases:
When you buy an index fund, you're essentially buying shares in real companies generating actual economic profits. But what really happens behind the scenes?
To generate those profits, companies must use physical and human resources (computers, buildings, machinery, employees...), elements that inevitably wear out over time.
Once those gross profits are generated, corporate taxes must be paid on them—depending on the country, anywhere between 20% and 40%.
Finally, there's a net result left (I know I'm greatly simplifying here and skipping many intermediate processes), and it's this net result that's ultimately distributed among shareholders.
You're probably thinking: "I already knew all this; you're not telling me anything new." But here's where it gets really interesting:
Let's imagine you're a European citizen who wants exposure to the S&P 500 index through an ETF domiciled in Ireland (something extremely common).
The ETF manager (Vanguard, iShares...) receives dividends generated by those U.S. companies. If your ETF is domiciled in Ireland, at source there's already an automatic withholding tax of 15% on these dividends; if it's a traditional mutual fund structure it could be up to 30%.
You might think: "But I have accumulation funds so this doesn't affect me." Wrong. Dividends are still received first (with their corresponding tax withholding) before being internally reinvested.
Additionally, you've already had to buy ETF shares initially paying brokerage commissions.
And even after you've purchased your ETFs within your broker account you'll continue paying additional fees such as annual custody or maintenance charges depending on your broker.
In short: let's assume right now companies distribute dividends averaging between 2% and 3% annually from their total profits. This directly implies an average initial tax withholding of approximately 30%.
Therefore we have a kind of hidden annual fee around 3% x 30% = 0.9%. This already starts getting very close to the famous "1%" annual entropy figure Michael Saylor mentioned during his Nashville talk.