Asset-based income is fundamentally different from work-based income.

The primary difference is that asset-based income is proportional to assets and skill, whereas work-based income is proportional to time spent and skill. Both require skills, albeit different skills, so the difference is time versus assets.

Naturally, asset management requires some time–for example, to think and observe–and work requires some assets like tools and resources, but the ratio between them is markedly different. Consider a scenario where $2,000 in assets yields 4% ($80) without effort, but where asset management will raise the yield to 6% ($120). This is a difference of $40 from a few hours of work–it's presumed that the hours spent learning to do this work won't need to be repeated; once learned, there's no need to relearn.

Spending more than a couple hours managing $1,000 in assets is therefore not worthwhile, as the hourly return on time would dip below the working wage. Now consider having $200,000 in assets yielding 4% ($8,000). Raising the yield to 6% ($12,000) is a difference of $4,000, which is a very nice return for a few hours of effort, the exact same work effort but now leveraged with more assets.

Two observations: First, with almost no assets, the hourly compensation is too low to bother managing the assets. Conversely, with six-figure assets, the hourly return can be substantial. Second, even when the hourly wage is substantial, asset management doesn't allow you to keep increasing your income by putting in more hours like working does. The total compensation is thus less than what could be made while working for money until assets exceed income by a factor 25 or more. Since few people have that kind of money, they're often advised to apply the minimum amount of effort when it comes to investing.

With asset management, skill and wisdom are rewarded directly proportionally to the asset base, but never proportionally to the time base. This is probably the most important cultural barrier to overcome in a society that prides itself on being busy and productive. Frequently, asset managers get wealthy just by waiting and being wise. The real challenge, especially faced by professional asset managers, but hopefully not by you, is the tendency to ignore this fact. Many associate effort with taking action, but not taking action is also a form of action. In fact, often not taking action is just what is required.

The easiest way to get in the right frame of mind is to stop thinking like a farmer and start thinking like a hunter. A farmer (and a modern salary-, working-, and businessman) gets rewarded by activity. The more he does, the greater his reward. Conversely, a hunter isn't going to catch anything if he thrashes around in the woods, frantically looking for prey. A strategy where he first identifies the best place to hunt (skill), and then waits patiently for the opportunity to present itself, will be more successful. In this sense, the farmer-turned-hunter is his own worst enemy. Patience is a virtue that can take years or maybe even decades to develop. An impatient investor is likely to fire off all his arrows before the situation is optimal and will never make as much money as someone who can wait. Conversely, an impatient farmer will keep his beds free of weeds and therefore impatience and a strong inclination towards productivity works for him. The goal of asset management or any management is to either create an environment or alternatively be in an environment that allows for optimal yield. Here optimal could mean the largest possible, the largest possible when adjusted for volatility, or the largest possible when adjusted for catastrophic loss. Like traditional management, micromanagement, which tries to increase yield by substituting time for assets, never provides the intended results.