WHY YOUR OWN BUSINESS, NEVER “PASSIVE INVESTING” CAN MAKE YOU & YOUR DESCENDANTS RICH

 

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“I’ll bet there are very few super-rich people in the whole world whose wealth comes from the passive re-investments of inheritances from ancestors of more than a generation or two ago”

INHERITED WEALTH DOESN’T LAST

There are always exceptions. A few seriously wealthy families have passed their assets along for over two generations. But their heirs don’t constitute the 1% super-rich of today. The multi—multi-millionaires through inheritance are more like .00001% of the population.

Most of the serious rich “old money” that has survived was passed down in the form of real estate: Rentals, vineyards, and renewable forests. Very few holding companies like Asian conglomerate trading companies, banks and survived more than a couple generations without being confiscated, foreclosed upon or sold off. In Latin America likewise, very very few mining operations, and plantations, have survived with the same family ownership for even 50 years.. To avoid inheritance and estate taxes those few businesses that did survive needed 1) straw men, 2) offshore entities, 3) Political Protection or in a few cases, 4) legal residence of owners in tax havens like Liechtenstein, Bermuda, Bahamas or Monaco.

To protect rich kids against their natural instincts, they usually need “spendthrift trusts,” that gave their kids only an education, a small income and prevent them from squandering the capital. The very rich in places taken over by leftist or communist regimes are ALWAYS stripped of assets, and often also, their lives. Think Cuba, Venezuela, Baltic/Balkan Countries, etc. Is the USA a “safe haven?” Historically, No! The wealthy class- supporters of Great Britain in the American Revolution lost their assets and were forced to move to Canada or South America to save their skins. It happened again to Southern Plantation Owners in the USA Civil War. No country has ever been safe for its rich and powerful families.

THE BIGGEST THIEF OF ALL—

“FIAT OR UNBACKED PAPER MONEY.”

IT EVAPORATES THE WEALTH OF CREDITORS.

Consider inflation:

In present times old fortunes have been eclipsed by the new hi-tech billionaires.

Example? A family acquaintance of Grandpa’s dad in 1937 paid out the largest divorce settlement in history. The ex-wife got around $250,000 in cash and assets. This was enough to keep & support her Palm Beach waterfront estate with half-a-dozen servants, plus a Central Park West huge condo apartment with 3 full-time servants. The income paid for cars, a yacht, vacations in Paris . It put two kids through the best private schools and universities. Today, even a $100,000,000 divorce payout might not support the same lifestyle as this woman enjoyed. In other words, a million bucks 50 or 75 years ago was like a Billion now. Thus, inherited worth turns into speck of dust compared to the new fortunes.

We can safely predict that most of these new fortunes (Zuckerberg’s Facebook; Gate’s Microsoft; Carlos Slim’s Claro Cell Phones) will be re-distributed, reabsorbed and similarly dwarfed in a generation or two. This is normally the case, if only because of inflation and taxes alone. But managing and growing inherited fortunes is not something many people are particularly good at.

Examples? In Australia and Argentina, there are huge empty down-town buildings– old department stores that have been abandoned for decades. Why? because the owner-managers couldn’t weather economic downturns, political changes or otherwise keep up with changing times & tastes.

Very few individuals can be successful entrepreneurs – and they are the only ones who make serious fortunes. Those who never started out hungry &/or those who had their assets handed to them are generally consumers of wealth and not wealth builders. It remains to be seen if the newest fadfor the wealthy – -”The Family Office” will make any difference in preserving fortunes through the generations. My guess is that it won’t. Why? Because the managers of family offices have to be risk averse, because to make any big changes and possibly lose family money means no future job for them. Making big, risky bets and big killings as they do regularly at Goldman Sachs these days, is not anything most family offices can do. Staying put in an existing, unchanging business or even property is a guaranty of eventual failure.

EASY COME EASY GO

Indeed there were/are & always will be high-fliers amassing fabulous fortunes throughout history. An awful lot are just thugs or plunderers well positioned in local politics. Most of their fortunes were lost just as quickly as they were gained-during their lifetimes. Not one in a thousand of the super-rich of 1890 have great grand children who wold be considered super rich today. We personally know some descendants of the one-time richest man on Earth, Cornelius Van Der Bilt. Some are flat broke. Others live comfortable upper-middle class lives on their earnings & trust funds. Absolutely NONE can enjoy the opulence of their ancestor!

STOCK MARKET INVESTMENTS

Shares, antiques, art, collector cars are all something to consider adding to one’s holdings when the cash flow from other more entrepreneurial holdings produce too much surplus . But buy these passive things only if you don’t have the time or want to spend time on yet another venture using your own skills or expertise. Anything else makes the dealers, brokers and bank managers richer while rarely benefiting a non-dealer investor.

I am only guessing, but my guess is that if you had invested in ANY stocks on the market 2 centuries ago you would be entirely broke long before now. I once studied investing in the most popular stocks of the pre-WW1 period, and every single one (mostly railroads & local city tramways) was dead by the 1935 period.

What people don’t realize is that the Dow Jones Industrial Average for instance is like a fund with the losers being weeded out, with more promising newer companies being added every year to replace them. So if you invested almost any time in any basket of stocks–say 20 different companies— and never changed stocks intelligently, THEN, in most 50 year periods, you’d have to be very lucky to have even 1 or two that were still alive and worth more than you paid.

As to gold, it is a commodity with vastly different values (i.e. purchasing power) at different times. I often hear you “could always buy a man’s suit with 1 oz of gold.” Sure, but as of today I can get a decent slightly used suit at the flea market for $5 . Or, I can go to Rodeo Drive in LA or any upscale tailor somewhere and pay $10.000 for a “bespoke” custom tailored suit.

So it is not just in terms of fiat currency the value of gold fluctuates, it is in actual purchasing power too.

At the old peak ($1900 per oz.) 3 oz bought me a new car- a cheap model yes, but a basic car. Now 3 oz will get me only a nice racing bike… Maybe a clunker old car.

Gold is always worth “something” if it doesn’t get stolen or confiscated by governments. Is that a risk?

Any gold coins bought by your great grandpa would have been confiscated by F.D. Roosevelt in the 1930s. In fact, I’ll bet there are few if any rich people in the whole world whose wealth comes from the passive investments of inheritances from ancestors more than a generation or two ago. Then too, Uncle Scrooge fans will remember that crooks, namely the Beagle Boys, were always looking & finding new ways to empty $crooge’s gold vault in Duckburg.

(Grandpa’s Note: I got rich by following the example of Uncle Scrooge as conceived and drawn by the late Carl Barks, IMO Walt Disney’s best cartoonist!)

So gold in a vault can always be stolen.

The secret- you need to sell your own expertise or a product that your expertise helps create.
ONLY Your own profession or business — not “passive investing” will keep you ahead of the game.

Reader Comment:

This Grandpa Gem article simply re-states an obvious fact, namely that investments – that is, speculative financial transactions made after some research & with the high probability of gain – are at least potentially much more lucrative than holding money in the form of cash.


Gold bullion is not and never was an investment. It is an imperishable material good that over the long term, serves as a hedge against fiat money inflation. It costs money to hold, insure and store.That’s it. At well below production cost, Gold is a safe bet to ”go up” eventually in terms of fiat currency. Above that it is just a commodity speculation.

GOLD VS. STOCKS

Certainly, if you had invested in the RIGHT “basket of stocks” two centuries ago, and continued to upgrade your portfolio as Warren Buffet does, you would be very rich now. Of course, if you had invested in the WRONG basket — much more likely— you would be destitute. The phrase “wisdom in hindsight” comes to mind.


If, on the other hand, you had simply bought physical gold at almost any time and your ancestors had hidden it somewhere safe, you might still have close to your original fortune, intact, two centuries later.

Gold historically had only one huge decline in value: That was when Spanish Conquistadors brought to Europe huge quantities from the New World.


So generally, on any investment or even any business you have huge upside potential and very big downside risk – riches or the gutter – “prince or pauper. “ This means a need for constant vigilance. You need to adapt and change with the times. With gold you may have some security, but unlike with an innovative business, it’s likely you will never end up with a lot more or less than you put in, except in terms of ephemeral fiat currency. What’s that? Think USA dollar Argentine Peso or any unbacked paper money.

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