Home Forums Hunting & Shooting Hunter's Campfire The lies of the left: the rich only get richer

I’m so very tired of propaganda (both sides, to be sure) but some of the incessant lies of the left grate the most.

“The rich only get richer”.

Uuhhh, no, matter of fact, they don’t. Less than 10% of the billionaires in this country had any level of generational wealth. All of the Vanderbilt fortune was gone sixty years after his death.

Anyway, interesting interview, at CNN of all places.

https://www.cnn.com/2023/09/25/investing/premarket-stocks-trading/index.html


It’s pretty easy to squander vast sums of money. Just ask the descendants of the wealthiest Americans.

In 1900, there were about 4,000 millionaires in the United States. If one family with $5 million back then invested it passively in the broader US stock market and spent from it reasonably (about 2% of their wealth each year), they would have $16 billion today. If a quarter of those families had done the same, there would be about 16,000 billionaire households today.

But there are only about 730 billionaires in the country, according to Forbes, and almost none of them inherited longstanding generational wealth. In fact, less than 10% of the current list of billionaires are descended from anyone on the first Forbes’ rich list, published in 1982.

So where did all that money go?

That’s what Victor Haghani, co-founder of wealth management firm Elm Partners, set out to find in his new book, “The Missing Billionaires,” co-authored with his colleague James White.

The answer, says Haghani, lies in the way people invest. They typically focus too much on which stocks to buy and sell and not enough on how much.

Haghani has firsthand experience. In the 1990s, he co-founded Long-Term Capital Management (LTCM) and took Wall Street by storm, pulling in returns of 30% a year on average.

Until he wasn’t.

In 1998, the highly leveraged LTCM lost $4.6 billion in less than four months as a crisis in Russia erupted. The Federal Reserve gathered top officials from the world’s most powerful banks and orchestrated a $3.65 billion recapitalization of the company, but the fund was eventually liquidated in 2000.
Haghani spoke to CNN’s “Before the Bell” about how retail investors can learn from his past mistakes, as well as what can be learned from the mistakes of America’s wealthiest families.

This interview has been edited for length and clarity.

Before the Bell: 25 years on, what lessons can an investor still learn from the collapse of LTCM?

Victor Haghani: It’s all about this question of how much risk to take. In investing, you have to make two decisions: What do you want to buy or sell and how much of it you want to buy or sell.

LTCM had good investments but we got the “How much?” question wrong — we had too much of them. If you get the “What?” decision wrong and the sizing decision right, it’s still unfortunate and you’re going to lose money. But you’re still going to be able to continue on and find some better investments.

If you get the “How much?” decision wrong, it’s catastrophic. LTCM is a great case study in that.

How did America’s dynastic families make the same mistakes?

Cornelius Vanderbilt died in 1877 with $100 million, and he gave $95 million to his oldest son. By the 1950s, there wasn’t one Vanderbilt who was even a millionaire. That’s pretty incredible.

But it’s also fairly typical, and it goes back to this “How much?” question. The investment environment for the last 125 years couldn’t have been better. It was hard to not invest in things that had positive returns. But people got their sizing decisions wrong. They took on too much risk in their portfolios mostly by being way too concentrated in too few things and not having enough diversification.

Let’s say I guarantee an investor that they’re going to make an average annual return of 5%. Every year there’s going to be volatility — one year you’re going to be up 35% and the next year you’re going to be down 25%, but in the long term it will even out to 5%. It seems like a great deal, but risk starts to eat the return.

Let’s say you invest $100 and return 50% in one year. The next year you lose 50%. Your average return is zero, but your wealth actually went down to $75.

That risk is hurting your compound return. LTCM had a positive average return but experienced a 90% loss in 1998 and lost nearly all of our money.

These dynastic families also made bad spending decisions. They would set what seemed to be a sustainable spending policy at a point in time, and then the world changed and the value of their investment portfolio went down and all of a sudden that spending was no longer appropriate for the level of wealth that they had. Once that happens, wealth dissipation is fast.

The lesson here is that getting the size of your investment risk right is really important when it comes to the long term sustainability of your lifestyle and your spending.

So how do you decide how much risk to take?

The basic objective is to maximize your risk-adjusted outcomes, and some people are more risk averse than others.

You need to think about the expected return that the market is offering and then you need to work out what level of exposure to risky assets makes sense to you and what spending level will support you in a sustainable manner through the rest of your life — or beyond if you want to leave money to your kids.

Any other takeaways from these lost billionaires?

I don’t think that anybody can imagine that the very wealthy families today won’t be wealthy in 50 years. But the next 50 years will be different than the last. Human nature causes people to take on too much risk or spend too much and we may see the same pattern unfold in future decades.

Ultimately, the only thing that we can do with our wealth is to spend it or to give it away. And it’s probably a good thing for society that wealth is redistributed over time.

That is all well and good I guess...but who cares about the rich, really? I don't even know anybody who is rich by those standards.
Here is what I do know...the big players on Wall St (are they the rich? I guess so), by their piratical pursuit of more wealth have destroyed the American Dream/middle class. They offshored everything they could...what they couldn't off shore they imported illegal labor for over our deliberately porous borders (e-verify my ass). IMO the working middle class is what made America great...right up to the Vietnam war. It wasn't the moguls of industry or captains of finance, (the rich?) After that it was a rather steep slide as everything the rich wanted, they got by buying politicians left and right. Endless profitable wars in every corner of the globe, every single consumer thing in our daily lives imported, a tax code designed for the rich, all to accumulate wealth at the expense of the middle class. The rich are the Masai...we are the cows, and we are goddam near bled out.

The original.post made my head hurt and I never did figure it out.

Flintlocke nailed his point though.

I did recently read the millionaire next door and found the main point with that, is that most millionaires are new millionaires.

10-4

Flintlocke’s is the most important point in this thread.

The first generation earns it. The second generation spends it. The third generation loses it.

I've read that in the past in England only inherited money was considered honest. A self made man was highly suspect. It was tied to nobility where the heirs of anyone considered 'noble' was beyond reproach. Anyone else was below them and there was no way to climb the ladder. A man could work hard and smart all his life and become wealthy but the neighbors would never fully accept him as one of the 'better' people. A man could be a worthless drunken bum but if his daddy was rich, he ranked higher than the self made man.

and yet, were the rich not investing, not spending, things would be even worse for the average man. No rich folks means no factories, no jobs, not much for any of us. About 10% of the folks make about 90% of things happen. Rather than damn the rich, do something yourself to try and get there.

That sounds like using a lot of general statements in order to claim victim status. There are over 20 million millionaires in the US now. The vast majority are self made. These folks somehow found a way to overcome the challenges listed. Another way of looking at this might be: What, specifically, has Warren Buffet done that has prevented you from becoming wealthy? Really nothing. Amazon, Apple and Microsoft have enriched their founders while making our lives easier at the same time. This is not a zero sum game.

I don't know how old you are Mannlicher, I'm 77 and have lived the decline, I'm not going by outside information sources. With no education, I lived the American dream, a house, kids,, a good enough public education to do well in my chosen field, adequate healthcare at a price we could live with. The 'rich' who owned and financed the industries I worked in did well, I DID WELL and was content. My kids and their spouses are now, 40yrs later, working their tails off...and just squeaking by, their kids have been raised by the public school system, and it shows, because both parents have to work because of the tilted tax code. My kids and grandsons are living a markedly lower living standard (color tv is not a gauge of living standard, it's a sales tool, of course we all have one) than my generation. The conclusion of an embittered working class guy is: the Buffets, Kochs, Gates etc have sold the American middle class down the river for pure profit. Worship the wealthy if you wish.

So you honestly believe that some random man, or collection of men, prevented you from being wealthy?

Why give a chit what someone else thinks of you, especially a Brit?

Greg, I do NOT envy the wealthy, I have no DESIRE to be wealthy, (I see the way they behave, they do love sex with minors to a marked degree, it seems).
Let me condense my opinion as to simplify it for you, in the '60's and 70's, working a trade level job...I got a large helping of the American Pie. Fast forward 40 years, a tradesman and now his wife are working full time and do not approach the standard of living I experienced. The slice of the American Pie is now reduced to the molecular level. So Greg, where did the money go? I don't know, I'm not an economist, but I'd guess through the purchase of politicians, the extremely wealthy shaped the tax code so .gov gets a much bigger bite of my check. I'd guess that items, regardless of country of origin, are much more expensive now. As a logger in the summer of 1967 I made enough to pay cash for 5 months work for a Ford Bronco...try that now. Again, I do NOT envy wealth, I just want a slice of that pie, for gainful work accomplished.

Great post!!

First, I never accused you of being envious.

Second, there are many trade level working folks making six figures.

Third, the standard of living has gotten much better over the time period you described.

Fourth, tax rates are lower today than in the 60’s and 70’s.

There is plenty of money to be made here for those who are willing to earn it. I find it funny that Americans sit on the couch and bitch about not being able to get ahead while immigrants come here every day and become wealthy in a short time.

Just because your family hasn’t managed to do it doesn’t mean it cannot be done.

Greg, I give up, you win. Everything is wonderful...much better than in the past. Get out the vote for Joe for another 4.

LOL! I detest Joe Biden and would never vote for him. I also will not give him dominion over my life and future.

Don’t the Vanderbilt family still own the Biltmore?

They do. However, they have sold their lodge nw of Mt Shasta, near me, new owners are very secretive. The Hearst Estate south of Mt Shasta is about an hour+ away, they sold that. Who knows, maybe California is not a good place to have a vacation castle anymore? sarc.

A whole lotta truth in that post. At 52, I've witnessed the twilight of the American Dream, with a boyhood full of blue-collar security in a yet to be hollowed out small Midwestern town.