One of my sons has called me a dedicated contrarian, and he is right. I try to look at the whole of a situation rather than accepting the popularly described middle description. Focusing on elements that others do not has yielded unusual profits in the past; and more importantly, avoided significant losses. Thus, one should treat various contrarian views with interest. I believe most deliberative bodies, particularly boards of directors and investment committees should have at least one contrarian to more fully examine decisions, rather than always expecting unanimous votes with limited discussions.
As a self-proclaimed contrarian I will focus on two initial disappointments that lead me to the opportunities to profit as others catch up with their thinking. I will start with the smaller in terms of importance of the two.
Bleak Friday
Many of the longer-term readers of these posts know that each Friday after Thanksgiving I visit the Mall at Short Hills, New Jersey. For those who have not experienced such a visit, the two level mall (which is approaching one mile in circuit), is full of high-end brand names. The appropriate term for most of the stores is “glitzy.” My visit is true market research, in that I study the difficulty in finding an unoccupied parking space, the number of shopping bags being carried and the labels on those bags. The survey is not meant to be representative of the American public, but of a sliver of the population who can afford to own common stocks outside of their tax deferred accounts. In other words, I am looking at the shopping patterns of the rich or those that are called ultra high net worth (UHNW).
This year we were able to find a convenient parking space in less than ten minutes. In past years more than a half an hour was needed, and in some cases I had to park off the property and take a shuttle bus to the stores. The ease of parking should have been a clue. Within the mall, walking was only slightly more crowded than a normal weekend. The big bag carriers were toting merchandise from Macy’s, which appeals to the low-end income buyer as well as some of the more well-heeled. My guess is that the store had advertised significant discounts and an early opening. In contrast, most other stores’ signage indicated a 25-30% mark-down. They were not the kind of discounts that lead to “binge” buying. One indicator that people wanted to buy was that a number were carrying shopping bags from home, without labels and that were mostly empty. In clothing stores, inventory was attractively displayed, but there was little depth.
In-store orders were being taken for merchandise that was going to be shipped to the buyers at home. Clearly, merchants wanted to avoid excessive inventory that would lead to large markdowns before the end of their fiscal years in January. There are three phone stores in the mall. Apple was the most crowded, but still I recognized some sales people that were waiting for new walk-ins. Verizon had normal sized traffic, and as usual, the large AT&T store was practically deserted. My initial reaction to this visit is that the prospects would have to be labeled disappointing.
This is when my contrarian thinking asserted itself. First, it is just possible that the wealthy are spending less to leave room for an eventual binge buying of equities. (After reading this, some may believe that I consumed too much Thanksgiving feast). Second, like some investors, consumers are looking for growth markets and are doing their purchases online. If your responses from office workers Monday is a little slow, it could well be that they are using their employers’ computers to participate in Cyber Monday buying. Third, and much more importantly, it is possible that people of all economic levels are acting prudently by controlling their spending in order to generate money to carry them through an uncertain period. If I am correct, consumer-focused banks will have their loans paid off more quickly and see their deposit balances rising. Possibly one should look closely to savings banks and S&Ls.
The big disappointments: the euro and the deficits
Around the world stock, bond, and commodity markets shudder as values of currencies fall, particularly against the US dollar. (A future blog post will deal with the biggest bubble, the US dollar.) Almost all of the focus is on propping up the euro through various fiat or leverage techniques. The few articles that are coming out about the potential disappearance of the euro are encouraging. As a dedicated contrarian, I am happier when I see someone considering the reverse of the current view. Some articles have made a calculation as to what it would cost in debt repayments if the euro ceased to exist. These are very high, one-sided numbers. One-sided because they do not take into consideration the gains that some companies and families would benefit. One of the more thought provoking columns appeared in the weekend edition of the Financial Times by John Dizard, who pointed out that sovereign debt is governed by each country’s own laws which are relatively difficult to change or abort. Most corporate debt in “Euroland” is governed by English law and courts, which is more difficult to change. Even if a country defaults on its debt, that does not release most of its corporate issuers. Thus in today’s mixed up world, corporate debt could be safer than the debt of various countries. I believe markets on both sides of the Atlantic are recognizing this, with more institutions owning or buying corporate debt than government debt. Perhaps the rating agencies may even change their long-term policy that corporate debt could not be rated higher than that of its own country; the markets would agree with this action.
“With all the discussion about currencies, there has been little if any focus on the root cause of the economic problem,” so says the contrarian. If one looks at currency as a price mechanism, one needs to examine the base cause of the price disequilibrium sparked by almost worldwide deficit spending in Europe, America, Japan, and China. This is not a new problem as pointed out to me by my brother who sent me the following quote:
“The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
–Cicero, 55 BC.
There is much controversy on this quote’s accuracy. Many claim that the original quote is: “The arrogance of officialdom should be tempered and controlled, and assistance to foreign lands should be curtailed, lest Rome fall.” Others claim Cicero said nothing on the subject, and source the quote to later accounts. Whatever the case, this is an age-old series of problems.
We all know what eventually happened to Rome through authoritarian governments and the need for booty to sustain them. In the end Rome was not conquered by the barbarians but by its own corruption and inefficiencies. If there is not a willingness of the people all over to world to cut their reliance on government payments and services, then keep your eyes on military spending. Despite the political threats to the defense budget, I believe that a prudent long-term investor needs exposure to defense stocks. I suspect technology will increasingly play a role in protecting us even if we get our spending below our revenues.
All contrarians expect their views will lack popular enthusiasm, but they are willing to learn from others who represent more mainstream thinking. Thus, I ask you to communicate your views.
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Showing posts with label ultra high net worth. Show all posts
Showing posts with label ultra high net worth. Show all posts
Sunday, November 27, 2011
Sunday, October 17, 2010
Is There Something Happening Beyond the Discounting of Quantitative Easing?
Focus where others aren’t
I am the first to admit that many of my fellow equity securities analysts are not sufficiently aware of the bond, currency and commodities markets, but at the moment I think there is too much attention on the Federal Reserve’s expected significant purchase of US Treasuries. In the Fed’s terminology this strategy is called quantitative easing. The continuous focus on the Fed makes me recall an old baseball saying that advises players to hit the ball where there are not fielders close by. Thus far in October and most of September, the stock market has been in lock-step with the bond market. I would suggest that there are increasing opportunities to hit the ball where the fielders aren’t (buy winning stocks).
Some examples
I am intrigued with new products and businesses that have a potential of being created everyday in America. As a developer of new products myself, I have found that one of the best opportunities is to find large companies that have big problems which a new product or service can help. For the banking business, there will be no bigger public relations problem over the next several (you can supply: weeks, months, or years) than the foreclosure mess that has been created. From the public policy and publicity standpoints, the creators of securitized mortgages, mostly the banks, need to be able to quickly ascertain the legitimate title to properties that are in default and are in the foreclosure process. There have been huge numbers of paperwork errors at best or in too many cases, fraud. Currently the internal systems of banks and mortgage companies are viewed with suspicion. I have learned recently of at least two data processing-oriented companies that are seeing their order books explode. (Two of my relatives hopefully will benefit from this upsurge in their business.)
American entrepreneurs
Regular members of this blog community already know that I was given an iPad and found it so useful and, in time, essential that I bought one for my wife, Ruth. Several years ago who would have known that today we could not contemplate going on a trip without our electronic personal tablets? The genius of Apple and other American entrepreneurs is creating products and services that we did not know we needed and “can’t live without.”
I should not focus on the American entrepreneur without the recognition that it is the American marketplace that can buy new products and services in quantity. In an age where the US is seeing the number of its new car brands shrink, we have at least one new automobile company, Tesla. Though initially these few cars will be produced in the US, much of the capital and technology came from overseas.
Implications for ultra high net worth investors
What does this mean to the ultra high net worth investor?
First, good investors recognize that the import of the headlines, both in print or spoken by the “talking heads,” is already being evaluated or discounted in today’s securities prices.
Second, one should look for investment ideas in the shopping malls and the back pages of focused periodicals. These periodicals can be financial, but more likely are trade or scientific journals.
Third, many of the fortunes of ultra high net worth people came from a single-minded focus on markets and products that others did not see. While I have a bias looking for technological advances, over this weekend I learned of a very successful businessman who made his money in something as prosaic as ironing board covers. To do this he had to solve product, distribution and capital problems. In many ways his “formula” was not a great deal different than that of Apple or Tesla.
Fourth, every day there are opportunities for the intelligent and patient investor to make money.
Please share with me some of your successes.
____________________________________________
To Members of Mike Lipper's Blog Community:
For readers who would like to stay current on my uncommon perspectives regarding investing and world markets, join the community by subscribing, at no monetary cost, just your time and interest as well as occasional responses. Simply click the "To Receive Blog via Email" box on the left-side of the screen.
For those already receiving my blog by email, if you would like to recommend this blog to a relative, friend or colleague, the sign-up is located on the left-hand portion of the screen at www.MikeLipper.blogspot.com.
I am the first to admit that many of my fellow equity securities analysts are not sufficiently aware of the bond, currency and commodities markets, but at the moment I think there is too much attention on the Federal Reserve’s expected significant purchase of US Treasuries. In the Fed’s terminology this strategy is called quantitative easing. The continuous focus on the Fed makes me recall an old baseball saying that advises players to hit the ball where there are not fielders close by. Thus far in October and most of September, the stock market has been in lock-step with the bond market. I would suggest that there are increasing opportunities to hit the ball where the fielders aren’t (buy winning stocks).
Some examples
I am intrigued with new products and businesses that have a potential of being created everyday in America. As a developer of new products myself, I have found that one of the best opportunities is to find large companies that have big problems which a new product or service can help. For the banking business, there will be no bigger public relations problem over the next several (you can supply: weeks, months, or years) than the foreclosure mess that has been created. From the public policy and publicity standpoints, the creators of securitized mortgages, mostly the banks, need to be able to quickly ascertain the legitimate title to properties that are in default and are in the foreclosure process. There have been huge numbers of paperwork errors at best or in too many cases, fraud. Currently the internal systems of banks and mortgage companies are viewed with suspicion. I have learned recently of at least two data processing-oriented companies that are seeing their order books explode. (Two of my relatives hopefully will benefit from this upsurge in their business.)
American entrepreneurs
Regular members of this blog community already know that I was given an iPad and found it so useful and, in time, essential that I bought one for my wife, Ruth. Several years ago who would have known that today we could not contemplate going on a trip without our electronic personal tablets? The genius of Apple and other American entrepreneurs is creating products and services that we did not know we needed and “can’t live without.”
I should not focus on the American entrepreneur without the recognition that it is the American marketplace that can buy new products and services in quantity. In an age where the US is seeing the number of its new car brands shrink, we have at least one new automobile company, Tesla. Though initially these few cars will be produced in the US, much of the capital and technology came from overseas.
Implications for ultra high net worth investors
What does this mean to the ultra high net worth investor?
First, good investors recognize that the import of the headlines, both in print or spoken by the “talking heads,” is already being evaluated or discounted in today’s securities prices.
Second, one should look for investment ideas in the shopping malls and the back pages of focused periodicals. These periodicals can be financial, but more likely are trade or scientific journals.
Third, many of the fortunes of ultra high net worth people came from a single-minded focus on markets and products that others did not see. While I have a bias looking for technological advances, over this weekend I learned of a very successful businessman who made his money in something as prosaic as ironing board covers. To do this he had to solve product, distribution and capital problems. In many ways his “formula” was not a great deal different than that of Apple or Tesla.
Fourth, every day there are opportunities for the intelligent and patient investor to make money.
Please share with me some of your successes.
____________________________________________
To Members of Mike Lipper's Blog Community:
For readers who would like to stay current on my uncommon perspectives regarding investing and world markets, join the community by subscribing, at no monetary cost, just your time and interest as well as occasional responses. Simply click the "To Receive Blog via Email" box on the left-side of the screen.
For those already receiving my blog by email, if you would like to recommend this blog to a relative, friend or colleague, the sign-up is located on the left-hand portion of the screen at www.MikeLipper.blogspot.com.
Sunday, August 8, 2010
Are You Going to Make the Pledge?
Some 40 billionaires apparently have acquiesced to the suggestion from Warren Buffett and Bill Gates to give half of their wealth away to charity upon their death. Similar thoughts have been expressed by people who can be identified as ultra high net worth or high net worth individuals or families. Some of the same principles can be applied by those of more modest wealth.
According to newspaper accounts, a number of other billionaires have also pledged to put at least half of their wealth into their personal/family foundations, or to make substantial grants to other non-profit organizations. Roughly half of my time these days is spent on helping with the financial and investment activities for others, including managing the investments for our own relatively tiny family foundation.
QUESTIONS TO CONSIDER
One should be asking lots of questions before setting up one’s own foundation or making meaningful contributions to others. The following is a preliminary list of topics to be considered; there are no right or wrong answers.
1. Purpose
2. Longevity of foundation
3. Governance
4. Compensation
5. Mechanisms for review and flexibility
6. Grants/contributions
NEED FOR DIALOGUE
The above labels are cryptic and each could be answered in a book- length treatise. For this exercise to be truly useful however, one needs to enter into a dialogue. The reason that a dialogue is necessary is to identify investment structure with underlying principles. I would be pleased to be part of the dialogue, or to help explain this methodology to any members of our blog community.
Each branch of the decision tree outlined above is likely to cause an impact to the investment program, and all of this will change under the chemistry of the personalities involved.
Please share with me your thoughts on this or past blogs.
____________________________________________
To Members of Mike Lipper's Blog Community:
For readers who would like to stay current on my uncommon perspectives regarding investing and world markets, join the community by subscribing, at no monetary cost, just your time and interest as well as occasional responses. Simply click the "To Receive Blog via Email" box on the left-side of the screen.
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According to newspaper accounts, a number of other billionaires have also pledged to put at least half of their wealth into their personal/family foundations, or to make substantial grants to other non-profit organizations. Roughly half of my time these days is spent on helping with the financial and investment activities for others, including managing the investments for our own relatively tiny family foundation.
QUESTIONS TO CONSIDER
One should be asking lots of questions before setting up one’s own foundation or making meaningful contributions to others. The following is a preliminary list of topics to be considered; there are no right or wrong answers.
1. Purpose
- single
- multiple
- investment vehicle
- training for family members in terms of grants/investing
- control of assets
- promote family cohesion
2. Longevity of foundation
- time limited
- dollar limited
- tax constraint limited
- dynastic
- eternal
3. Governance
- singular
- internal
- external
- mixed
- evolution
4. Compensation
- family
- external members
- professional service providers
5. Mechanisms for review and flexibility
6. Grants/contributions
- specific programs
- endowments
- present management-operational and/or investment
- succession process
- singular
- committee
- continuance
- improvement
- opportunity to step up
- singular
- present management-operational and/or investment
NEED FOR DIALOGUE
The above labels are cryptic and each could be answered in a book- length treatise. For this exercise to be truly useful however, one needs to enter into a dialogue. The reason that a dialogue is necessary is to identify investment structure with underlying principles. I would be pleased to be part of the dialogue, or to help explain this methodology to any members of our blog community.
Each branch of the decision tree outlined above is likely to cause an impact to the investment program, and all of this will change under the chemistry of the personalities involved.
Please share with me your thoughts on this or past blogs.
____________________________________________
To Members of Mike Lipper's Blog Community:
For readers who would like to stay current on my uncommon perspectives regarding investing and world markets, join the community by subscribing, at no monetary cost, just your time and interest as well as occasional responses. Simply click the "To Receive Blog via Email" box on the left-side of the screen.
For those already receiving my blog by email, if you would like to recommend this blog to a relative, friend or colleague, the sign-up is located on the left-hand portion of the screen at www.MikeLipper.blogspot.com.
Sunday, July 11, 2010
IS THIS BLOG USEFUL?
As I approach the 100th posting to my blog, I would like to hear from you whether this is useful to your needs, if so, how?
Please take a moment and Email me
I assure you that any replies will be strictly confidential.
My goal has been to present thoughts on topics relevant to my family, to our clients, to the beneficiaries of our clients as well as to high net worth and ultra high net worth investors.
____________________________________________
To Members of Mike Lipper's Blog Community:
For readers who would like to stay current on my uncommon perspectives regarding investing and world markets, join the community by subscribing, at no monetary cost, just your time and interest as well as occasional responses. Simply click the "To Receive Blog via Email" box on the left-side of the screen.
For those already receiving my blog by email, if you would like to recommend this blog to a relative, friend or colleague, the sign-up is located on the left-hand portion of the screen at www.MikeLipper.blogspot.com.
Please take a moment to answer these three questions:
- Is this blog useful to your needs?
- Was any specific blog post particularly useful?
- What investment advice/counsel are you NOT receiving?
Please take a moment and Email me
I assure you that any replies will be strictly confidential.
My goal has been to present thoughts on topics relevant to my family, to our clients, to the beneficiaries of our clients as well as to high net worth and ultra high net worth investors.
My previous 96 blog titles are listed below. Though each post is still viewable, the older pages may be difficult to navigate. If you would prefer, let me know in your reply Email, and I will send you a copy of any previous blog post(s) you would like to read.
- #96--The Declaration of Independence and Your Investments
- #95--Is Breaking Even Equal to Breaking Up?
- #94--Unpredictability and My Grandfather
- #93--Too Much Focus on Short Term Imponderables, Not Enough on Long Term Challenges and Opportunities
- #92--The Buyers’ Strike May Continue; Was Friday a Clue?
- #91--On Memorial Day, and the Future Leaders of the Investment Community
- #90--Unintended Consequences: Investors Again Lose to the Politicians
- #89--The Fork in the Road to Your Investment Policies
- #88--Why Didn’t We Buy? Did the Game Change?
- #87--Answers from Warren and Charlie - Omaha Highlights
- #86--Why Some Individual Investors Produce Better Results than Investment Committees
- #85--Too Much Reliance on FICC Can Be Dangerous
- #84--“The People” vs. the Economies and the Markets
- #83--Leadership Companies Are Not Always Leadership Stocks
- #82--Are We at a Turning Point or at a Vantage Point?
- #81--Twenty, Forty, Sixty: We are Going Global
- #80--A Rainy Weekend or a Prerequisite to a Future Bloom?
- #79--“End Game” Training for You and Your Heirs
- #78--When Warren Buffett Speaks About Investing, the Wealthy Should Listen
- #77--Connecting the Dots and Fears Are they Already in The Price?
- #76--Valentine’s Day Challenges for Ultra High Net Worth Investors
- #75--“Stop the World, I Want to Get Off,” I Don’t Want to be Global
- #74--The Price of Lack of Clarity on Your Investments
- #73--The Super Bowl and Fund Selection II
- #72--Enjoy a Laugh on My 10 Year Investment Plan
- #71--Investment Policies for Investment Personalities
- #70--The “Fifth Season” for Investors
- #69--Boxing Day and Bond Funds
- #68--More Positives than Negatives Ahead
- #67--Will it be Safer to Go Back Into the Water After the Financial Services Legislation?
- #66--W
- #65--The Good and the Bad about “Black Friday”
- #64--Changes to Risk Compensation and “Best Practices” Are They Barn Door Closers?
- #63--Post Mortem 2007-8 and Pre Mortem 201X
- #62--Winning Calls
- #61--Random Thoughts on November 1st
- #60--When Experience is not the Best Teacher
- #59--Are We Selling the US Too Short?
- #58--On Building Effective Investment Committees
- #57--Old Money vs. New Money Mistakes
- #56--Seven Steps For Giving to Charities
- #55--Wrong-Headline Risk
- #54--Who are Better Equipped to Make Decisions?
- #53--Searching for Innovations
- #52--Are We Gambling Too Much and Speculating Too Little?
- #51--Possible Implications of Statistical Traps
- #50--Setting Investment Goals Properly Through the Use of Science and Art
- #49--The Art Form of Selection for a Portfolio of Funds
- #48--I have met the enemy which has trained us.
- #47--Learn from London and Paris But Invest Creatively Elsewhere
- #46--Modified Behavior = Intervention vs. Newton
- #45--Can We be Independent?
- #44--The Temptation to Go Short
- #43--The Aging of the Uncertainty Principle
- #42--The Scots May Understand the Current Rally
- #41--Investment Lessons from the Belmont Stakes
- #40--Is the Tipping Point Cyclical, Secular or Both?
How does this Influence the place of Real Estate in the Wealth Portfolio? - #39--Anticipating Unintended Consequences or The Impact of MPG Efficiency on Inflation and Taxation
- #38--Supply and Demand for Homes is Different from Securities
- #37--Does Wealth Equal Freedom or Independence?
- #36--Could the “Stress Test” be a Big Trap?
- #35--Schooling vs. Education Charity Auctions vs. TARP and PPIP
- #34--Should We Appreciate Bonds? Part II
- #33--Relations and Correlations
- #32--Shrinking Discipline and Its Consequences
- #31--Should We Appreciate Bonds?
- #30--The Land of Re, Revisited
- #29--In the Land of Re
- #28--What We Can Learn from Mutual Funds
- #27--Lessons to all Investors from Warren Buffett’s Letter
- #26--Washington & the Necessary, But Insufficient, Signs of a Market Bottom
- #25--For the Greater Good: Frugality vs. Stimulus, T.A.R.P. and Foreclosure Relief
- #24--Financial Community Restructures
- #23--The Next Big One - FX
- #22--Searching for the Comfort of Cycles
- #21--Are There Big Traps in the Credits and Foreign Exchange Markets?
- #20--Did Fixed Income Confusion Create Madoff Victims?
- #19--Similarities in Picking the SUPER BOWL Winner and Fund Selection
- #18--General Misperceptions of “The Madoff Affair”
- #17--Correlations: Useful, Labels: Misleading.
- #16--Round Peg in Square Hole Produces Splinters
- #15--Four Aspects of a Four-Letter Word
- #14--An Attitude of Gratitude
- #13--Will 401(k) Miracle Help All Investors?
- #12--Reserve the Reserves
- #11--Augmented Unemployment Report Leads to Augmented Balance Sheets
- #10--Ultra High Net Worth Grantors & Charities: Plans “B”, “C” and “D”
- #9--Joe the Plumber and his Personal Financials
- #8--Turning Points Provide Hope for Everyone's Wealth
- #7--Fear is a Four Letter Word
- #6--Brilliance, Guilty and Bounce Back
- #5--Expect Unintended Consequences From This Weekend
- #4--Keep Your View Long Term
- #3--The Need for Speculators
- #2--Thursdays Down, Fridays Up
- #1--The Alphabet Bottom
____________________________________________
To Members of Mike Lipper's Blog Community:
For readers who would like to stay current on my uncommon perspectives regarding investing and world markets, join the community by subscribing, at no monetary cost, just your time and interest as well as occasional responses. Simply click the "To Receive Blog via Email" box on the left-side of the screen.
For those already receiving my blog by email, if you would like to recommend this blog to a relative, friend or colleague, the sign-up is located on the left-hand portion of the screen at www.MikeLipper.blogspot.com.
Sunday, February 14, 2010
Valentine’s Day Challenges
for Ultra High Net Worth Investors
What are the Valentine’s Day challenges for Ultra High Net Worth Investors? For your humble scribe, the challenges have to do with producing this particular blog. When I think about the 14th of February, three different themes come to mind. First, a day to proclaim love. Second, the commercialization of emotions. Third is the St. Valentine’s Day massacre in Chicago, where one band of criminals was killed by another group to settle a dispute. I won’t dwell on the third at this time, or make comparisons with various global political leaders and their relations with financial community contributors. Nor will I deride anyone’s desire to make a buck on other people’s “Whoopi.” Come to think of it, maybe these first two themes are more related than I thought. Instead I will focus on the nicest of the four letter words,” Love,” and how it intersects with your portfolio.
At the suggestion of my son Don, the writer, I began to think about how we fall in love, how we show our love and how we protect our love as found in our portfolios. At one level, as an investment manager I must deal with stocks or funds in which my clients or I fall in love. Even very sophisticated investment committees of experts believe that a particular investment will show them love by bestowing substantial capital appreciation. While this feeling could well have started in courtship based on past performance or other statistical garb, love (or at least marriage) is consummated early and verified when the rough times come, as they do in all relationships. We do not desert our loves in periods of stress. Speak to any investor who is sitting with a large loss, he or she will tell you of past dreams whose fulfillment has been delayed. Heavy is the job of the adviser to convince the investor that this was a false love and not meant to be. Woe unto the adviser if his or her client does sell a once-beloved security and the dreams of the now-sold position then come into fruition. Recognizing these emotions, many advisors back away and leave the deteriorating positions in place, but maintain the client. Despite this comment I believe every portfolio can use periodic pruning.
At a much deeper level, a portfolio for a spouse or family or a favored charity can be read as a document of love. As the ultimate beneficiary of its results, one’s personal portfolio could be said to show love for one’s self. All life and all portfolios should deal with balance. We need to balance the production of optimum total return and the protection against life-changing losses. We can do this either through controlling spending and/or the growth and swings in the value of the portfolio. Deciding on the best mix of total return production pivots on the desire to have the beneficiaries participate in the cyclical nature of investing or have their spending controlled each year. Underlying these thoughts is the possibility that all the wealth will be consumed by spending or unfortunate markets at some point in the future. The approach of a variable spending policy based on performance is a good compromise, but does not guarantee that the assets will outlive the primary beneficiaries. Where does love come into this? One might say love could be measured by the rate the generator of the wealth saves or invests for the benefit and protection of others. In the phrase, “the benefit and protection of others,” is the concept of avoiding life-changes, (in this case on the upside), for the heirs. Spoiling children or charities is never a good idea. As money grows, often does its complexities. For those Ultra High Net Worth individuals, and/or their granting foundations, complexities grow at a much faster rate than the accumulation of wealth. Given enough time, the requests (or if you will, demands) will be larger than the pile of wealth. Often, the love of the generator of the wealth is expressed by how he or she disperses while alive and what provisions they make when they are no longer with us.
Particularly in times like these, your portfolio can use some tender loving care, not just with planning responsibilities, but also including and you and your adviser. Many of us have been bruised by the markets, disappointed by various investments, found strategies to be wanting and the list goes on and on. First one should recognize there are no perfect records in any long lasting game. The best players eventually lose. From my days at the racetrack I have always been interested in winning percentages, both in terms of number of races, but more importantly, in dollars won. (I wish I had the data on the expenses behind each winning race and dollar earned, but my guess is that racing in general is a losing proposition, but breeding can be quite profitable on an after-tax basis.) Using the same type of analysis on securities investing, particularly through funds, one can sense what winners produce. Benefiting from the long term secular growth in many equity markets, the individual investor makes money at least half the time, particularly those that stay in the game. Professional investors who survive, produce winners at least 60% of the time. Generally, good professionals are right two-thirds or more of the time and great ones three-quarters of the time. Just as at the race track, the relative size of one’s bets determine the size of the winnings when right. I believe the key to sizeable investment winnings is appropriate concentration with winning managers and funds.
Two lessons from the above: First don’t beat yourself up. The last couple of years have been rough, the vast majority of investors have not recovered to their former peak levels. Second, extreme concentration can put the preservation of capital and spending at risk for your loved ones. You need to achieve some balance in your portfolios and show to your important others some love and concern for them.
Happy Valentine’s Day.
____________________________________________
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At the suggestion of my son Don, the writer, I began to think about how we fall in love, how we show our love and how we protect our love as found in our portfolios. At one level, as an investment manager I must deal with stocks or funds in which my clients or I fall in love. Even very sophisticated investment committees of experts believe that a particular investment will show them love by bestowing substantial capital appreciation. While this feeling could well have started in courtship based on past performance or other statistical garb, love (or at least marriage) is consummated early and verified when the rough times come, as they do in all relationships. We do not desert our loves in periods of stress. Speak to any investor who is sitting with a large loss, he or she will tell you of past dreams whose fulfillment has been delayed. Heavy is the job of the adviser to convince the investor that this was a false love and not meant to be. Woe unto the adviser if his or her client does sell a once-beloved security and the dreams of the now-sold position then come into fruition. Recognizing these emotions, many advisors back away and leave the deteriorating positions in place, but maintain the client. Despite this comment I believe every portfolio can use periodic pruning.
At a much deeper level, a portfolio for a spouse or family or a favored charity can be read as a document of love. As the ultimate beneficiary of its results, one’s personal portfolio could be said to show love for one’s self. All life and all portfolios should deal with balance. We need to balance the production of optimum total return and the protection against life-changing losses. We can do this either through controlling spending and/or the growth and swings in the value of the portfolio. Deciding on the best mix of total return production pivots on the desire to have the beneficiaries participate in the cyclical nature of investing or have their spending controlled each year. Underlying these thoughts is the possibility that all the wealth will be consumed by spending or unfortunate markets at some point in the future. The approach of a variable spending policy based on performance is a good compromise, but does not guarantee that the assets will outlive the primary beneficiaries. Where does love come into this? One might say love could be measured by the rate the generator of the wealth saves or invests for the benefit and protection of others. In the phrase, “the benefit and protection of others,” is the concept of avoiding life-changes, (in this case on the upside), for the heirs. Spoiling children or charities is never a good idea. As money grows, often does its complexities. For those Ultra High Net Worth individuals, and/or their granting foundations, complexities grow at a much faster rate than the accumulation of wealth. Given enough time, the requests (or if you will, demands) will be larger than the pile of wealth. Often, the love of the generator of the wealth is expressed by how he or she disperses while alive and what provisions they make when they are no longer with us.
Particularly in times like these, your portfolio can use some tender loving care, not just with planning responsibilities, but also including and you and your adviser. Many of us have been bruised by the markets, disappointed by various investments, found strategies to be wanting and the list goes on and on. First one should recognize there are no perfect records in any long lasting game. The best players eventually lose. From my days at the racetrack I have always been interested in winning percentages, both in terms of number of races, but more importantly, in dollars won. (I wish I had the data on the expenses behind each winning race and dollar earned, but my guess is that racing in general is a losing proposition, but breeding can be quite profitable on an after-tax basis.) Using the same type of analysis on securities investing, particularly through funds, one can sense what winners produce. Benefiting from the long term secular growth in many equity markets, the individual investor makes money at least half the time, particularly those that stay in the game. Professional investors who survive, produce winners at least 60% of the time. Generally, good professionals are right two-thirds or more of the time and great ones three-quarters of the time. Just as at the race track, the relative size of one’s bets determine the size of the winnings when right. I believe the key to sizeable investment winnings is appropriate concentration with winning managers and funds.
Two lessons from the above: First don’t beat yourself up. The last couple of years have been rough, the vast majority of investors have not recovered to their former peak levels. Second, extreme concentration can put the preservation of capital and spending at risk for your loved ones. You need to achieve some balance in your portfolios and show to your important others some love and concern for them.
Happy Valentine’s Day.
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If you would like to receive my blog automatically through your email system, please subscribe using the box on the left-hand side of this screen. If you are not sure, use the box above to review past blogs that may interest you.
Sunday, June 21, 2009
The Aging of the Uncertainty Principle
As a child growing up in one of the small towns, if you will, neighborhoods, pushed together on the island of Manhattan, I collected railroad timetables. Initially it was the maps that attracted me, depicting routes of the railroads often displaying them quite differently than their competitors. Later I became intrigued with the precision of the times of arrival at the various destinations of different trains. I was told that, at some point, I was able to recite to so-called adults, the fact that currently a train was leaving New York and would arrive at a particular destination at a precise time. Perhaps it was the certainty of these predictions that appealed to me during World War II. (I was blissfully unaware of the reality of train delays.) Later in life I remember spending an entire day at both the Detroit and Geneva airports, waiting for the weather to clear so the scheduled flights could take to the sky. I guess it was then that I learned the wisdom in the saying, “If you have time to spare, go by air.” Only reluctantly have I learned that the precision of timetables masks the uncertainty of arrivals and departures.
One of the most common of all beliefs of politicians, marketers, and analysts of all types, is that demographics dictate the future. There is a calming feeling of certainty being able to make mathematically precise predictions of the number of people of various types who will be alive, consuming so much protein, with a specific percentage employed, etc. Actuaries are paid to predict exactly when our poorly designed social security system will reach the single point of no return. That point is the exact date when the inflow from employment taxes will be surpassed by the outflow of benefits. In theory, the importance of this date is to determine how the government will deliver on promised retirement provisions.
Either inflow has to be raised by one means or another or outflows must be modified. Within the Beltway of Washington, tinkering with social security is considered touching the third rail. (Interesting that this is an illusion going back to the electrification of railroads as well as to present day subways.) The date of this presumed point of no return occurs in 2016. This date was partly determined on the projected proportion of people aged 55 who would continue to work. The last estimate was that only 40% would continue to work. Currently the number is about 55% and expected to go higher due to the decline in retirement savings assets caused by the market and economic declines. This is where my sense in traveling by train or by air is alerted; I believe it is wise to presume some margin of safety regarding expected arrival times. My own estimate is that 75% of Americans will continue to work, and most importantly, pay payroll taxes beyond age 55. In some ways this is an extremely bullish view, for it rests on the assumption that members of the 55 and older set are able to find jobs.
Notice that most headlines or declarative statements at social gatherings are begun with a specific prediction as to a future event, be it sporting, political, or market-related. As we are all just large children, we love the certainty of a prediction delivered with the force of a strong personality. Most investment portfolios, particularly those managed by financial institutions, can be summed up as predictions of a specific future. These predictions provide us assurance that we are acting prudently, and that planned expenditures (or outflow) demands can be met. In many ways this is just as childish as having total faith in timetables. To put it bluntly, we don’t have the certainty of a financial statement when it comes to the future, and what it will hold for any of us. What makes the certainty of this belief somewhat incredulous is that this goes against our “bible.” Most securities analysts trained in the black art of the market have read, or at least have been taught from Securities Analysis, originally written by Graham and Dodd. I remember quite vividly taking Professor David Dodd’s course, and listening to his intoning on the need for a margin of safety. Dodd’s margin of safety was defined as an additional discount from current price, after all other discounts were taken for various financial calculations, i.e. inventories, pensions, etc. This margin of safety (in Warren Buffet’s terms, “the moat”), around the future value of a security, is needed to cover for the unknown. While many investment professionals claim they adhere to these principles in terms of individual security selections, their portfolios do not.
Most of today’s portfolios are based solely on the most probable future that is expected. Often this perceived future starts with precise measurements of economic growth, inflation, value of the currencies etc. From these projections (timetables), various expenditure patterns become acceptable or not. I suggest that this approach is not wise and belies the history of human experience. Long-term portfolios, which are not under intensive daily management, should be able to deliver under most conditions (even some extreme ones). This may mean holding, within a portfolio, securities that are cyclically oriented, growth oriented or trading in different currencies.
A more realistic approach is not to plan to spend future income to meet needs, but rather to wait until income is achieved and appropriate reserves are taken for future valuation changes. The approach of earning before spending is often the base of conflicts between the generators of wealth and their families and key charitable interests. A compromise should be possible in the diversified portfolios of both ultra high net worth families and those of more modest size. The compromise should be to “agree to disagree,” that each perceived need requires its own specific portfolio, with its own operating procedures. Some might even follow timetables, while others will keep refreshing their “moats.”
One of the most common of all beliefs of politicians, marketers, and analysts of all types, is that demographics dictate the future. There is a calming feeling of certainty being able to make mathematically precise predictions of the number of people of various types who will be alive, consuming so much protein, with a specific percentage employed, etc. Actuaries are paid to predict exactly when our poorly designed social security system will reach the single point of no return. That point is the exact date when the inflow from employment taxes will be surpassed by the outflow of benefits. In theory, the importance of this date is to determine how the government will deliver on promised retirement provisions.
Either inflow has to be raised by one means or another or outflows must be modified. Within the Beltway of Washington, tinkering with social security is considered touching the third rail. (Interesting that this is an illusion going back to the electrification of railroads as well as to present day subways.) The date of this presumed point of no return occurs in 2016. This date was partly determined on the projected proportion of people aged 55 who would continue to work. The last estimate was that only 40% would continue to work. Currently the number is about 55% and expected to go higher due to the decline in retirement savings assets caused by the market and economic declines. This is where my sense in traveling by train or by air is alerted; I believe it is wise to presume some margin of safety regarding expected arrival times. My own estimate is that 75% of Americans will continue to work, and most importantly, pay payroll taxes beyond age 55. In some ways this is an extremely bullish view, for it rests on the assumption that members of the 55 and older set are able to find jobs.
Notice that most headlines or declarative statements at social gatherings are begun with a specific prediction as to a future event, be it sporting, political, or market-related. As we are all just large children, we love the certainty of a prediction delivered with the force of a strong personality. Most investment portfolios, particularly those managed by financial institutions, can be summed up as predictions of a specific future. These predictions provide us assurance that we are acting prudently, and that planned expenditures (or outflow) demands can be met. In many ways this is just as childish as having total faith in timetables. To put it bluntly, we don’t have the certainty of a financial statement when it comes to the future, and what it will hold for any of us. What makes the certainty of this belief somewhat incredulous is that this goes against our “bible.” Most securities analysts trained in the black art of the market have read, or at least have been taught from Securities Analysis, originally written by Graham and Dodd. I remember quite vividly taking Professor David Dodd’s course, and listening to his intoning on the need for a margin of safety. Dodd’s margin of safety was defined as an additional discount from current price, after all other discounts were taken for various financial calculations, i.e. inventories, pensions, etc. This margin of safety (in Warren Buffet’s terms, “the moat”), around the future value of a security, is needed to cover for the unknown. While many investment professionals claim they adhere to these principles in terms of individual security selections, their portfolios do not.
Most of today’s portfolios are based solely on the most probable future that is expected. Often this perceived future starts with precise measurements of economic growth, inflation, value of the currencies etc. From these projections (timetables), various expenditure patterns become acceptable or not. I suggest that this approach is not wise and belies the history of human experience. Long-term portfolios, which are not under intensive daily management, should be able to deliver under most conditions (even some extreme ones). This may mean holding, within a portfolio, securities that are cyclically oriented, growth oriented or trading in different currencies.
A more realistic approach is not to plan to spend future income to meet needs, but rather to wait until income is achieved and appropriate reserves are taken for future valuation changes. The approach of earning before spending is often the base of conflicts between the generators of wealth and their families and key charitable interests. A compromise should be possible in the diversified portfolios of both ultra high net worth families and those of more modest size. The compromise should be to “agree to disagree,” that each perceived need requires its own specific portfolio, with its own operating procedures. Some might even follow timetables, while others will keep refreshing their “moats.”
Sunday, November 2, 2008
Ultra High Net Worth Grantors & Charities: Plans “B”, “C” and “D”
If the wealthy really believe in the good works of specific charities, they need to step up their investment of time and money to prevent charities from having to play the alphabet soup game.
‘Tis the season for charities to push for collections through cookie sales, luncheons and galas to meet the fund raising goals set in the “Affluent Times” of a year ago. This could be described as executing Plan “A.” Judging by last minute invitations to fill a table at prestigious events and low returns from auctions silent and live, Plan “A” is coming up discouraging short.
Depending on which non-essential, pricey consumer item one focuses on, sales fell off a cliff in August, September, and October. Confirming this trend is the decline in discretionary spending for ball gowns and high-end vacation homes. Unfortunately, gifts to charities are also way below budget - in many cases below levels of sustainability.
This is the budget season for charities, be it your Alma Mater, hospital, social services organization, or cultural institution. In each of the board meetings of the organizations that my wife and I sit on, expenses are being scaled back almost to the point of endangering the mission. Existing fund raising efforts are being pushed to be more effective. Thus, we are in Plan “B,” which is to continue the existing mission(s) using diminished, available resources. This is the plan which most military leaders are eventually graded, however some of us conservative investors fear that Plan “B” won’t work.
So far there is little talk about Plan “C” where “C” stands for cutbacks. Due to funding short falls, organizations may be forced to cease funding major commitments which could amount to 10-25% of Plan “A” expenditures.
A difficult by-product of Plan “C” is the compensation review of hard-working, effective senior level staff who are generally paid only a percentage of what similar work would command in business. In a Plan “A” World, this works well, however when commercial wages are being cut back, (which can happen soon), the ratio of high paid non-profit staff rises to perhaps an unsustainable level in the eyes of major contributors. As most non-profits are thinly staffed in senior positions by very hard working people, a reduction of their pay can lead to them being forced to leave. This would affect many donors at all levels who identify with staff leadership almost as much as with the charity’s mission. Staff departures at this level make necessary the consideration of Plan “D.”
Plan “D” is based on the belief there will not be a quick, cyclical recovery, placing into question the sustainability of a charitable unit. Plan “D” would merge the unit into a larger, perhaps umbrella organization. As an investor, a buyer and a seller of companies, I have a high level of skepticism that mergers work. Most that fail presume that revenues (in the case of charities, grants) will grow by just expanding the product line without significantly expanding the number of sales people. The flawed strategy also holds that a larger group might generate more favorable purchase discounts on products and services that can be essential e.g. advertising, cars, etc. For Plan “D” to work, a crisp execution is necessary.
The wealthy, that is anyone that has funds in excess of current needs, should be changing their priorities, moving grants/gifts to charities from a discretionary expense to an obligation level. This is the time when both present and future programmed dollars can mean the survival for many purveyors of good works. What is also extremely important is to make available one’s skills in sales, administration as well as the mergers & acquisitions of good people and organizations.
An important part of my approach to building a personal augmented balance sheet is the segregation of different demands on one’s wealth. Ideally, each charitable obligation should have its own portfolio of assets to meet the charity’s immediate and long term needs. The squeeze on today’s gift dollars should motivate people to create specific asset bases to support specific charities. There is no better time than now to start this process.
‘Tis the season for charities to push for collections through cookie sales, luncheons and galas to meet the fund raising goals set in the “Affluent Times” of a year ago. This could be described as executing Plan “A.” Judging by last minute invitations to fill a table at prestigious events and low returns from auctions silent and live, Plan “A” is coming up discouraging short.
Depending on which non-essential, pricey consumer item one focuses on, sales fell off a cliff in August, September, and October. Confirming this trend is the decline in discretionary spending for ball gowns and high-end vacation homes. Unfortunately, gifts to charities are also way below budget - in many cases below levels of sustainability.
This is the budget season for charities, be it your Alma Mater, hospital, social services organization, or cultural institution. In each of the board meetings of the organizations that my wife and I sit on, expenses are being scaled back almost to the point of endangering the mission. Existing fund raising efforts are being pushed to be more effective. Thus, we are in Plan “B,” which is to continue the existing mission(s) using diminished, available resources. This is the plan which most military leaders are eventually graded, however some of us conservative investors fear that Plan “B” won’t work.
So far there is little talk about Plan “C” where “C” stands for cutbacks. Due to funding short falls, organizations may be forced to cease funding major commitments which could amount to 10-25% of Plan “A” expenditures.
A difficult by-product of Plan “C” is the compensation review of hard-working, effective senior level staff who are generally paid only a percentage of what similar work would command in business. In a Plan “A” World, this works well, however when commercial wages are being cut back, (which can happen soon), the ratio of high paid non-profit staff rises to perhaps an unsustainable level in the eyes of major contributors. As most non-profits are thinly staffed in senior positions by very hard working people, a reduction of their pay can lead to them being forced to leave. This would affect many donors at all levels who identify with staff leadership almost as much as with the charity’s mission. Staff departures at this level make necessary the consideration of Plan “D.”
Plan “D” is based on the belief there will not be a quick, cyclical recovery, placing into question the sustainability of a charitable unit. Plan “D” would merge the unit into a larger, perhaps umbrella organization. As an investor, a buyer and a seller of companies, I have a high level of skepticism that mergers work. Most that fail presume that revenues (in the case of charities, grants) will grow by just expanding the product line without significantly expanding the number of sales people. The flawed strategy also holds that a larger group might generate more favorable purchase discounts on products and services that can be essential e.g. advertising, cars, etc. For Plan “D” to work, a crisp execution is necessary.
The wealthy, that is anyone that has funds in excess of current needs, should be changing their priorities, moving grants/gifts to charities from a discretionary expense to an obligation level. This is the time when both present and future programmed dollars can mean the survival for many purveyors of good works. What is also extremely important is to make available one’s skills in sales, administration as well as the mergers & acquisitions of good people and organizations.
An important part of my approach to building a personal augmented balance sheet is the segregation of different demands on one’s wealth. Ideally, each charitable obligation should have its own portfolio of assets to meet the charity’s immediate and long term needs. The squeeze on today’s gift dollars should motivate people to create specific asset bases to support specific charities. There is no better time than now to start this process.
Sunday, October 19, 2008
Turning Points Provide Hope for Everyone's Wealth
In a world of so much uncertainty, I find relief that people eventually follow their intelligence and act in their best economic interest. After many years of resistance, large portions of the U.S. population are finally beginning to get it right. This causes me to shout, “It is working – there is hope for wealth!” These fundamental behavior shifts are being carried out by people of very modest incomes as well as those who are described as Ultra High Net Worth (UHNW).
The recent decline in gasoline consumption is my first example that there is hope. As Americans, have been told how wasteful we have been for at least the last thirty years. We heard, but did not listen.
In 2008 the price of gasoline skyrocketed to over $4.00 a gallon. Then for the first time, perhaps since WWII days, the number of miles driven by cars on American roads dropped significantly. On now-crowded commuter trains, a frequent conversation topic is where to find the cheapest gas. The lowest I’ve heard this week was in the $2.50 range.
The drop in gas prices was caused by consumers changing their behavior: driving less to avoid paying too much; not by Congressional regulation outlawing speculation and speculators. (As I mention in my book Money Wise, we saw the same trends in the 1930’s, when Congress held hearings to investigate speculation.) People will change their behavior (and will largely benefit from doing so) when given sufficient information and motivation.
The second example, which I think is the best news in many years, is that the savings rate for the second quarter of 2008 shot up to 2.7% of income, after being below 1% for many years. In some quarters the rate was less than zero, as people borrowed more than they were making.
During the third quarter of 2008, the economic slowdown became more pronounced. In recent conversations with various companies, charities and merchants, I have found business has come to an almost complete stop, with high ticket transactions nearly non-existent. As saving is the opposite of spending, I expect that we will see an acceleration of the savings rate when third and fourth quarter savings rates of 2008 are published.
Why am I so excited about the increase in the savings rate? The major precursor to wealth for everyone is savings. In many cultures, people of very limited means save a great amount of money. For example, years ago a business acquaintance in Hong Kong was having difficulty meeting his office rent and he was notified by the building manager that his rent was about to go up. He begged the manager for some concessions. He was told he had to discuss his problem with the building owner. He asked for a meeting and it was arranged quickly that the owner would visit him in his office.
He was flabbergasted when at the appointed time, the lady who had been cleaning his office walked in. Not only was she the owner of this building, but a number of other buildings as well. Over many years she saved her money from cleaning and invested wisely in small Hong Kong office buildings. She kept working to earn more and to watch over her investments. The key to her becoming wealthy, she learned, was to spend as little as possible and save/invest as much as possible.
There are many, but not enough, people in this country who have similar behavior practices. They recognize that their long term desires are larger than their likely income, so they must become savers/ investors.
If we define wealth = freedom, then the small income saver is well on his/her way to wealth. In contrast is the ultra high net worth investor who is spending more than what is coming in, and in the process destroying his/her wealth. The challenge for many UHNW people is to consider gifts to charity and others as an investment that should payoff in psychic benefits.
Those who have saved and invested wisely are now faced with challenging their children and grand-children to do the same. These discussions will benefit both the child/grandchild and greater society. The benefit will be converting the savings/investments into jobs, high tax revenues and enlarging the vital pools of capital which fund our future.
The recent decline in gasoline consumption is my first example that there is hope. As Americans, have been told how wasteful we have been for at least the last thirty years. We heard, but did not listen.
In 2008 the price of gasoline skyrocketed to over $4.00 a gallon. Then for the first time, perhaps since WWII days, the number of miles driven by cars on American roads dropped significantly. On now-crowded commuter trains, a frequent conversation topic is where to find the cheapest gas. The lowest I’ve heard this week was in the $2.50 range.
The drop in gas prices was caused by consumers changing their behavior: driving less to avoid paying too much; not by Congressional regulation outlawing speculation and speculators. (As I mention in my book Money Wise, we saw the same trends in the 1930’s, when Congress held hearings to investigate speculation.) People will change their behavior (and will largely benefit from doing so) when given sufficient information and motivation.
The second example, which I think is the best news in many years, is that the savings rate for the second quarter of 2008 shot up to 2.7% of income, after being below 1% for many years. In some quarters the rate was less than zero, as people borrowed more than they were making.
During the third quarter of 2008, the economic slowdown became more pronounced. In recent conversations with various companies, charities and merchants, I have found business has come to an almost complete stop, with high ticket transactions nearly non-existent. As saving is the opposite of spending, I expect that we will see an acceleration of the savings rate when third and fourth quarter savings rates of 2008 are published.
Why am I so excited about the increase in the savings rate? The major precursor to wealth for everyone is savings. In many cultures, people of very limited means save a great amount of money. For example, years ago a business acquaintance in Hong Kong was having difficulty meeting his office rent and he was notified by the building manager that his rent was about to go up. He begged the manager for some concessions. He was told he had to discuss his problem with the building owner. He asked for a meeting and it was arranged quickly that the owner would visit him in his office.
He was flabbergasted when at the appointed time, the lady who had been cleaning his office walked in. Not only was she the owner of this building, but a number of other buildings as well. Over many years she saved her money from cleaning and invested wisely in small Hong Kong office buildings. She kept working to earn more and to watch over her investments. The key to her becoming wealthy, she learned, was to spend as little as possible and save/invest as much as possible.
There are many, but not enough, people in this country who have similar behavior practices. They recognize that their long term desires are larger than their likely income, so they must become savers/ investors.
If we define wealth = freedom, then the small income saver is well on his/her way to wealth. In contrast is the ultra high net worth investor who is spending more than what is coming in, and in the process destroying his/her wealth. The challenge for many UHNW people is to consider gifts to charity and others as an investment that should payoff in psychic benefits.
Those who have saved and invested wisely are now faced with challenging their children and grand-children to do the same. These discussions will benefit both the child/grandchild and greater society. The benefit will be converting the savings/investments into jobs, high tax revenues and enlarging the vital pools of capital which fund our future.
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