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Learn How to Invest Like Old Money

A commenter on another blog pointed to this article from the US News and World Report, where James Rickards examines how “Old Money” families hold on to their wealth. He seems to be an expert on Old Money and how to become New Money by charging them high fees for advice which is really just making them feel better about doing the wrong thing.

As the article says,

When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is “a third, a third, and a third.” This is shorthand for dividing one’s wealth into one-third land, one-third gold, and one-third fine art.

So you really don’t need to bother with all these liquid assets that you can sell on the day you need the capital for something else. Instead you could hold things that take 20 years or more to sell so you have more time to appreciate the finer points of your portfolio. After all,

the basic idea that land, gold, and art outlast and outperform riskier assets such as stocks, bonds, and cash seems sound when viewed from the perspective of centuries and not just years or decades.

In the end, who needs something that can grow 10x or 100x in a lifetime when you can own an asset that will merely preserve its value over the next 300 years? In fact, the old money might have to stop holding so much land. After all if it’s in the right place and it’s managed well (though a lot isn’t) they might move from preserving wealth to enhancing it.

Sure, you can point to people who have risen from earning money with a newspaper route to being the richest person in the world in only 50 years and ask why the Old Money didn’t manage to top that level of wealth since they had a big lead in time and assets. But what is that really worth when

Buffett’s Berkshire Hathaway stock when priced not in dollars but in ounces of gold has declined in value by about 75 percent since 2000 from 280 ounces per share to 70 ounces per share. Put differently, someone who bought gold rather than Berkshire in 2000 could today buy four times as much Berkshire stock using the same gold.

Apparently we need to correct the story. Old Money didn’t invest in gold at all until the year 2000. How could they buy gold at such a good time if they already owned it (and had lost vast amounts of wealth when it declined from its peak in real value 30 years ago and has never risen that high since)? In the 70s and 80s they saw how well it was doing and started to sell their art collections so they could invest in gold by 2000 when it was at a low point because no one wanted it.

So forget all your modern ideas about investing in financial securities available to everyone and “getting rich quick” in only 40 years. The real path to wealth is to patiently wait around until a dictator takes something by force and gives it to you in return for passive-aggressively supporting them (you really had no choice since supporting anyone else had a higher chance of getting you beheaded), and then to pin all your hopes on those specific assets. You will mostly preserve your level of wealth, by guaranteeing that it doesn’t increase over time.

As your initial wealth slowly erodes over generations and gets divided up between increasingly irresponsible offspring who can’t manage investment returns (let alone working income) to match their spending, they can still pretend that they really own the old estates by using advanced methods to hiding their spending and debts. And no one knows what the asset is really worth when you can only sell it once per generation. Since the valuation is unknown so you can re-inflate your portfolio every year by declaring that your assets have increased in value. You can even set up a fictitious market and trade assets with other Old Money families at these imaginary prices so you can mark to market (as the kids call it these days).

And that’s how you “preserve” wealth so that one day your descendants can desperately cling to the last remains of faded glory from 200 years ago while giving it all to lawyers to decide who gets more of nothing. Who’s with me?

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