What We Can Learn From The Mistakes of Millionaires
Investing is simple. But it isn’t easy. Human emotions get in the way. Descendants of millionaires from the 1900s might know this better than most. If we can sideline fear and greed, we might learn from their mistakes.
Capital Thinking • Issue #169 • View online
People drink during good times. They drink when times are bad. Bernhard Stroh knew this. He also learned how to build a fortune. In 1850, he left Germany with $150 and his family’s beer recipe.
As recently as the 1980s, the Strohs controlled the country’s third largest brewing company. They were worth about $700 million. But today, their once-great fortune is a fiscal train wreck. They’re no longer rich. Rampant spending, high debt loads and poor investment decisions sank their wealth.
From Asset Builder, Article by Andrew Hallam
Unfortunately, stories about a wealthy family’s fall are as common as pimples on a teen.
Time journalist, Chris Taylor, references data from the Williams Group wealth consultancy. He says 70 percent of wealthy families lose their fortune after one generation. A whopping 90 percent lose their fortune by the third generation.
Victor Haghani knows what it’s like to see fortunes ravished. He’s one of the founding partners of Long-Term Capital Management. It was a hedge fund that earned scorching returns–until it didn’t.
From 1994-1998, investors in the fund quadrupled their money. Its managers used leverage and state-of-the art algorithms to earn eye-popping returns.
But one year later, their fund collapsed. Some say it almost destroyed America’s financial system. Roger Lowenstein detailed the story in his book, When Genius Failed.
Haghani must have learned a lot from this experience. In 2013, he delivered a TED talk titled, Where Are All The Billionaires and Why Should We Care?
He says most people don’t build the amount of wealth that they should.
One of the main reasons is that they speculate. They take unnecessary risks. They believe they can see the future, or they think they can hire someone with a working crystal ball.
*Featured post photo by Thought Catalog on Unsplash