Bill Bonner - Family Fortunes: How to Build Family Wealth and Hold on to It for 100 Years

CONTENTS

Copyright 2012 by Bill Bonner and Will Bonner. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data :

Bonner, William, 1948

Family fortunes : how to build family wealth and hold onto it for 100 years / Bill Bonner and Will Bonner.1st ed.

p. cm.(Agora series; 77)

Includes index.

ISBN 978-1-118-17141-7 (Cloth); ISBN 978-1-118-23987-2 (ebk); ISBN 978-1-118-26451-5 (ebk); ISBN 978-1-118-22684-1 (ebk)

1. Families. 2. Wealth. 3. Financial security. I. Bonner, Will, 1978II. Title.

HQ734.B688 2012

306.85dc23

2012015373

This book is dedicated to our matriarch, Anne Bonner. She rocked the cradles... and our world .

PREFACE

What separates the rich from the rest of us?

Hemingway claimed it was the fact that they had more money.

Recently, we drove through a working-class neighborhood of Baltimore, called Dundalk. It is an area of simple one- and two-story wooden houses on small lots. Fifty years ago, it was where Baltimores industrial labor force lived. The residents worked in heavy industries for companies such as Bethlehem Steel, General Motors, and the B&O Railroad and at the busy harbor.

Today, those high-wage industries are mostly silent and rusting. Some sites along the water have been converted into loft apartments for Baltimores young professionals. And some of the children and grandchildren of the older residents have moved awayto the suburbs or to other cities.

But most of them are still there. Their parents and grandparents earned a good living. But few got rich. And now, few of their descendants are rich, either.

Across town, in the rich old northern suburbs of Roland Park and Ruxton, the people are different. The rich left the city many years ago. But in these green suburbs, they remain. Some richer. Some poorer. But by and large, theyre the same people whose parents were there 50 years ago.

What accounts for it? How come some families stay rich generation after generation, while others never have a nickel?

Culture, you will say. Education, perhaps. You wont be wrong. But what, specifically, about culture and education is it that makes such a big difference in outcomes?

The secret is simply this: The rich take the long view.

Let me ask you something. If you thought youd live forever, would you do anything differently? Wouldnt your attitude toward your money change a little? Wouldnt you slow down, realizing that youre not in such a hurry to make money? And wouldnt you reduce your spending, too, knowing that your money would have to last you a long, long time?

If you look carefully, almost all Old Money secrets can be traced to a single source: a longer-term outlook. The truly wealthy are careful to spend their money on things that hold their values over time.

Its why they do not trade in and out of investments. Instead, they find a few positions and stick with themfor decades.

Its also why they prepare their families, over the course of many, many years, so that they will be prepared for the challenges of managing and enlarging the family wealth.

Its why they invest in education and training. And why they make sure family members add to their collective wealth, rather than subtracting from it.

Its why they try to guide their children to suitable spouses. They know that a rotten apple will spoil the barrel.

Its why they spend time and money on lawyers and accountants, too, making sure that the structures are in place to pass along wealth and protect it.

Its why they prefer deep-value assets over momentum investing. Over time, value rises to the top. Momentum slows.

Its why they will wait a long timemany, many yearsfor the right investment at the right price.

Its why they like investments with long-term payoffs, such as timber, mining, and infrastructure. And its how they are able to benefit from compound growth, letting relatively modest gains grow over several generations.

Its why they are almost fanatical about eliminating costs: taxes, investment charges, and unrewarding living expenses. They know that wear and tear, over time, will wreck their family fortunes.

Its why they develop long-lasting partnerships with the professionals they need to make sure their interests are protected and their plans are carried out.

It is all a matter of time. They have money. But they expect to have it for a long time. So they work hard, investing in education and professional advice, to make sure they have the personal resources they need.

As you will see in the pages that follow, the long view comes into play in almost everything. But its one thing to talk about the long view and quite another to take it. What it usually means is something that most people dont want to do: give up something today for something tomorrow.

Psychologists have done some work on this subject. What they have found is what youd expect. People who can forgo immediate rewards in favor of longer-term goals are more successful.

In one study, for example, children were offered marshmallows. But they were given a choice. They could have one marshmallow right away. Or if they were willing to wait, they could have two later on. The children were then filmed. They fidgeted. They fussed. They struggled to resist taking the candy, because they knew that two would be more satisfying than just one.