Emma’s Note: Our offices are now closed for the holidays. So over the next couple of weeks, we’ll be bringing you a series of classic essays from Bill. Although penned in the past, they are as relevant now as they were when first written.
Today’s essay first appeared in one of Bill’s earlier books, Family Fortunes. Longtime Diary readers know that Bill’s interest in wealth-building extends beyond his own needs. He wanted to know how to build family wealth… and ensure future generations of Bonners hold onto it.
To start, he looked at what the rich do differently from the rest…
What separates the rich from the rest of us?
Ernest 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-storey wooden houses on small lots.
Fifty years ago, it was where Baltimore’s industrial labor force lived. The residents worked in heavy industries for companies such as Bethlehem Steel, General Motors, 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 Baltimore’s young professionals. And some of the children and grandchildren of the older residents have moved away – to 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, they’re the same people whose parents were there 50 years ago.
Long View
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 won’t 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 you’d live forever, would you do anything differently? Wouldn’t your attitude toward your money change a little? Wouldn’t you slow down, realizing that you’re not in such a hurry to make money?
And wouldn’t you reduce your spending, too, knowing that your money would have to last you a long, long time?
Old-Money Secrets
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.
It’s why they do not trade in and out of investments. Instead, they find a few positions and stick with them – for decades. We have a friend, for example, who credits a single stock – Coca-Cola – for lifting his family out of near-poverty.
It’s also why they prepare their families, over the course of many, many years, so that they will be ready for the challenges of managing and enlarging the family wealth.
It’s why they invest in education and training. And why they make sure family members add to their collective wealth, rather than subtracting from it.
It’s why they try to guide their children to suitable spouses. They know that a rotten apple will spoil the barrel.
It’s 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.
It’s why they prefer deep-value assets over momentum investing. Over time, value rises to the top. Momentum slows.
It’s why they will wait a long time – many, many years – for the right investment at the right price.
It’s why they like investments with long-term payoffs, such as timber, mining, and infrastructure.
And it’s how they are able to benefit from compound growth, letting relatively modest gains grow over several generations.
It’s 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.
It’s why they develop long-lasting partnerships with the professionals they need to make sure their interests are protected and their plans are carried out.
Time, Time, Time
It is all a matter of time. Old-Money families 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.
The long view comes into play in almost everything. And over the long haul, it’s time, time, time… the most immutable, inflexible, unforgiving resource under the heavens… that separates the rich from the poor.
It would probably be so much more fun to spend your money now, wouldn’t it?
But the main point is worth keeping in mind: Building wealth is not about getting something. It is about giving up something. It is for the planter. For the roofer. For the builder. For the saver. It is for the person who wishes to make a sacrifice – even if it is a relatively agreeable sacrifice – so that others may benefit from it, perhaps others whom he will never meet.
Regards,
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Bill
Managing Editor’s Note: If you liked today’s essay, I encourage you to consider Bill’s latest book, Win-Win or Lose… Bill says it’s the last book he ever intends to write.
He also believes it’s his most important book. It’s a history book, a psychology book, an investment manual, a business book, a self-help book, and a novel of the future – all in one. Many of the things he’s written about in his 40-year publishing career are now coming true – with astonishing speed. His book will help you make sense of what’s really happening in 2020 (and beyond).
Go here to find out how you can get a limited-edition hardback copy.
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