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Forbes 400 Billionaires: 3 Lessons Investors Can Learn From America’s Richest People
by Mark Skousen, Chairman, Investment U
October 3, 2006: Issue # 588
I’m not one of the Forbes 400 billionaires, nor have I set a goal to become one of the Forbes Richest People in America. But I’ve always had a close connection with the Forbes 400 list, which came out this month.
During the 1990s, I was a Forbes columnist and met personally with quite a few members of the super-rich. (I won’t mention any names, but Donald Trump is not one of my favorites.)
This is the first year that you needed $1 billion to make the list. When Forbes started it in 1982, you only needed $100 million.
What can we learn from studying the rich and famous?
Lesson #1 from Forbes 400 Billionaires: Creating Wealth Is Easier than Managing It
First, wealth is created, not inherited. I’ve collected the Forbes 400 issues since its inception in 1982, and I am amazed at how few Americans who inherit wealth stay on the list over time. There are many reasons for this gradual dissipation in wealth: estate taxes, increasing number of heirs, bad investments, etc.
But the biggest challenge is managing a fortune as well as the founders did. It’s plain hard work, and most heirs are not up to the challenge.
For example, H.L. Hunt, the oil baron, married three times and had 14 children, including the Hunt Brothers (Herbert and Bunker) who tried to corner the silver market in 1980. Some of the Hunt brothers and sisters were on the Forbes 400 for some time, but now only one, Ray Lee Hunt, owner of Hunt Oil, remains.
I once met Bunker Hunt at a conference in Dallas, where I spoke on the boom-bust cycle and how to avoid getting burned. Bunker, who had lost most of his wealth when silver collapsed and was no longer on the Forbes 400, came up to me afterward and said something I’ll never forget: “I should have followed your advice!” True story.
In the early 1990s, I interviewed David Rockefeller, Sr., who had inherited billions from his father, oil tycoon John D., at his famous Room 5600 at Rockefeller Center. He recounted how his family was forced to sell Rockefeller Center to the Japanese in the 1980s. He said he was the only son who went into business (banking), and bemoaned the fact that none of his children had followed in his footsteps. They were all running foundations or collecting art. Somehow, David Sr. has survived and prospered, though he is now way down on the list at #284. No other Rockefeller makes the list.
Lesson #2: Choosing the Right Career Is More Important Than the Right Investment
Second, the greatest source of wealth is your own business, not investments. The vast majority of the people on the Forbes 400 made their fortune by creating products that people want, whether it be computers, shopping malls or investment advice. Inheriting wealth is not the same as creating it through business acumen. Here’s the breakdown from the latest list:
“Investments” is the fastest growing sector, but don’t be deceived. Most of the investors did not make the Forbes 400 by wisely investing their own funds, such as Warren Buffett. He is exceptional. The vast majority made it by investing other people’s money, engaging in mergers/acquisitions/buyouts, and earning huge management fees.
Forbes columnist Ken Fisher, for example, made the list this year by developing a lucrative money management program in San Francisco. Malcolm Forbes was always fond of saying, “I’ve made more money giving advice than taking it.”
Lesson # 3: The Envy Factor
Third, there’s a downside to being super-rich. You lose your privacy, and life isn’t easy with teaching your children to be responsible and industrious.
I studied the divorce rate of the Forbes 400. While the overall divorce rate is only 30%, below the national average of 50%, there are an incredible number of twice (25) and thrice divorced (10). One has been divorced four times. Not surprisingly, the category with the highest number of break-ups was the entertainment industry (54%), followed by investments (hedge traders, leverage buyout specialists, etc.) at 38%. The three billionaires from Berkshire Hathaway are all divorced or separated.
The most successful group when it comes to marriage and children is (are you ready for this?) the nerds of technology (Steve Jobs, Bill Gates, Michael Dell). The divorce rate is only 10%.
Good trading, AEIOU,
Mark
P.S. I just can’t seem to take my eyes off uranium these days. It keeps making new 52-week highs. Right now, it’s at $54 a pound, up 44% since January alone. Horacio Márquez, an international equities specialist for The Oxford Club and the former head of Emerging Market Research at Merrill Lynch, has recently completed his analysis of the supply and demand factors that continue to favor uranium. He’s also found the best way to capitalize on higher uranium prices. I urge you to take a look at his latest findings.
Today’s Investment U Cribsheet
- Whether you’re striving to reserve your place on the Forbes 400 or just aiming to improve your overall returns, the 12 Timeless Rules of Investing are a must-read. These time-tested guidelines will help you achieve your investment objectives, either by increasing your gains or by mitigating losses.
- Forbes’ 10 Biggest Losers: 4 Wealth Protection Lessons From Bankrupt Billionaires
- Government TARP Investing – Paying off
- Financial Independence: How to Make It… How to Spend It
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