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SOLITUDE OF THE WEALTHY:

Avoid Paranoia but Maintain a Healthy Realism About Your Money’s Influence on Others

My partner Bogumil Baranowski has discussed some of the psychological problems associated with family patrimonies in his series “Blessings & Curses of Inherited Wealth – The Guide for Inheritors.” Over my years of helping multi-generational families to preserve and grow their wealth, I too have noted the challenge of maintaining “normal” relationships with friends or relatives who have less money.

These observations have been confirmed in a study by Boston College’s Center on Wealth and Philanthropy (which wound down its research in 2015). The “very rich” (possessing over $25 million) subjects who were interviewed reported a litany of anxieties, a sense of isolation, worries about work and love, and most of all, fears for their children. (The Atlantic Monthly, April 2011)

THE SHOCK OF SUDDEN MONEY

The recent prize of nearly $800 million won by a single person in a U.S. lottery reminded me of what is often called the “lottery curse” — After an initial period of euphoria, large lottery winners tend to squander their newly-found fortunes. Worse, while the money is vanishing, the most cherished aspects of their previous lives and relationships are often irremediably lost.

The sudden acquisition of money is always traumatic, whatever the source. I often tell the story of a good friend of mine who, after making his own comfortable fortune in business, inherited in the same year from both his father and mother. Over a celebratory lunch, I asked him how he expected his life to change as a result of this monetary windfall. “Apart from buying a few better cigars and wines, I don’t see why anything should change,” he answered. Within weeks, however, he announced that he was divorcing…

THE CURSE OF INHERITED MONEY

Just like sudden windfalls, inherited fortunes large enough to affect several generations have deep psychological implications for the beneficiaries, and Bogumil investigated some of them in his series. In fact, some of the anxieties mentioned in the Boston College study are exacerbated for inheritors. For example, while many fortune creators feel free to dispose of their estates at  will, most inheritors feel a dynastic duty to pass along as much of their inherited wealth to their heirs as they can.

This being said, while much has been written about how money affects wealthy individuals, I believe that its effect on the people around them has been less thoroughly investigated.

THE WAY OTHERS SEE YOU

You do not deserve it

The first thing to realize, if you have inherited a fortune, is that for most people – except those very few who appreciate you unconditionally – you do not deserve this enormous advantage. A majority will readily admire the obscene sums earned by some athletes and entertainers, even the sudden wealth of entrepreneurs who brought an apparently simple idea to the stock market. But if your fortune is due merely to “your choice of the right parents,” most people will see this as some undeserved stroke of fate. Often, they may even secretly resent you for it.

You can well afford it (or anything, for that matter)

The second common attitude, even among those friends and relatives who are not jealous of your fortune, tends to develop over time, caused by an inaccurate view of your relative situations and of the cost of things in relation to these situations. It can be summarized by the phrase, “He (or she) can afford it.” “It” may refer to a house or a new car, exotic travel, and other indulgences.

Often, though, what’s under consideration is a proposed investment. When someone inherits, the heir, the spouse, a sibling, or a friend often re-imagines himself or herself as an instant venture capital genius. All that newly-acquired money is just crying out to be put to good use, after all! But the true venture capitalist’s gift is very rare. Furthermore, most successful investors in this financial niche started by laboriously raising capital for potential investments from professionals, rather than waiting for it to land from the heavens into the hands of a relative. The hopeful solicitor of funds for a new scheme ignores the fact that easily available money does not make an investment more attractive. In fact, the opposite is often true.

Many also believe that the idea for a new product or service is the main ingredient of a successful venture. In fact, steadfastness, hard work and experience count for much more. Frank Caufield, partner emeritus of one of the most successful and prestigious venture capital firms in Silicon Valley says: “We see a lot of executives who have a vision. Our job is to decide if it really is a vision or a hallucination”.  Reid Dennis, founder of Institutional Venture Partners, adds that venture capital “Is a business that you’re probably better off entering in your thirties or forties… because you [first] need to build a frame of reference by which to judge people and to judge opportunities…”

Money, Influence and Power

One of the respondents to the Boston College study noted: “I start to wonder how many people we know would cut us off if they didn’t think they could get something from us.” Another, educated and trained in the arts, hesitated to accept a position as a museum curator because she felt she would have had trouble being seen as a colleague rather than as a donor.

These are insecure, almost cynical views of relationships, and I believe it is probably better to err on the side of trust than to succumb to this form of nascent paranoia. On the other hand, there is no point in ignoring the obvious: money will attract crooks and con artists.

Fortunately, not everyone who likes the company of rich people is driven by greed. Still, money can influence financially-disinterested people, too, though in a more insidious way. Money bestows power on those who are in a position to influence its use (spending, investment, charities). Those who are in a position to affect the money decisions of the rich therefore gain desirable power and social prestige even when they provide legitimate and valuable services.

Beware the IYIs

Often, inheritors suffer from an inferiority complex toward high-profile financial experts and theoreticians. As a result, they may let themselves be influenced by what The Black Swan author Nassim Taleb has identified as IYIs (Intellectuals Yet Idiots). In doing so, they forget Warren Buffett’s judgment that ordinary intelligence is perfectly sufficient for the successful investor. What you really need is the temperament to control the urges that cause other peoples’ costly mistakes.

As Thomas Sowell, the eminent economist and social theorist, wrote: “Intellect is not wisdom.” I believe that inheritors too often let themselves be impressed by intellectuals’ superficial signs of intelligence instead of cultivating and trusting their own common sense and shrewdness as they navigate the world of investing.

Difficult to Teach by Example

Most parents aim to educate their children by both discipline and example. But it’s not easy to teach a child the value of money by paying him or her to mow the lawn when you already have a full-time gardener.

Even more challenging is the example of a father, an heir himself, who does not work for a salary simply because he does not have to. Yet he would like his children to live within reasonable budgets, to follow prudent financial yardsticks, to be gainfully employed, etc. In my experience, the guilt and discomfort of such a situation is felt much more acutely by the father than by the children. On the other hand, the father’s authority lacks legitimacy when the children discover that, when he was young, he never lived by the rules he is now trying to impose.

If it Goes Without Saying…

Talleyrand, France’s diplomat extraordinaire, reportedly insisted, when negotiating post-Napoleonic peace at the 1814 Vienna Congress, that: “If it goes without saying, it will go much better if we say it.”

Money considerations have an immense effect on personal relationships, yet we often have trouble discussing them. For example, I initially felt that having future spouses sign a pre-nuptial agreement was in bad taste and an unnecessary exercise in pessimism – almost like a curse-in-waiting. But after many years of watching harmonious marriages become acrimonious during divorces, I am now convinced that it is better to go through the exercise while both parties have the best intentions and disinterested motives.

The rule applies not only to pre-nuptial agreements but more generally to any understanding or decision that may generate adversarial situations in the future, such as wills and other posthumous arrangements (property sharing, etc.). For all of these, it is better to make plans for future decisions at a moment when both parties have a maximum sense of fair play and empathy.

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In lieu of conclusion, I offer two relevant quotes:

They say that money does not bring happiness. No doubt they are speaking about other people’s money. —Sacha Guitry

Solitude does not result from the absence of people around us, but from our incapacity to communicate the things which seem important to us.  —Carl Gustav Jung

François Sicart 5/30/2018

Disclosure:

This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.