Image via WikipediaFinancial IQ Philippines Quick Hit(s):
Once wealth has been built, we need to have the discipline in order to keep it as well.
One of the big lessons is not to binge on debt. Frank says that, in percentage terms, the very wealthy have taken a larger hit to income in recent years than the poor and the middle class. ("Hold the violins," he notes.) And while that may make sense — wealthy people tend to have more money in the stock market -- it marks a departure from history. "Prior to 1982, the top one percent were a stable line on the income charts," says Frank. "When things were great, they did OK. When things were bad, they didn't do as bad as the rest."
But things have changed. And It has a lot do with debt. The very rich can easily inflate their net worth by borrowing tens and hundreds of millions of dollars to buy assets, only to see it all disappear in a poof of smoke. High-Beta Rich is full of such tales: the former millionaire who now does odd jobs and lives out of a truck, the guy had to stop building a 75,000-square-foot home near Orlando after his time-share business collapsed under a mountain of debt.
One of the best stories revolves around Tim and Edra Blixseth. After making a fortune in the timber industry, the Blixseths decided to go big by building the Yellowstone Club, an ultra-exclusive ski and golf resort where plots went for $3 million an acre. (Members included Bill Gates, and the trails had names like EBIDTA and Lear Jet.) Demand was so strong for debt backing the project that the Blixseths borrowed several hundred million — more than was needed to build the resort. The cash went to support an insanely lavish lifestyle: seven homes, two private jets, and his and hers Rolls-Royces. During the boom, Frank went to visit one of the couple's homes, which was nestled in a private golf course and full of waiters and other staff. When he returned after the Yellowstone Club went bust and the couple got divorced, Frank rang the bell at the front gates. "I got a Verizon message saying it had been disconnected because they hadn't paid their phone bill." After 25 years in a gilded paradise, Edra Blixseth had to learn how to fill her own gas tank.
Of course, the story of these rags-to-riches-to-rages tales are cautionary ones. Most readers will find it difficult to relate to many of the characters in the book. You won't be able to get through this entertaining, well-reported book without shaking your head in disbelief at the arrogance and stupidity of people who had it all -- and then lost most of it because they wanted even more. But Frank warns that we should try to understand them at a human level. Why? The manic behavior of get-richer-quick types has a larger impact — people using leverage to make big statements and take big risks influence the markets in which we all invest, and the economy in which we work.
http://finance.yahoo.com/blogs/daniel-gross/rags-riches-back-rags-meet-high-beta-rich-164920730.html
No comments:
Post a Comment