As some of you already know, back in September 2009 I set up a small research advisory focusing on protecting family wealth called Bonner & Partners Family Office.
I’ve kept this project mostly under wraps since then. And I’ve kept membership small – just me and a group of likeminded people, looking to protect what they have, and pass it on to their kids and grandkids.
We’re a contrary bunch. Most people would probably call us “ultra conservative” in our approach to wealth building and wealth protection. In fact, it’s not conservative at all… but very aggressive. Almost radical.
Let me explain…
The wealth-building techniques we recommend are the same ones some of the world’s most successful multigenerational families have been using for over a century to protect their legacies.
You don’t keep that kind of wealth intact over generations unless you know two things:
1) How to avoid a “ruinous loss” (the kind you never recover from).
2) How to earn MORE money (a higher rate of return) than most investors.
Put very simply, the truly wealthy take an entirely different approach to money that everyone else.
And I don’t mean they pick different stocks to everyone else. If you think building and holding onto wealth over the long term is all about obsessing over which stocks you think “are a good bet,” I’m afraid your chances of holding on to wealth for long are slim.
No. What accounts for how some families stay rich generation after generation, while other never have a nickel?
It’s a lot more than the stocks they buy.
In fact, I’d say that the less you worry about this or that stock, the more likely you are to build lasting wealth.
Now, I know this runs against the grain of mainstream thinking. It may even challenge some of your own deeply held beliefs about money making.
But I don’t know one single ultra-wealthy family that has protected its legacy over generations by simply betting on stocks.
And any that tried would have seen their wealth wiped out by one of the big cyclical market crashes (think 1907, 1929, 1987, 2001, 2008).
It is well documented that the problem with pure stock picking is that it can lead you to confuse genius with a bull market. Most people who make money in the markets do so only because they get lucky.
And luck turns…
You may have read Buffett’s master class on the subject, “The Super Investors of Graham-and-Doddsville.”
Buffett uses the analogy of a national coin-flipping contest to explain the role luck plays in stock market investing.
Imagine that tomorrow, everyone in America wakes up and is asked to put a dollar on a coin flip. Each day the losers drop out of the competition. And the stakes build as all previous winnings are put on the line.
After 10 flips on 10 mornings, those left in the competition would have won over $10,000. In another 10 days, those left in the game would have turned their initial $1 stake into over $1 million.
As you can probably guess, this group will likely think themselves genuine investment geniuses.
As Buffett puts it, “They will probably write a book on How I Turned a Dollar into a Million in 20 Days Working 30 Seconds a Morning. Worse yet, they’ll probably start going around the country attending seminars on efficient coin-flipping.”
You get the picture…
The bottom line is that any fool can make money in a bull market. It’s holding on to what you have when things turn sour that separates the world’s serious money from the here-today-gone-tomorrow crowd.
Keep in mind that there are hundreds of thousands of highly paid full-time stock pickers out there working 12-hour days and using the best analytics and real-time information available – all trying to outperform the market… and you.
Unless you’re a truly gifted stock analyst, what do you think your odds are of beating these guys? (How many hours do you spend researching stocks? A couple of hours a week and an extra few hours at the weekend?)
As a rule of thumb, you’re going to need to be in the top 10% of all investors… and even if you were one year… how many years could you keep it up? And how about your family? Could they do it, as well?
If you’re interested in long-term wealth building, you’re going to need to do something different than just focus on stock picking.
In fact, you’re going to need a radically different approach. And don’t count on the 60-40 stock-bond split idea that most folks think will save them in a crisis.
We believe this is potentially even more dangerous than a 100% stock picking approach. After all, it was this conventional thinking that caused roughly 40% losses in the Great Wipe Out of 2008.
This kind of “ruinous loss” is precisely what we are determined to avoid at Bonner & Partners Family Office… without sacrificing long-term, above-trend gains.
Founder, Agora Inc.
P.S. Membership is currently closed at Bonner & Partners Family Office. The next intake – our only one of the year – is January 2012. If you’d like to receive an invitation to join at that time, simply fill out this brief declaration of interest here.