Where Harried Billionaires Go to Ground

Beachfront villa, Albany, the Bahamas

This week Tiger Woods returns to competitive golf, at a resort where he owns a home – Albany in the Bahamas.

Many of Tiger's Albany neighbors are even richer than he is, but perhaps not happier. "Billionaire," Tiger suggests,  is a high-stress life style.

We have one-tenth of all the billionaires on the planet here, and that’s saying something. For them to come down here and feel safe and feel like they can be here and operate and run their businesses but also bring their families and enjoy leisure time here as well, and have that privacy, is incredible.

Those of us who can't afford Albany still can admire a resort where the marina accommodates a 300-foot yacht. Check out the web site.

The Year of Donor-Advised Funds?

Many charities dislike donor-advised funds – they want direct donations now, not gifts, possibly larger, in the future. Many individuals and families love them.

According to data in the WSJ,  contributions to donor-advised funds have grown by double digit rates for seven years in a row. At the end of 2015, donor-advised funds held more than $78 billion. And that was after paying out over $14 billion to charities during the year.

Could President-elect Trump's proposed income tax changes, including a large standard deduction and a cap on itemized deductions, slow the growth of donor-advised funds in years to come?

Will donors try to beat the tax changes with a surge in donations this year?

Will Trump Promote Dynastic Wealth?

Some of President-elect Trump's campaign proposals are proving perishable. (The Great Wall may look more like a fence, or perhaps a line of "No Trespassing" signs.) Abolishing the federal estate tax, a mainstream Republican goal, could have a better shelf life. Paul Sullivan in the NY Times fears "wealthy families may find it much easier to amass dynastic levels of wealth."

But dynastic wealth isn't necessarily all that great, as George Goodman, writing as Adam Smith, pointed out in his 1960's classic, The Money Game. While a fortune in appreciated stock makes a family feel rich,  they don't necessarily live rich.

Goodman used IBM, the Google-Apple-Amazon of its day, to illustrate.

Mr. Smith said to [his wife and children], "Our family owns IBM, which is the greatest growth company in the world. I invested twenty thousand dollars in IBM and that twenty thousand has made me a millionaire. If something happens to me, whatever you do, don't sell the IBM." Mr. Smith himself never sold a share of IBM. Its dividends were meager, naturally, and so Mr. Smith had to work hard at his own business to provide for his growing family. But he did create a marvelous estate. ***

Mr. Smith died; the IBM was divided among his children. The estate sold only enough IBM to pay the estate taxes. Otherwise the children—now grown, with children of their own— followed their father's dictum, and never sold a share of IBM. The IBM grew again, made up for what had been amputated to pay estate taxes, and each of the children grew as rich as Mr. Smith had been…. They had to work quite hard at their own businesses, because their families were growing and their only money was in IBM. Only one of them even borrowed on his IBM, to get the down payment for a heavily mortgaged house. And the faithful children were rewarded by seeing IBM multiply and grow. *** 

The Smiths are now in their third generation of IBM ownership, and this generation is telling the next, "Whatever you do, don't sell the IBM." And when someone dies, only enough IBM is sold to pay the estate taxes. 

In short, for three generations the Smiths have worked as hard as their friends who had no money at all, and they have lived just as if they had no money at all, even though the various branches of the Smith family all put together are very wealthy indeed. And the IBM is there, nursed and watered and fed, the Genii of the House, growing away in the early hours of the morning when everyone is asleep.

Collector's Corner

Octagonal Iznik-style tile, possibly from Syria, 18th/19th century, decorated with an intertwining flowerhead and leaf motif in cobalt blue, turquoise and brown glaze, diameter 10 inches. After conquering Constantinople in 1453, the Ottoman Turks launched a building boom that utilized much tiling and pottery from the town of Iznik in Turkey. The Iznik style utilized fritware with designs combining traditional Ottoman arabesque patterns and Chinese elements. Fritware was a low-fired mix, mainly of silica and glass.

Classical Iznik production declined after the 17th century, but works generically described as “Iznik”--such as this tile from Syria—continued to be produced into the modern era. This tile fetched $431 at a Skinner, Inc., Fall auction.

David Swensen on Successful Investing

From this New York Times feature on Yale's famed investment guru:

Beware hot funds
“More assets produce more fees, but they force managers to add more positions, not just Grade A ideas,”

Don't look back

“We were talking to a manager who just had capital taken away because the fund had a bad year. The investor said, ‘Your five-year numbers are not so good, so we are firing you.’ That sounds like the stupidest thing I ever heard.

”Who cares about the trailing numbers if the fundamentals of the portfolio are good?”

7.4%

Average annual return from a 60 percent stocks, 40 percent bonds portfolio over the 20 years ending last June

12.6%

Average annual return earned by Yale's endowment over the same period