Getting Wealthy and Staying Wealthy

 


There are millions a million ways to get wealthy, and plenty of books on how to do so. But there is only one way to stay wealthy. Let's begin with a quick story about two investors, neither of whom knew the other, but whose paths crossed in an interesting way almost a century ago.

Jess Livermore is the greatest stock market trader of his day. Born in 1877, he became a professional trader before most people knew you could do such a thing. By age 30 he was worth the inflation - adjusted equivalent of $100 million.

By 1929 Jess Livermore was already one of the most well- known investors in the world. The stock market crash that year that ushered in the great depression cemented his legacy in history. More than a third of the stock market's value was wiped out in an October 1929 week whose days were later named black Monday, black Tuesday, and black Thursday.

Livermore's wife Dorothy feared the worst when her husband returned home on October 29th. Reports of wall street speculators committing suicide were spreading across New York. She and her children greeted Jess at the door in tears, while her mother was so distraught she hid in another room, screaming. Jess, according to biographer Tom Rubython, stood confused for a few movements before realizing what was happening. He then broke the news to his family : in stroke of genius and luck, he had been short the market, betting stocks would decline.

"You mean we are not ruined?" Dorothy asked"

"No darling, I have just had my best ever trading day - we are fabulously rich and can do whatever we like," Jess said. Dorothy ran to her mother and told her to quiet. 

In that one day Jess Livermore made the equivalent of more than $3 billion. During one of the worst months in the history of the stock market he became one of the richest in the world. As Livermore's family celebrated their unfathomable success, another man wandered the streets of New York in desperation. 

Abraham Germansky was a multimillionaire real estate developer who made a fortune during the roaring 1920s. As the economy boomed, he did what virtually every other successful New Yorker did in the late 1920s. bet heavily on the surging stock market. On October 26th, 1929, The New York Times published an article that in two paragraphs portrays a tragic ending.

Bernard H. Sandler, attorney of 225 Broadway, was yesterday morning by Mrs. Abraham Germansky of Mount Vernon to help find her husband, missing since Thursday morning. Gemansky, who is 50 years old and an east side real estate operator was said by Sandler to have invested heavily in stocks. Sandler said he was told by Mrs. Germansky that a friend saw her husband late Thursday on Wall Street near the stock exchange. According to her informant, her husband was tearing a strip of ticker tape into bits and scattering it on the sidewalk as he walked toward Broadway. And that, as far as we know, was the end of Abraham Germansky. Here we have a contrast. 

The October 1929 crash made Jess Livermore one of the richest men in the world. It ruined Abraham Germansky, perhaps taking his life. But fast - forward four years and the stories cross paths again. After his 1929 blowout Livermore, overflowing with confidence, made larger and larger bets. He wound up far over his head, in increasing amounts of debt, and eventually lost everything in stock market.

Broke and ashamed, he disappeared for two days i  1933. His wife set out to find him. The stock market investor, Jess Livermore missing and has not been seen since 3 pm yesterday, "The New York Times wrote in 1933. He returned, but his path was set. Livermore eventually took his own life. The timing was different, but Germansky and Livermore shared a character trait: They were both very good at getting wealthy, and equally bad at staying wealthy.

Even if "wealthy " is not a word you'd apply to yourself, the lessons from that observation apply to everyone, at all income levels. Getting money is one thing. Keeping it is another. 

If I had to summarize money success in a single word it would be "survival". 40 % of companies successful enough to become publicly traded lost effectively all of their value over time. The Forbes 400 list of richest Americans has, on average, roughly 20 % turnover per decade for causes that don't have to do with death or transferring money to another family member.

Capitalism is very hard. But part of the reason this happens is because getting money and keeping money are two different skills. Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite if taking risk. It requires humility, and fear that what you have made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you have made is attributable to luck, so past success can't be relied upon to repeat indefinitely. 


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