How Humility Makes Ray Dalio Money

Ray Dalio is a very wealthy man. Self made wealth. He is the founder of Bridgewater Associates, the world’s largest hedge fund.

While clearly a talented business developer and investor, there is another aspect that adds to his success.

He does not have a “Master of the Universe” complex.

An adjunct to quality education

Have you noticed how people are taught to be right? Does that make sense to you?

Dalio seems to think that being right is the ideal, but noticing what goes wrong is more suitable for understanding how to improve.

From a recent twitter post.

Everyone has weaknesses and they are generally revealed in the patterns of mistakes they make. The fastest path to success starts with knowing what your weaknesses are and staring hard at them. Start by writing down your mistakes and connecting the dots between them.

Then write down your “one big challenge,” the weakness that stands the most in the way of your getting what you want. Everyone has at least one big challenge. You may in fact have several, but don’t go beyond your “big three

The first step to tackling these impediments is getting them out into the open.”

Another look at education

Education should derive its strength from improvement not just from acquiring new information.

For example, If you have an arithmetic test in Grade 1 and you get 45 out of 50. Is that good? Probably. Does it teach anything? Not really. Suppose you analyzed the five wrong answers and discovered they all related to a single mistake. Now the test has value to the student

Life is like that too. You learn more from mistakes than anything else in your life.

“So take it from me you’ll learn more from your accidents
Than anything that you could ever learn at school”

You’re Only Human (Second Wind) by Billy Joel

Mistake analysis requires humility. Unskilled people avoid noticing mistakes.

An approach

Suppose people were taught to look for mistakes and given information about how to deal with them. That would make mistakes less threatening.

Set Godin offers ideas in an article. A Plan For Wrong.

It’s likely that you’re going to make an error. That you will make choices based on things you don’t know, perhaps should have known. Things will go wrong.

And then what?

A question he raised makes the point obvious. In Driver’s Ed should they teach what to do if you get a ticket or have a fender-bender? Knowing what to do about mistakes is an important skill.

We should emphasize it.

The takeaway

Mistake analysis should be a field of study

Humility comes before the decision. “What I think might be wrong and the market helps me understand that.” Ray Dalio

Mistakes are your friend. Be nice to them.

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Reacting To Events

People often see themselves as the victim of circumstances. It is theoretically possible that some are right, but that is not the way to bet.

I found this unattributed quote and it seems to make the point.

“Although fate presents the circumstances, how you react depends on your character “

How you react matters. Much more than people think.

An example found on Facebook.

You cannot control circumstances although by anticipation you can better your chances.

Give some thought to reaction. Is it disappointment, embarrassment, fear or merely a convenient way to complain about hard life is for you.?

Life is best organized and planned and not so much reacted to.

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Confidence In Society’s Institutions

Gallup published a poll on the 14th that addressed how Americans feel about their societal institutions. Americans and Confidence in Institutions

Many aspects of it are unsurprising. For example, the bottom ratings are given to big business, television news, and congress. A “Great deal of confidence” rating of 9%, 6%, and 5% respectively.

The three highest rankings went to the military, small business, and the police, at 37%, 36%, and 26%.

As opposed to the three at the bottom, the ones at the top enjoy a large share of “quite a lot” of confidence. I have no idea where the boundary between great deal and quite a lot falls

In the 17 areas selected only 4 have a “great deal” plus “quite a lot” of confidence over 40%. In order – small business, the military, the police and the medical system. At the other end of the scale 5 institution, have a little or no confidence level over 40%. Television news at 53%, and congress, at 51%, lead that pack, followed by newspapers, criminal justice, and big business.

What else to notice

There are wide differences in the results depending on political persuasion. Democrats value the presidency much more than republicans. There is a 49% trust gap. 62% to 13%. Republicans value the police and organized religion much higher than Democrats. How much of that relates to cheering for the home team is not addressed. I suspect many would change their view if the question became more personally specific.

Drawing Meaning

  1. People mistrust the intrusion of politics. The institutions a the bottom are the ones that assess political effect over value to society. The ones at the top are least affected by that.
  2. Institutions that should be beyond politics have become trapped in the middle. Organized religion, the supreme court, the medical system, and schools provide best service when they are apolitical.
  3. As confidence fades, should they become more political or less political? More political may serve their funding and power well in the short term, but can be catastrophic in the long term. Maybe they think they can be strong enough to be immune to a shift in political winds.
  4. Should we not ask, “Why is politics even a consideration in the majority of the institutions?” I suppose it is because there are about 25% of the people who like to be the boss.

Last Question

It is part of the reliability assessment. “Do you trust Gallup surveys?” Always assess the messenger.

An example of messenger problems:

After a thorough investigation, a rich gangster finds out that his bookkeeper has cheated him out of 10 million bucks. His bookkeeper is deaf and that was the reason he got the job in the first place. It was assumed that a deaf bookkeeper would not hear anything that he might have to testify about in court.

When the mobster goes to confront the bookkeeper about his missing $10 million, he brings along his attorney, who knows sign language.

The Godfather tells the lawyer ‘Ask him where the $10 million bucks he embezzled from me is’. The attorney, using sign language, asks the bookkeeper: “Where is the money?” The bookkeeper signs back: ‘I don’t know what you are talking about’.

The attorney tells the gangster: ‘He says he doesn’t know what you’re talking about’. The gangster pulls out a pistol, puts it to the bookkeeper’s temple and says, ‘Ask him again!’

The attorney signs to the bookkeeper: ‘He’ll kill you if you don’t tell him!’ The bookkeeper signs back: ‘OK! OK! You win! The money is in a brown briefcase, buried behind the shed in my cousin Enzo’s backyard in Queens!’

The Godfather asks the attorney: ‘Well, what’d he say?’ ‘He says you don’t have the guts to pull the trigger.’

Enjoy your weekend.

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Drowning In Sunk Costs

Should the Americans stay in Afghanistan? Twenty years, a trillion dollars, thousands of deaths, and tens of thousands of injuries. The job is not done. We should stay until it is.

Independent of the consequences for the Afghanis, the argument seems to make some sense. Nothing for something seems a bad trade. In truth it does not. The argument in favour of staying is based on “sunk costs.”

Sunk costs

A sunk cost is a resource expenditure made in the past. It was intended to accomplish some goal and it has not. It is not recoverable and it does not accomplish your goal. Sunk costs, particularly those with ongoing maintenance expenditures are insidious. You should avoid that way of thinking. They mislead you into thinking you are actually doing something useful.

Sound management assesses relevant costs, being those that affect the future. Sunk costs are the past.

How to address the possibility of sunk costs

There are two questions you must answer:

  1. If I was not doing the act, would I start? If no, then I should stop. Independent of what has been expended so far. Things change. We all make mistakes. Wise people stop doing dumb things sooner.
  2. If the answer to 1) is “yes” then I must ask, “Would I do it this way?”

The two question approach involves two aspects of planning.

The strategic question

Should I do it is a strategic question. It involves intents and principals. Many strategic questions are difficult to answer because they involve ideas of ethics, duty, and other higher values. Generally these higher values hold sway, and the idea of limits, and alternative problems to solve, are ignored. We see the discussion in every aspect of politics.

Some strategic problems mask the idea that there are some worthy things we should not do. Often cannot do.

Thoughtful answers to these should come first. Improperly decided strategy presents more problems than it potentially solves.

The tactical question

Assuming we should address a problem, how should we do it?

The answer to that is non-trivial. Complex problems do not lend themselves to simple solutions. The majority of complex problems are, when assessed, not a single problem. They are a collections of interconnected problems under a single banner. A solution aimed at the banner problem does not address sub-problems. Quite often, makes them worse. For example, placing foreign troops in a country may provide security, but the passionately patriotic of the people will view it as an unwelcome intrusion into their culture.

Sub-problem conflicts have the potential to destroy every mission.

The Afghan War summary.

The image comes from a story in the New York Times. It was part of a 2010 briefing for then commander General Stanley McChrystal. It provides an overview of the parts of the problem. After studying it and further noticing that each element within it likely has a similar slide of its own complexity, you lose faith in the one answer solution.

General McChrystal commented “When we understand that slide, we’ll have won the war” Eleven years later, the Americans have decided they do not and maybe cannot understand the slide. More probably, they have decided there is no way to implement action to change the situation to their satisfaction.

Questions for you

How many things in your life are holding you back because you will not recognize sunk costs?

Is the problem misdirected strategy or weak tactics?

Is the problem not just one, but a bag of problems?

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Do Rules Add Value?

Have you noticed there are more rules lately? There is a whole category of people who like making rules and having other people follow them. The pandemic has given them a great opportunity to create and promulgate rules. Everything from spacing, to masks, to vaccine passports, to store limits, to travel restrictions, to shutdown your school or business, and to stay home orders.

Do the politicians and elite bureaucrats hold themselves to the rules? Some do, but not all.

I am unconvinced they will give the power back when the time for its need passes. My guess is there will be all sorts of things added to the “health emergency” list. All will exhibit draconian rules, mixed science, and complete absence of transparency.

I will be amazed if gun ownership does not become a health emergency. No doubt climate change can be made to fit there too.

I recall H.L. Mencken on the subject and it would do you good to keep the thought in your mind.

“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.”

You cannot have a good emergency without people being afraid of something. Governments acquire power they do not intend to give back.

You might also gain some Mencken wisdom on how to address other factors we see:

“Science, at bottom, is really anti-intellectual. It always distrusts pure reason, and demands the production of objective fact.” Be very careful when the intellectuals and those who listen to them claim to rely on science.

“A newspaper is a device for making the ignorant more ignorant and the crazy crazier.” And Mencken was in the newspaper business.

Rules without integrity harm us all.

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Learning From Others

The woke initiative has some value. I decided to look at proverbs of Africa with a view to discovering wisdom not available through Western European culture. They are not so hard to find,. I don’t know how culturally accurate they are. Some though added to my view of the world.

You could take a look here and here for them. There are other sites too.

I suspect every culture has its own proverbs and I imagine if I looked at all of them, I would find every culture holds most of the same wisdom. Am I wrong? Local conditions may inform some aspects, but do the fundamentals of culture vary from place to place?

Some African wisdom

  1. There are no shortcuts to the top of the palm tree. ~ Cameroonian Proverb
  2. God has created lands with lakes and rivers for man to live. And the desert so that he can find his soul. ~  Tuareg Proverb
  3. Haste and hurry can only bear children with many regrets along the way. ~ Senegalese Proverb
  4. A fully grown up tree cannot be bent into a walking stick. ~ Kenyan Proverb
  5. He who does not seize opportunity today, will be unable to seize tomorrow’s opportunity. ~ Somali Proverb
  6. The cow that bellows does so for all cows. ~ Kenyan Proverb
  7. Those who are born on top of the anthill take a short time to grow tall. ~ Ghanaian Proverb
  8. We do not inherit the earth from our ancestors we borrow it from our children. ~ Haida Proverb
  9. The friends of our friends are our friends. ~Congolese Proverb
  10. When the lion cannot find meat, it eats grass. ~Kenyan Proverb
  11. The elders of the village are the boundaries. ~ Ghanaian Proverb
  12. More precious than our children are the children of our children. ~ Egyptian Proverb
  13. For tomorrow belongs to the people who prepare for it today.
  14. No person is born great. Great people become great when others are sleeping.
  15. Prepare now for the solutions of tomorrow. ~ Congolese Proverb
  16. Knowledge without wisdom is like water in the sand. ~ Guinean Proverb
  17. A person with too much ambition cannot sleep in peace. Chadian Proverb
  18. A brave man dies once, a coward a thousand times. ~ Somali Proverb
  19. One whose seeds have not sprouted does not give up planting. ~ Kenyan Proverb
  20. One who relates with a corrupt person likewise gets corrupted. ~ Kenyan Proverb
  21. Better little, than too little. ~ Burundian Proverb
  22. We should put out fire while it is still small. ~ Kenyan Proverb
  23. Women have no chief. ~ Acholi Proverb
  24. Every door has its own key. ~ Kenyan Proverb
  25. A flea can trouble a lion more than a lion can trouble a flea. ~ Kenyan Proverb
  26. He who learns, teaches. ~ Ethiopian Proverb
  27. The humble pay for the mistakes of their leaders. ~ Tanzanian Proverb
  28. Those who accomplish great things pay attention to little ones. ~Malian Proverb
  29. The laughter of a child lights up the house.
  30. The roaring lion kills no prey ~ Nigerian Proverb
  31. If two wise men always agree, then there is no need for one of them. ~ Zambian Proverb
  32. Sticks in a bundle are unbreakable.
  33. He who refuses to obey cannot command. ~ Kenyan Proverb
  34. If you are filled with pride, then you will have no room for wisdom. ~ Tanzanian Proverb.
  35. If you want to go quickly, go alone. If you want to go far, go together.
  36. Being happy is better than being king. ~ Nigerian Proverb
  37. Where there is no shame, there is no honor. ~ Ethiopian Proverb
  38. A stream cannot rise above its source.
  39. Every misfortune is a blessing.
  40. Children are the reward of life.
  41. One must talk little and listen much.
  42. However long the night may last, there will be a morning.
  43. One falsehood spoils a thousand truths.
  44. Indecision is like a stepchild: if he does not wash his hands, he is called dirty, if he does, he is wasting water.
  45. Smooth seas do not make skillful sailors.
  46. Until lions have their historians, tales of the hunt shall always glorify the hunters.
  47. Dreaming comes prior to getting
  48. Even as the archer loves the arrow that flies, so too he loves the bow that remains constant in his hands. ~ Nigerian Proverb
  49. When the mother goat breaks into the yam store her kid watches her. ~ Igbo Proverb
  50. If you educate a man you educate one individual, but if you educate a woman you educate a family. ~Fanti Proverb
  51. Examine what is said, not him who speaks. ~ Egyptian Proverb
  52. Supposing doesn’t fill the grain basket ‘if’ doesn’t fill the larder. ~ Ovambo Proverb
  53. Where you will sit when you are old shows where you stood in youth. ~ Yoruba Proverb
  54. Eat when the food is ready speak when the time is right. ~ Ethiopian Proverb
  55. An intelligent enemy is better than a stupid friend. ~ Senegalese proverb
  56. To be told is not to see ~ Swahili
  57. When minds are one, what is far comes near ~ Swahili


Each of us will derive something a little different form each. Each of us will find that the thoughts parallel some wisdom we know. So what’s the value?

Many are familiar.

“Examine what is said, not him who speaks.” roughly parallels the idea here that even the poorest and least educated among us knows something I don’t and if I listen I can learn it.

“Prepare now for the solutions of tomorrow.” Think ahead.

Creative solutions arise from looking at the problem from different viewing points:

Knowledge without wisdom is like water in the sand. ~ Guinean Proverb. How should we actively acquire wisdom?

God has created lands with lakes and rivers for man to live. And the desert so that he can find his soul. ~  Tuareg Proverb. I enjoyed this one. We should learn from adversity and value it. It builds gratitude.

To think about (for me)

“Until lions have their historians, tales of the hunt shall always glorify the hunters”. Can we know what history really looked like? Police officers will tell you eye-witness testimony is near worthless. Maybe our recorded history is little more than guessing.

“Women have no chief.” ~ Acholi Proverb. Should they have or are they capable of leading themselves and others without a chief?

The takeaway

Each of us can learn from other cultures and they from us. Spend a little time seeking more wisdom and find ways to convey ours to others.

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Anticipate Some Changes To The Playing Field

I am trying to learn enough about critical theory, intersectionality, and wokeness to have a sense of the ideas. I have a feeling there are two streams to follow.

  1. There is something to it I don’t know and my life will be better once I grasp it.
  2. There is nothing to it but chaos and trouble and Agatha Christie has it pegged.

“One must have common sense, nothing is permanent, nothing endures. I have come to the conclusion that this place is run by a madman. A madman, let me tell you, can be very logical. If you are rich and logical and also mad, you can succeed for a very long time in living out your illusion. But in the end….in the end this will break up. Because, you see, it is not reasonable what happens here! That which is not reasonable must always pay the reckoning in the end.”

My simpleminded approach to everything has been, “if it doesn’t work, it won’t last.” The rich madman is an interesting twist. I suppose if the wealth of a government can be obtained for use by a madman, it could last a long time.

So far, my study has indicated that there is something to studying the wisdom of others. Some of that experience is hard-earned and worthy. Other aspects arise from misunderstanding what works, at least in a different environment.

Ultimately every social  structure is defined by its limits.

Wealthy countries are like wealthy families. They were not always so. Somewhere the made a step towards wealth and it worked. They built on that. Wealth gives you more choices. They did not consume their wealth, but invested in new ideas, new processes, and new inventions. They invented better structures to operate within. They deferred wealth to the future.

The failing in the wokeness seems to be they have not yet considered how they replenish the wealth they have available to address the wrongs they see. Redressing wrongs is essentially past-oriented. We cannot repair the past, we can only learn from it.

In focusing on wrongs, we can easily miss what was right. That harms the ability to sustain the wealth the new version will require.

The Breitbart Doctrine claims that politics is downstream from culture. If you want to change politics you must begin by understanding the units of culture and change those – people.  1) Change people. 2) Change culture. 3) Change politics.

The current format seems to be grab power and change politics. Assume you can change the people once you have the power. That is the opposite of the Breitbart Doctrine.

Top down change works so infrequently as to be something one usually  ignores. What if you cannot change the people? Changing people is a formidable task and changing all of them is unlikely. It is ultimately deciding the answer to a simple question. Which is true?

  1. People don’t change much and they build structures that accommodate all, or at least most. The respect others, they share, they build resources.
  2. People can change to the ideal f the societal structure is appropriate. I must have been away the day they explained how that works. Who will decide the end result? Will it be imposed? My experience says that which is imposed is opposed. How do you overcome the resistance while building resources, sharing, and respecting each other?

Seems to be that Option 1) would work, while 2) must fail. The source of the problem is impatience. It took nearly 300 years to get option 1 working better. It is likely option 2) would fail in a few decades.

Forty-two years ago a very wise person told me that if Communism worked, it would eventually evolve into capitalism. The point was times change and systems must change to accommodate those changes. The evolution is towards allowing people to express themselves in ways they value. Freedom. No top down demands.

A curious problem and not easily resolved.

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A Pandemic Is A Blemish, Not The End

There have been many epidemics and pandemics in history. Uncomfortable for growth but not the end of society as we know it. Except the effect of the Spanish involvement with the Aztecs in the 16th century. Without natural defences or treatment, few survived the diseases the Europeans brought.

There future was destroyed but I’ll bet a few made out okay. The ones that were lucky and took advantage of whatever they could.

“Don’t judge each day by the harvest you reap but by the seeds that you plant.” Robert Louis Stevenson

Planting seeds is future oriented. Planting seeds requires optimism and a belief in the ability to be better off in the future. Pessimists don’t plant seeds. Should you be planting just now? There is no harvest without planting.

The pandemic is a trigger

People have changed their behaviour.

  • Politicians have decided to use the pandemic to acquire more power for themselves.
  • People have looked around and decided to wait.
  • Some children have missed a year of school.
  • Many young adults have lost their normal social interactions
  • Some businesses were closed and many of those will not reopen.
  • Our familiar ideas about how the world works have been scrambled.

The outcome

Are there fewer people planting seeds just now?  Why not?

  • The pandemic triggered our reactions.. The pandemic is not the problem. How we react to it is the problem. The world has not changed so much. Our perception of it has.
  • We have discovered that some large businesses are driven by political factors rather than business issues. Raytheon and Coca-Cola spring to mind. Others have converted politics to their business advantage. Facebook, Twitter, Google, and Amazon among them.
  • We have discovered that free trade with people who do not respect their customers doesn’t work very well China has a bigger agenda than mere economic performance. Many overlook that other aspect of them.
  • We have come to mistrust anything the media tells us. For me, they could not tell me the sky is blue on a clear day and have me believe them. That is of course if I even noticed them say it. That is antithetical to success.
  • We no longer trust familiar institutions. Governmental agencies have suppressed information we need to know and they have overvalued models and “expert” opinion.
  • We have learned there are no experts when it comes to dealing with something new and fundamentally different. Experience with other similar things may harm the analysis because it tries to make the new familiar.
  • People get it right when they know and understand the important details.
  • Fear is not a fact and it is being used to motivate people to change their attitudes to governments and to each other. Fear is a powerful political tool and immensely overused just now.

Fear in context.

Fear can be influenced by knowledge. It is dealt with by exploring deeper than the first layer. Absent comparison, any statistic can be made to appear very different from it’s true meaning.

For context, let’s look at some available data and see if we can evaluate current conditions better.

  • The Spanish Flu 1918 – Infected 500 million people, about a third of the world’s  population, and killed between 4% and 10% of those who contracted it.
  • Smallpox was deemed eradicated in 1977. It once infected people in local outbreaks. The mortality rate within an outbreak was around 30%.
  • Ebola is a fierce disease and usually occurs in small, confined outbreaks. The mortality rate varies widely between 35% and 90% with the average around 50%
  •  Sars-Covid-2019. Not so easy to catch. In my province in Canada, Ontario, there are roughly 14,000,000 people and until July 2021, 16 months of presence, 545,000 cases. Roughly 4% have been infected. Of those 9,251 have died for a death rate of about 1.7% among those who have become infected. World wide there have been 182 million case and 4 million deaths. Fewer than 3% of the population have been infected and of those a little over 2% have died. The world wide numbers are likely not especially precise.
  • Over 40 years HIV/AIDS has killed roughly 35 million people.
  • Bubonic Plague. The plague created enormous change in the politics and society of 14th century Europe. It killed between 30% and 60% of the population of Europe. It was caused by a bacteria as opposed to a virus and there were no medical skills to be applied.

In Context

Sars-cov-2 or Covid-19 is a serious disease but a long way from catastrophic.

Smallpox and salmonella came to the Aztecs in the 16th century and killed at least two-thirds of them.

The seasonal flu in 2017-2018 killed almost 100,000 Americans.

Medical science is far different than it was in Europe around 1350 or in Mexico in the 1500s.

We don’t know that the counting protocol for Covi-19 deaths is the same as it was in previous years.

It is never smart to make decisions without assessing the context. The disease is serious, but is it as serious as the powers that be would have us believe? I don’t know and cannot tell. Suppression of information by governments, news media, and social media conspire against knowing. Instead you must guess. You cannot rely on them.

“I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts”  Abraham Lincoln

Lincolns wisdom is not in full bloom just now.

Make your own decisions, but first decide if the context is not so adverse that you cannot prepare for your future. Planning is how you influence the future for yourself. It is organized anticipating. It’s more difficult now than it was, but one of your planning conditions should always be how do you deal with unforeseen adverse differences. Risk management is a thing.

The pandemic is an example of a serious risk that will likely have small effect on you. Unless you get caught up in the whirlwind of rhetoric, posturing, and virtue signaling we are exposed to every hour, you can build a workable future for yourself.

The takeaway

Life is good and it is better if you work at achieving something.

Panic is poor tool to apply to life.

Governments have their own agenda and they are not especially interested in making your life, or even the lives of all the people, better. Think about whether they are operating too much to their own advantage and replace them if they are.

Make the most of what you can see and do.

Be an optimist. Plant some seeds.

I help people have more retirement income and larger, more liquid estates.

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Velleity? What Does That Mean?

Velleity is one of the most common reasons that people don’t enjoy the possible fullness of their lives. Its definition will resonate with everyone.

It is a word we should learn and remember. Occasionally point out to ourselves when it is restricting us.


Velleity, noun – “a wish or inclination not strong enough to lead to action.” Oxford Dictionary

Wikipedia traces its history and offers an example of the deeper meaning.

Marketing writer Matt Bailey describes it as “a desire to see something done, but not enough desire to make it happen”

More expansively he points out, “Velleity is what keeps companies locked in this mindset of reporting useless numbers. Desiring, even expecting to someday have an epiphany of change, but not willing to change the mindset or the culture of locked-in reporting to achieve it. Nor are they willing to ask the hard questions in order to uncover what must be done.”

People don’t like the disorder of change, and velleity is an outcome.

We have a choice

Each of us has the choice of finding the action necessary to implement our dreams, or the wisdom to set the minor ones aside for now. Each of us has many dreams. Velleity robs us of concentrated effort. Maybe we would get better answers if we addressed our dreams one at a time and put in the effort to achieve them once identified as the most important one for me today.

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The Vanderbilt Lessons

This blog has been running almost nine years. One of its most commonly accessed articles (more than 3,300 times) is What Happened to The Vanderbilt Fortune? I suppose people like to look at the demise of great fortunes.

It also raises the question of why people are concerned about the concentration of wealth. If you look at the great fortunes of history, none are still visible. Even the wealthiest people from 40 years ago are not seen in the wealth of their heirs. Perhaps we should take a longer view on this problem.

The Vanderbilts are an example of why it is hard to retain concentrated wealth. With estate and income taxes, it is even more difficult now.

I came across a video on YouTube that addresses the same points. It is about 15 minutes long and covers the same material but with pictures of their extravagances and more detail about the children and grandchildren. How the Vanderbilt Family Lost Their Entire Fortune.

What’s The Meaning?

The Commodore, Cornelius Vanderbilt told his son, “Any fool can make a fortune, but it takes a man with brains to hang on to it.” When he died his son William inherited the fortune and in the 8 years until his death, he doubled it. Certainly doubling money is a good way to hang on to a fortune. The important point here is vast wealth needs a director. Better if it is just one. Fractioning the fabric of the family fortune is the beginning of its disappearance.

Eventually grandchildren are the owners of the wealth. It is a truism that of businesses controlled by third-generation owners, few  succeed. In many cases survival is in question. Third generation owners are too remote from the skill set and the attitude of the founders. They have always had privilege and many feel entitled. Entitled is not the way to build a fortune, nor even sustain one.

Multi-generation family businesses exist, but the people who have inherited and run them have many of the same instincts as the founders. Those have been taught. Without guidance, entitlement is a mindset easier to acquire than responsibility, growth, and discipline.

It is a Darwinian landscape. Even vast fortunes won’t survive disinterested leaders. In each family that has prospered through generations, there has been one or perhaps two children given authority to operate the assets, while other children become passive shareholders. In most cases they have been employees and tested with growing responsibility. It is an easy mountain to fall off. Eventually only the most skilled reach the top.

In businesses where a single founder has exercised brilliant control for a long time, giving up control to the next generation is a decidedly difficult decision. Many are incapable of it and the drive and enthusiasm of the young is not carried forward. To become the chief executive of the family business at 60 is not a solution that works. If you can find the person, transferring much of the control by the time they are 35 to 40 is most useful. They will have had time to be sure they want to do it, and the founder will have had time to transfer much of their knowledge and skill. Be especially aware of transferring the founder’s personal network. In a perfect world the founder will remain as chief counsellor, but with the caveat that their skill set will become obsolete and the younger operator will be closer to day-to-day reality.

In an imperfect world, the founder passes away without having prepared enough. Information and connections are lost. The successor will be faced with a frightening array of problems. From reassuring customers, suppliers, lenders, and key employees to finding the money to pay the inevitable taxes.

Every business should at a minimum have a fire drill plan. Who signs cheques, for example? An owner need not be dead to be unavailable for routine tasks.

More extensive transfer plans should begin as soon as a successor manager has been identified. Well before they take over the role. Think of it as an engagement period. You should not emulate the Ford Motor Company transition. It was cobbled together in the six weeks prior to Henry Ford’s death. At the other extreme is the Bronfman family. Their succession plan, while complex, is at least 70 years old and still operating to retain concentrated control while sharing the wealth among the many descendants.

The Takeaway

Business succession planning is difficult and easily postponed. Eventually though it becomes inevitable.

If you leave it too long it becomes uncontrollable.

Have a plan B. Know who the executors should sell to if you pass before it has begun.

Own life insurance to protect the liquidity needs for taxes, reduced lines of credit, and the cost to deal with partially complete projects.

If parents retain a significant equity position in the companies, insure the new CEO. The parents could not easily step back in and the discount to sell may be significant as there is no continuing management at the highest level.

I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email

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