major concern to all Americans, but it has a special resonance for families who aren't just in the 1 %, but in a tiny fraction of the 1 %.
Throughout the book I make periodic observations, commenting on the discussions that are going on. Most of these comments are designed for wealth advisors, but they may be of interest to families as well.
A Note to Middle-Income Investors
This book describes a very wealthy family as it struggles to manage its wealth and to discharge its stewardship obligations to future generations. More than anything else, the Titan family is striving to avoid the usual outcome for the rich: shirtsleeves-to-shirtsleeves in three generations.
On the other hand, the issues the Titan family grapples with are, for the most part, the issues every family faces in managing its money. We tend to think that “the rich are different,” but in my experience, Hemingway was right: they just have more money. If you read through these chapters, you will likely recognize not just rich people talking, but your own family making its way through the selfsame struggles.
It's certainly true that government rules prevent middle-income investors from benefiting from some of the best investments available – hedge funds and private equity. (Write your congressional representative!) Otherwise, investing is investing, and what a wealthy family needs to know is quite similar to what you need to know.
I don't know whether the unusual approach of this book will prove helpful to families and their advisors. I certainly hope it will, and it's been fun for me to write it, basically reliving so many interesting client meetings and discussions. But aside from the format, my main hope is that the book will help families improve their management of capital and help advisors improve their skills at helping families.
In a free market economic system, private wealth is the engine of prosperity. It fuels entrepreneurship, philanthropy, and the arts, it pays the great bulk of taxes, and it greases the skids of the capital markets, making the world safe for all investors. Wealthy families face enormous headwinds in the battle to remain wealthy. If this book reduces those headwinds by even a small fraction, it will redound not merely to the wealth of many families, but also to their happiness.
Acknowledgments
This book opens with the stock market crash of 1973–1974 and it closes with the challenges of navigating a central banker–fueled bull market in the summer of 2015. Over the course of those 41 years I've had the extraordinary good fortune to work with hundreds of remarkable American and non-American families.
In 1974, I was a young lawyer slaving away in the bowels of a very large corporate law firm, one that today is among the 25 largest law firms in the world. In those days I was utterly ignorant of the challenges faced by families of wealth, but I quickly got a baptism of fire – a stock market that, on an inflation-adjusted basis, dropped more than 50 % in less than two years.
Five years later, I joined the family office of one of America's most iconic families – the Mellons of Pittsburgh. That family had established its first family office in 1868, and so far as I know it is the oldest continually operating family office in the world.
In the mid-1980s, I organized my own firm, Greycourt, which has now served wealthy families with distinction for 30 years. My first 12 clients were all European families, an experience that very much broadened and deepened my horizons. Non-American families tend to think quite differently about the world and about their capital than do American families.
In America, stock markets have operated largely uninterrupted since the Buttonwood Agreement of 1792 – 123 years of securities trading activity. But it's important to understand how fantastically unusual that experience is. Our European cousins have seen their stock markets destroyed again and again, most recently in World War I and World War II. And even the European experience is a rock of stability compared to the calamities faced by families in Latin America, the Middle East, and elsewhere.
Private capital faces all the usual headwinds: taxes, inflation, high fees, price volatility, and human error. But, in addition, it must withstand war, revolution, financial panic, global depression, expropriation, and terrorist attack. It's no mystery why shirtsleeves-to-shirtsleeves in three generations is the norm. What is remarkable is how many families escape this trap and remain not just wealthy but vibrant and happy into their eighth generation and beyond.
To have the opportunity to work with such families and to generate deep and lasting friendships with many of them has been one of the genuine pleasures of my life. This book could not have been written without those families. I wish I could name them all and specify from which I learned this lesson and from which I learned that. But one of the first lessons of the wealth advisory world is that confidentiality is paramount. Still, they know who they are and I hope they know how much they have taught me.
Aside from the families, I've been privileged to work for nearly 30 years with a remarkable group of people at Greycourt. Turnover at the firm has been so extraordinarily low that almost everyone who joined the firm either is still with us or has retired.
I should thank every one of the employees at Greycourt, but in the interests of time and space let me single out my fellow managing directors: Greg Friedman, CEO; Jim Foster, CIO; Mark Laskow; David Lovejoy; Roy Nichol; and Matt Litwin. Gretchen Shoup, our COO, and Jamie Linhart, who oversees performance reporting. Liz Jones, whose client service operation has freed up our time to deal with larger issues. The Administration Group (and my own assistant, Dana Schmitt), who keep the trains running on time. Chris Fineburg and Tom Moore, who handle much of the day-to-day work on so many of my clients. Jeff Moyer, manager of the Greycourt Partners Fund, which handles my own capital. Chad Cribbs, Stephanie Halpern, and Brian LaBore in manager research.
In a very real sense, it is the families and my colleagues at Greycourt who have provided the material for this book. I've merely been the scrivener. Thanks to one and all.
Prologue: The Titan Family in America
Preparation and Use
Georgio Titano arrived in America in the late spring of 1854 from Abruzzo, a then-impoverished region in southern Italy. As a third son – and seventh child – Georgio's prospects were not good in the Old World, and Georgio determined to emigrate to the New World.
As it happened, Georgio had a second cousin who'd been in America for several years. Benedetto worked in a coal mine not far from Wheeling, West Virginia, and so that's where Georgio headed. The pay was good in the mines, but Georgio suffered from a touch of claustrophobia and as a result he hated coal mining. When he heard about a bricklayer who needed an assistant, Georgio leaped at the chance.
Somewhat to his own surprise, Georgio was good at laying brick. Mostly, of course, he was simply a laborer, hauling mortar and bricks and doing whatever his boss told him to do. But as time went by, Georgio began laying brick himself, essentially apprenticing under his boss. In no time at all, Georgio's walls were straighter and his mortar more even than the boss's work.
One day in the early fall of 1854, Georgio and his boss were working quickly, trying to finish off a wall before a rainstorm hit. The boss lost his footing and fell from the top of the wall, breaking his neck and dying instantly. Georgio was devastated. He'd liked his boss, despite the man's grumpy ways, and now he'd be unemployed. In fact, the man who'd contracted for the wall asked Georgio if he could finish it himself. Startled but happy, Georgio assured the man it would be no problem. And in fact, it was
