Why the rich stay rich: they don’t invest like the rest

http://www.bbc.com/capital/story/20140501-how-the-rich-stay-rich

by kimonos • 12 years ago

10 4 12 years ago

I was expecting evidence that the assets that rich people invest in actually give better returns. None was given.

There were some vague claims of "alpha" to be found in specialty asset classes. But then, if your job is to find "alpha", then you are probably going to claim that it is out there somewhere.

In the absence of any new evidence, I'm going to stick to my previous opinion, which is that there are no superior investment opportunities available to the rich. People might get rich by luck, skill, or political influence. But having lots of money doesn't guarantee higher average returns on that money.

avemg• 12 years ago

Yea this was a silly article. The ultra wealthy have a lot of extra capital in which to gamble on some unorthodox, high risk, high return investments. I seriously doubt any of the examples given make up a significant portion of anyone's investment portfolio.

sokoloff• 12 years ago

It doesn't guarantee it, but I've noticed even with myself (by no means "rich") that as soon as the money didn't matter (in any near-term sense), I became a better investor.

It's the same as playing no-limit poker. If I'm playing my best, I'm playing in a way that I think of the chips (money) as a tool. As soon as I start thinking about it as spendable money, I might as well get up, because I'm not going to be playing at my best.

I can readily imagine that the rich get superior returns by finding solid financial prospects that aren't accessible to Joe Main Street who can't afford to tie up $1MM for years.

What I see happening in the Florida real estate market, where PE/hedge funds are vacuuming up foreclosed properties is exactly the type of "smart money" investments differentially available to rich people. (Sure, there are REITs, which are accessible, but there someone is already fattening themselves up on part of the profits from the activity.)

So, not all of these are guaranteed high-alpha investments, but I find it hard to imagine that there aren't pockets of alpha out there that are preferentially accessible to the rich.

The article is a media play-pageviews and ad shows is the primary purpose, not winning a Pulitzer Prize...

cylinder• 12 years ago

Wow, the rich can get returns of 9% and 4% on high-risk undiversified investments. Big deal. Average Joes can invest in farmland and equipment lease through stocks, ETFs, REITs, etc. anyways.

Why the rich stay rich: they don’t invest like the rest

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