Keeping up With the Sarofim Family: Divorce, Drugs, and Lawsuits (Part II)

I covered Fayez Sarofim as an billionaire investor in this prior post. Fayez first married Luisa in 1962 (only 4 years after he started his company). However Louisa and Fayez were divorced on June 25, 1990. The cost of the divorce was $250 million the largest in Texas at the time. With this wife Fayez had a son named Christopher (who now works at the firm and had his own troubles).  Daughter Allison was born in 1968. She recently was sued by someone who was bit by her dog.

By 1979 Fayez who was then 50 met a 26 year old woman named Linda Hicks. Together they had a son named Andrew who was born in 1984 (here is a picture of him with an attractive blond). Their second son Phillip was born in 1986. Linda then had another son who was not Fayez’s (this gets confusing as the even the people who get cheated are getting cheated on themselves). Finally on September 30, 1990 Fayez and Linda Hicks were married.

Linda Hicks graduated from the University of Alabama Linda herself left her husband and moved with her young son (Sean who ended up going to TCU) to Houston and worked as an entry level clerk at Sarofim’s office for between $25,000 and $50,000. Sarofirm actually got to know Linda because he needed a babysitter and offered to pay anyone at the firm $25 per hour (which back in the early 1980’s was very good money). Fayez who was already married at the time began to meet Linda for some loving at a Houston hotel. Sarofim even asked Linda to come into his meetings to “size people up”. Fayez then bought a house for her in River Oaks. Fayez was generous and offered Linda $390,000 per year (tax-free) to be his mistress.  With a new house in River Oaks Linda seemed to like nice things and used Fayez’s money to buy a Jaguar, have frequent visits to Neiman Marcus, and almost purchased every dress on sale at a trunk show. Friends would say she would drop $100,000 per day at Neiman’s.

Despite all this money Linda didn’t seem happy. By 1995 she was an alcoholic and also a pill addict looking for Valium pills. She was taking 15 milligrams of Valium every 2 hours according to this story.  The house staff (nannies, maids, and security guards) took care of the kids while Linda would go on her drinking binges and then come home and yell at the kids for no reason. Fayez would come home and remain in his suit from work and at 6:30 P.M. to watch Wheel of Fortune with the kids. Also in 1995 while in Italy Linda had one too many drinks and told Fayez to get on his Falcon 900 private jet and go back to Houston (he took her up on that offer). Another divorce was looming. Linda wanted the same $250 million that Fayez’s first wife Louisa got. However it wasn’t cheap. Linda used lawyers Bob Piro and Earle Lilly which charged a non-refundable retainer of $50,000, in addition to $450 per hour (to work on custody for kids), and then the icing on the cake was a 20% of anything above and beyond the pre-nuptial agreement they had.  This story gets ever crazier as Earle Lilly was trying to have a relationship with Linda. Linda would buy him gifts like a $4,300 Hermes briefcase. She also made Lily the trustee of her estate (which in estate planning is a big no-no). Lilly could basically use her estate to pay himself whatever he felt was reasonable. 

By November of 1996 Fayez agreed to give Linda $12 million and she could keep the River Oaks house (of course she would have to pay the property taxes on it), along with $960,000 tax free forever. However the Piro and Lilly got $6.5 million total in fees. After the case was over Lilly suggested Linda buy him a $130,000 Mercedes for his great work. By this time Linda was crashing with her alcoholism. On February 19, 1997 she was taken to a hospital for drinking too much. It was in the hospital where Linda was admitted into rehab and met Mason Lowe (high school drop-out). Mason also had a criminal record stealing equipment from Compaq computer while working as a security guard in addition to public intoxication. Linda apparently saw something in Mason though as they bought a $4 million property in Hawaii and $2 million condo in Toronto. Apparently just like Fayez took care of Linda, Linda took care of Mason buying him a Bentley, took him to art galleries, and bought him nice suits form Neiman’s. Linda’s personal problems however got worse. In 1998 Linda had been drinking for 3 days and Mason had to call an ambulance. Fayez and Linda were still friendly and Fayez even invited both of them over for dinner. Lawyers Piro and Lilly found 153 phone messages (2 hours worth) that were threatening from Linda.

In May of 2000 while climbing Mount Kilimanjaro Linda who was having trouble breathing because she smoked for so many years passed away as she try to make it up the mountain.  Linda and Mason were asked before the trip if they wanted a satellite phone however they declined. One issue Linda had was that she had two wills. The last will usually invalidate previous wills. One will named Lilly has the executor and the other will had Mason as the trustee and executor which is somewhat scary given that Mason has a criminal record for stealing things. We shouldn’t feel too bad for Mason he currently lives in an $840,000 4,700 square foot condo in Houston according to property records.

These days it seems as if the kids of the Sarofim family are also causing trouble. In 1999 Christopher (son of Fayez) married Valerie Sarofim however in the late 1990’s filed for divorce and had court hearings to fight over their daughter Gillian Sarofim. The Sarofim nanny in an affidavit said that Valerie Sarofim would just vanish and party ignoring her kids. The nanny also claims that there was drug use by Valerie. However, Christopher Sarofim admitted in court papers that he and his wife Valerie both used cocaine and marijuana in 1996. Christopher also seems to like the ladies as he seemed to be interested in Courtney Lanier (adopted daughter of ex-Houston mayor Bob Lanier).  Here is a picture of both of them (Courtney is in the middle and Christopher is on the right).

Despite all of this Fayez Sarofim has been very generous with his wealth. He has donated to many different charities including giving $25 million to University of Texas-Houston for a research building. In 2008, he gave $15 million to Southwestern University according to this article. Also he has contributed to the Houston Ballet, Museum of Fine Arts, provide financial support to Sloan-Kettering Cancer Center, Texas Children’s Hospital, Houston Grand Opera, the Houston Symphony, and given over $1 million to Hobby Center of Performing Arts.  Wherever there is a named building there is usually a capitalist behind it. Truly the Sarofim family is interesting from Fayez Sarofim as an investor, to the history of scandal, and to whatever the future holds. The Sarofim family does make the Kardashians look rather boring though.

Fayez Sarofim: Houston’s Billionaire Wizard Investor (Part I)

One day when I was in the medical center in Houston and I looked outside and noticed a building that was called the Fayez Sarofim Research Building. I thought there must be some capitalist behind it. I did some research and found it was donated by billionaire investor Fayez Sarofirm. What interest me was that Fayez made a name for himself buying high quality stocks and has been investing since 1958 which is pretty long term in the investment world. Sarofim’s motto is to never sell. However, as I did more digging I found a very different side of the Sarofim family such as $250 million divorces, having children with between different people, an ex-wife who climbed a mountain and then died, estate battles, and even drug use. Sometimes the truth is stranger than fiction.

Fayez actually came from a wealthy Egyptian family and came to the United States in the 1940’s and earned his degree from University of California at Berkeley and an MBA from Harvard. His firm was founded August 1958.

What is interesting is the number of clients that Fayez seems to have lost over the years. According to data from his website. According to this performance posted on the website it seems as if the number of portfolios decreased from 270 in 1998 to just 95 as of 2012. The assets have also decreased from $57 billion in 1998 to just $22 billion as of 2012. The firm use to (not sure if they still do) manage the pension funds of companies like General Electric and Ford along with the endowments of Rice University and the University of Houston).  There was this story last year from the Houston Chronicle that the firm might lay off people. This ADV form discloses biographical information of many of the employees who work at Fayez Sarofim (educational background, prior work experience, etc).  Many of the employees have been with the firm for many decades which is rare these days. What is also interesting is the company has many entities like Sarofim Trust, Sarofim International Management Company, Sarofim Advisors Group, Sarofim Realty Advisors, and The Sarofim Group.  The company according to this Morgan Stanley statement has 21 employees.  According to the same document Sarofirm after fees over the past 10 years has under performed the market 4.67% (versus 8.01% in S&P 500). This Fortune magazine story from 1992 discusses how “Successful investing is the result of judgment and discipline”.  During the early 1990’s he had outperformed the market.  In 1993 he was worth $300 million according to this article.  From 1983-1992 Sarofim outperformed 94% of all money fund managers.  In 1993 however he moved into the bottom 20% because of Phillip Morris. Sarofim got a personal phone call from the treasurer of Phillip Morris to say everything was okay and the company could still pay out its dividend. Fayez likes stocks with low price to earnings ratio, high return on equity, and decent dividend yields. NASDAQ actually has a website that discloses all of the firm’s holdings here.  The biggest holdings are in Phillip Morris, ExxonMobil, and Coca Cola. Fayez even helped an artist invest according to this 1999 story from the New York Times.

Sarofim owns multiple properties in Houston. According to property records he owns a 14,700 square foot home in River Oaks worth around $11.4 million. Also he owns a 8,700 square foot house in Houston that is worth $5.4 million. However, it seems like all this wealth comes at a price. (Part II Keeping up With theSarofims: Divorce, Drugs, and Lawsuits) 

Trevor Rees-Jones on Uncommon Knowledge

Very interesting interview given by Trevor Rees-Jones who rarely does interviews and his worth close to $1.5 billion. He is very interesting and should really do an autobiography. He is also on the board of trustees for TCU.

Charles Koch: Why We Fight For Economic Freedom

I enjoy talking about Charles, David, William Koch, even a family history. Charles Koch recently wrote a letter that was published in Koch Industry’s July Discovery magazine here. The article talks about when Charles visited Russia in 1990 (formerly known as the Soviet Union) he quickly noticed how many shortages there were. I actually did a research project for one of my MBA courses where I shortages of products when the country was rationing products. Not only did the rationing lead had to study Russia and why a company should open business there (I ended up picking Wal-Mart). In my research I remember reading about to shortages if you could actually find food it was priced much higher than you could find elsewhere.

Also he points out that even though the country had “free” healthcare but the quality was very poor compared to standards of the United States. He then goes on to discuss how the Soviet Union is a prime example of why economic freedom is important. Also people who depend on government are not as free as they think because as Charles points out “Citizens who over-rely on their government to do everything not only become dependent on their government, they end up having to do whatever the government demands.  In the meantime, their initiative and self-respect are destroyed”. Charles Koch and understands the welfare system. As Thomas Sowell would say Democrats want to help the poor while they are poor, while Republicans want to help the poor from stop being poor.

Not only do people ask for handouts but companies and industries also ask for handouts. Companies don’t directly ask for handouts however they may get special treatment that other companies don’t get. For instance farmers enjoy subsidies (which represents only a handful of farmers) meanwhile they artificially increase the price of crops that go into many different products we use. If we got rid of these subsidies the prices of inputs like corn, cotton, sugar, and wheat would not only decrease but any end product that used these inputs would also decrease which would save Americans billions of dollars per year. The people who are truly hurt by these subsidies are the poor and even middle class families who see food prices increase because the government enjoys subsiding farmers. If a business cannot meet the needs of their customers they should be forced to go out of business. As Milton Friedman use to say business is a profit and loss system. The profits encourage wise behavior while the losses force people to realize reality is not optional.

Charles Koch also points out that disparity not only exists in America but even in other countries that have dictators. He is absolutely right. In these countries you have a small class of people who are really rich because the government can hand out favors or blocks certain people from entering (modern day Russia seems to be like this with various oligopolies) while the vast majority of people have a lower standard of living. The United States is much more transparent than most developed countries but still has issues from time to time with this.

I was a little sad to here that Mr. Koch is not seeking political office like his brother did in 1980 on the libertarian ticket with Ed Clark. What Mr. Koch seems to understand is that economic freedom does in fact create economic prosperity. I am not sure why this is so hard for many people to understand. When discussing his legacy Mr. Koch says “I want my legacy to be greater freedom, greater prosperity and a better way of life for my family, our employees and all Americans.  And I wish the same for every nation on earth.” Mr. Koch has done a great job of creating jobs, running a company, and helping spread the word of limited government with its main ingredient of liberty. I just wish now he would write an autobiography so we could learn more about this great individual!

The Koch Brothers: Inside Koch World (Bill Koch The Other and Misunderstood Koch Brother)

(Continued from Part 1 here). David and William Koch during the 1970’s also joined Koch Industries (William was later fired) and Frederick is the only one who never got into the family business. Frederick in recent years reportedly spends $20 million on his art collection and castles while living in Monte Carlo and London. David also went to work for Arthur Little after graduation and then worked at Amicon Corporation and Scientific Design Company. David joined Koch Industries in 1970 and founded the New York office. By 1979 he was managing Koch Engineering and became executive vice president. William also joined Koch Industries in 1968 and founded Koch Venture Capital. Apparently William lost $90,000 and Charles was not too happy about this. He then ran Koch International Company for a short period before founding Koch Carbon and then became vice president of corporate development for Koch Industries.  William was successful as a chemical trader however he struggled. Some of his ideas included purchasing Checker Cab and funding an onion pill to lower cholesterol. These ideas were both flops. William was then fired by the board after he tried to take over. William had always claimed the dividend payout was $5 million in 1983 which is around $11 million in today’s dollars. William complained that the dividend payout was so low that he had to borrow money for his house and he was one of the wealthiest men in America. Around this time the Koch brothers were sharing dividends between $20 to $30 million per year (according to an article the company only paid out a dividend of 7% of its annual earnings). This is actually a small amount considering 90% of Koch Industries earnings are plowed back into the company which has led to a substantial growth.  

In 1983 William started Oxbow Corporation and set up business in Florida to avoid state income taxes (I guess incentives do mater). According to this article, William is a very detailed oriented boss who hired smart people and compensated them well.  Although, his experience at Koch Industries didn’t work out William seemed to work pretty hard being the first one in at 7 a.m. and would make sure employees were prepared and sometimes could lose his temper. William does have a softer side. He enjoys collecting art and wine. In fact he has a wine collection of 40,000 bottles of wine that are worth more than $12 million. His art collection consists of over 400 pieces and according to this article he transports them to his 42,000 square foot home in Florida to Cape Cod. On a single afternoon he spent $240,000 for centerpieces for flower arrangements according to this article. William also likes to sail and in 1992 won the American Cup for sailing after paying $55 million in 1992 according to this Sports Illustrated article. His love for sailing began when he was 13 years old and continued at a summer school naval program in Lake Maxinkuckee, Indiana. Then in 1984 he bought his first bought a 75 foot Hood cruiser.

His house is worth close to $26 million according to this recent article. According to this article he has so much art in the house that he actually had to start hanging it from the ceiling. William has more than $100 million of art and furniture in his house (I hope he has an insurance on all that art). He has used his house in the past for charity purposes however decided to cut this back in the early 2000’s. Not only does William like to collect art and wine he also use to collect women similar to his brother David. David in his playboy days had 3 dates per day. 

While already married to Joan Cranlund in 1995 he tried to evict model Catherine de Castelbajac from a $2.5 million condo that he owned at the Four Seasons Hotel in Boston according to this article. William claims that from October 1994 to August 1995 de Castelbajac ran up a bill of $47,000 at the Four Seasons hotel. William was seeing three women at one time (his wife, de Castelbajac, and Marie Beard). Just one year after he married Joan Cranlund he married Angela who was almost two decades younger than him. According to a 2001 New York post article Angela Browder Gauntt was a stunning blond with green eyes, unpretentious who herself was already divorced when a mutual friend suggested her and William get together. For their first date they went to the Commander's Palace in New Orleans. He sent flowers the next day but they only saw each other once or twice in the next nine months. Part of the reason was because he was still trying to handle Catherine de Castelbajac and he also had a daughter with another another lover named Marie Beard. William had been with many woman and was ready to have a real family. 

Only after five dates William purposed in May 1996 and then they were married in November 1996.  However, there was no honeymoon after the wedding. William was also traveling with his job so it made it hard to made time for his family. Things however got worse. In July of 2000 Angela successfully issued a restraining order according to this article against William for punching Angela in the stomach. The restraining order required Bill to live in the guest house or beach house while his wife Angela lived in the main house. Also Koch was not allowed to drink alcohol 24 hours before he visited his children. William openly talked about the fact that he went to rehab in 2000. 

Angela however did alright in the end as she was paid $16 million in addition to making monthly child support payments of $21,800 ($10,900 per kid) for the two kids that they had together as seen here. In addition to this William also agreed to pay for college for the children. This agreement overruled an initial prenuptial agreement where Angela would have only got 1% of William’s net worth. At the time in 2000, he was worth $650 million which would have been a little less than $7 million. After the divorce from Angela William had former lover Marie Beard moved into his $30 million 30,000 square foot mansion. At the same time William reportedly trying to romance Barbara Chevellard. William is now married to Bridget Rooney who was married to Kevin Costner. 

Speaking of family William also wants to build his own town in western Colorado that will just be for his friends, family, and historians. In 2007, William spent $51 million on four properties in Aspen, Colorado. One of the properties is 17,000 square feet. This of course was after Charles and David each purchased $2.5 million homes in 1992. This article talks about how beginning in 2007 William started to buy up land in Bear Ranch which is near the Ragged Mountains. The town has its own train station, saloon, and firehouse. William also uses his money for charity as well. In 1994, William gave $5 million to help fight crime in Kansas and founded the Koch Crime Commission according to this article.  According to this profile William donated $64.6 million in 2011. He created and funded Oxbridge Academy for $50 million. Speaking of education William also had three degrees from MIT including a doctorate in chemical engineering which was 372 pages and entitled "Flow of Light Gases, Through the Voids, On the Surface, And In The Solid of A Solid Microporous Media" where the citation can be found here from the MIT library. Truly William Koch is an interesting man. 

Billionaire hedge fund manager at 38 retires

Recently, John Arnold announced that he would close his hedge fund Centauras Energy and return money to investors. Arnold is pretty young being only 38 and has been an energy trader for 17 years. Apparently, the fund only made a 4% return for advisors which is not the typical double digits return that John Arnold would return. Last year he returned 9% and made $360 in the process. In 2006 Centauras Advisors earned 300% which was much better than in 2005 when they earned 150% (mostly due to the blow up of Amaranth Advisors).

Arnold got his start at the now defunct Enron. He went to Vanderbilt University where he earned an economics degree and even his professors weren’t surprised when they heard he was earning billions. When he worked at Enron Arnold was a natural gas trader and did very well. In 2011 alone he earned $750 million. Many people and politicians complain that traders create little to no value. However, this is not true. Traders don’t increase prices because they are responding to the fundamental market conditions. In order for a trade to be made there has to be both a buyer and seller. People get enraged when prices of oil increases however don’t even talk when the prices go down which is due to traders like John Arnold.

Arnold is setting off into the sunset quite early. He mainly wants to depend his time and resources with the Laura and John Arnold Foundation which has around $700 million. In 2011 alone John and his wife Laura donated $100 million to various different causes. Really John Arnold is saying is that he does believe he can’t earn the great returns he has been making. Usually financial planning professionals say that you can withdraw up to 4% of your income and still be able to retire. So essentially John Arnold could withdraw $120 million per year which is a substantial amount of money (this would vary depending on how much he gave to charity). Clearly, though there an opportunity cost for Arnold not running a hedge fund. He could be helping other people get rich but has decided that philanthropic pursuits are worth then what he can make in the future. I have a feeling that after a while John Arnold will want to get back in the investing game in some way in the future.

David Koch, Robert Kraft, and Marc Jacobs

I thought this story was pretty interesting. Apparently David Koch and Robert Kraft were at the Met Ball and someone overheard Koch and Kraft discussing Marc Jacob’s attire. The comment was made by Robert Kraft that “I don’t know about the white underpants” and then David Koch responded by saying “I agree, don’t you think he should’ve worn matching black boxers?” People that don’t even like David Koch should agree on this one.

I had no idea who Marc Jacobs was but apparently is a fashion icon within the industry. Although, looking at the photo I posted above I find it interesting that people spend so much money on a guy who doesn't seem to know how to dress himself. David Koch himself from what I have seen seems to dress classy and usually color coordinates with his wife Julia. It seems as if the billionaire is better dressed than the fashion designer. 

Billionaire Index: Outperforms S&P 500

Dr. Joel Shulman of Babson University has published a recent study in Institutional Investor’s Journal of Index Indexing which shows that an index of companies that billionaires managed by individuals on the Forbes billionaires list. I for years have been wondering how an index would have done. Dr. Shulman has done the research and the results. Let’s look at what he found.

When the “Billionaire’s Index” was compared to a benchmark of the S&P 500 the Billionaire’s Benchmark outperformed the S&P 500 over time. From 1996-2011 the Billionaire Index increased a staggering 400%. The S&P was up over 104% during this same period (dividends not included). If you started with $1,000 in 1986 and updated your portfolio every year to match the new Forbes billionaires list you would have ended up with $5,000 by 2011. If you had invested in other benchmarks like the Russell 2000, Russell 3000, or the S&P 500 you would have $2,500 or less. It should be pointed out the Billionaire Index is riskier than indexes like the Russell 2000 or S&P 500. As investors know you should never put all your eggs in one basket.

People often complain how the top 1% keeps getting richer. However, now there is a way to join them. In fact as a shareholder you are part owner in their business! The only problem is I haven’t actually seen a Billionaire’s Index listed on any of the exchanges. Right now Dr. Shulman works for EntreprenuerShares which has some funds yet doesn’t offer a Billionaire’s Index. One problem is that if people knew the Billionaire’s Index returns were very good they would start investing in it which might actually reduce the return. Since the index has only existed in theory and not in practice it is hard to tell how it would have actually done.

The Giving Pledge: Reducing Income Inequality

I feel as if many people misunderstand how the top 1% are important to philanthropy. To be honest some of the largest donors are in the top .001% category. People claim how greedy we are. However, the data shows that the United States is in fact the most generous nation in the world. Let’s look at the data to reveal just how generous we are. According to “Giving US: The Numbers”, in 2010 total contributions to charity were $290 billion. $211 billion of this total amount was made by individuals. Family foundations contributed $19.5 billion while corporate donations were over $15 billion. Clearly, these are some large amounts.

This brings me to my next point of income inequality. True, there is income inequality however inequality exists in so many different aspects of our live. Brad Pitt and George Clooney have an inequality of women they can get or date compared to the average guy. Obese people have inequality in the terms of the calories they consume. Bill Gates has a net worth has a net worth that is over 104,000 times that of the average American. This is something that professor Don Boudreaux at George Mason has pointed out. Sure Bill Gates has a net worth that is 104,000 times the average American however does Gates enjoy 104,000 times more calories or 104,000 times more homes as the average American or 104,000 times happier than the average person . I think the average person tends to believe that Bill Gates life is 104,000 times better than their own given how much money he has. However, I would argue Bill Gates has a rougher life than most. If you look at his work schedule, how often he travels, and people always asking him for money and the stress that creates I think people would still want their old life back. Everyone wants more money, however if you got to the point of having Bill Gates kind of money it would become more of a burden. Also people like to imagine having as much wealth as someone else but never can imagine the work that has to be put in to earn that money. This is what I call invisible inputs yet visible outputs. People see the outputs of wealth or income yet easily forget how much hard work was put in to get to that point.

Bill Gates has amassed so much wealth he is giving most of it away to charity. In fact the second richest person Warren Buffett is giving all of his money to another rich person Bill Gates! Really what is happening is Warren Buffett pledged nearly all his net worth to the Bill and Melinda Gates Foundation. If anything this will reduce income and net worth inequality. Buffett and Gates are signed the “Giving Pledge” which is a pledge to donate at least 50% of one’s net worth to charity. As of 2010, 69 billionaires were signed up to give away and at least $125 billion has been promised by the first 40 donors. Of course this figure should grow since the billionaires will no doubt get richer which will increase the amount that goes to charity. I have a feeling more billionaires will join which will also increase the amount. It would be interesting to see if anyone backs out if the economy were to collapse.

What is interesting however is that Buffett and Gates want other people to not only pledge to give their money away but also pay higher taxes. My own theory on this is that they want anyone else to never become as rich as them. If you favor the estate tax, higher taxes, and for people giving all their money to charity it makes it harder to amassed large sums of wealth which make Buffett and Gates look even better in historical terms. Buffet and Gates are extremely competitive people and it seems as if they want to enhance their legacy from beyond the grave.

Bloomberg Billionaire Index

Today, Bloomberg released the Bloomberg Billionaire Index. The billionaire index is updated every day at 5:30 P.M. will price the net worth of the top billionaires. Before this we had to wait towards the end of the year when Forbes would list the 400 richest people. Forbes has had the Forbes 400 since 1982.

Carlos Slim debuted at the top of the list with $68.4 billion. However, in just one day he lost over $135 million. To most people this seems like an extraordinary amount of money. It should be pointed out however that the rich by definition have to take more risk than regular individuals. You can’t become a billionaire working a 9-5 job. I have no formal psychology training (other than the course I took in high and college) but I would be willing to bet that a large majority of people on the Forbes 400 list or now the Bloomberg Billionaire Index are workaholics. Being a billionaire is a side effect of being a workaholic. What is somewhat irritating is how people complain that people don’t need all this money. Of course, people would like to supersede the voluntarily decisions of millions of people who vote with their feet and their wallets. What seems to be more incredible is that even when people fall into “sudden wealth” they seem to mismanage it. One thing that comes to mind is lottery winners. Often you seem them blow through their money relatively quickly and ultimately file for bankruptcy. It seems as if the 99% when given extreme wealth ultimately end up back in the 99%. Perhaps the universe tends to unfold as it should. I don’t think I have ever heard of a lottery winner who then bolstered their wealth to new heights. Also a majority celebrities and athletes are notorious for blowing through their money.

One thing that is curious is how Bloomberg actually values the net worth of billionaires. Evaluating someone like Warren Buffett or Bill Gates is easy since most if not all of their net worth is in a publicly traded company. However, what about calculating the net worth of individuals that work for private companies? If you compare some of the numbers to Forbes they are different. For instance, Charles Koch on Bloomberg’s list is worth $34 billion yet last year he was worth $25 billion on Forbes. Of course Koch is CEO of Koch Industries which is privately held company. Bloomberg in evaluating the net worth of privately held companies looks at publicly held companies with similar values and price to earnings ratios. This is not a bad proxy but how does it lead Bloomberg and Forbes to be off billions in their evaluation of net worth?

Richard Rainwater: The Billionaire and His Battle

A few weeks ago I read a story about Richard Rainwater and his battle with a potentially fatal disease. Rainwater is probably most famous for managing the investments of Bass family. The Bass family earned most of their money though oil and then diversified into investments. According to an article in Fortune, in 1988 the Bass family was the fourth richest family. The family is responsible for the Sundance Square in downtown Fort Worth, Texas, and the Bass Performance Hall. Rainwater helped the Bass family amass enormous wealth. From the period of 1970-1986 Rainwater turned $50 million into $5 billion or around a 26% annual return. In the process Rainwater himself was able to create a fortune for himself. In 2011, Forbes listed his net worth at $2.3 billion. All of this is now in the past as Richard Rainwater is faced with incurable and fatal brain disease.

Rainwater has a disease known as progressive supranuclear palsy or PSP. The disease itself is very rare but fatal. The average life expectancy is around four and half years. In trying to do something about his disease Rainwater organized his own medical and research team trying to try to come up with some solutions. These days Rainwater has around the clock nursing care and his speech has become incomprehensible.

In addition to all of this, there will no doubt be an issue with Rainwater’s estate. Rainwater planned to give most of his money to his own charitable foundation. He plans to leave each of his children $5 million although one of his sons already has $50 million. Rainwater’s wife Darla Moore who was a former Chemical Bank executive will receive approximately $60 million (this was decided by Darla picking a random figure out of baseball cap). There will be no doubt there will be an estate battle here.

The tragic thing however is how an energetic billionaire can rapidly transform into someone who needs 24 hour care help. Although, the odds don’t look good for Rainwater hopefully with him self-financing his own disease may be able to benefit other people or at the very least shed light onto PSP which seems to be related to dementia and Alzheimer’s. I had been hoping that Rainwater would publish a memoir but now I think that is out of the question given his condition. Money at this point doesn’t matter to someone like Rainwater. For Richard Rainwater his most scarce resource is time.