PeterTaradash says: $50,000 a year if he is very lucky. Probably a lot less!
Comment by R.F., Texas: $100 million generating $50,000 a year? That’s a yield of 0.05%… that’s 1/2 a percent… that is no where near realistic. With that kind of money he should be seeing is at least 6 to 10% returns. Check your math.
Peter continues . . .
Let’s say I know someone who back in 1985 who had a net worth of 500 Million. He started to cash out his active businesses then. I have been following his passive investments thereafter very closely:
He lost 20% of his net worth (his entire investment of 100 Mil) on Long Term Capital Investors who were a bunch of Nobel Prize Winners who were “infallible.” They were supposed to make at least 50% a year. Instead they lost 100% of all their investor’s money in a year. Were the investors all stupid? No! All were Ultra High Net Worth Individuals— supposedly sophisticated, intelligent investors with a minimum of $20 mil to invest. Everybody lost everything. So much for the myth that (all) the rich (all) get richer. Later (below) I will talk about which rich get richer & why.
Our friend also lost 40% of his net worth in the dot com crash even though he was diversified into carefully chosen highly recommended internet stocks, not the hotshot ones. Only Amazon came out of the conflagration still standing. He lost over 70% on safe guaranteed Argentine Dollar bonds! He lost 60% on his stocks in the crash of 2007–2009. Everything went down on average 40% but his stuff went down even more (66%) . Goldman Sachs (supposedly run by the brightest guys in the Universe) went from $250 per share to $50.. He sold (at the market bottom of course) to avoid becoming dead broke.
He diversified with what he had left after that into gold mining stocks worldwide, agricultural commodities, Philippine stocks, Emerging Market stocks, Russian, German and British stocks. Lost another 40%. Still holding. Still dropping.
His Filipino stockbroker went bust. His USA broker (Lehman) went bust. His Swiss Bank the oldest one in the country (Wegelen) went bust.. His investment in America’s biggest insurance company AIG—also down the drain. These losses were due to “counterparty risk.” Happened when outfits thought to be too big, too solid, too old to fail—- failed…
Fortunately he lost very little (by his standards) with Madoff, the retired respected ex-head of the American Stock Exchange. Then he bought farms (managed by others) and land in Argentina, Brazil plus a resort in Mexico, rental properties in Panama, Barcelona, the Riviera & on and on. All were, and still are money losing disasters. Some depended on Air BnB rentals which was outlawed in those places where he owned them as short term rental properties.
Even Campione, the safest city & one of the most prosperous cities in the world in the world has seen his income real estate plummet in value to the point where it is under water — worth far less than the loans on them. Reason was simple. The main business in the town, the Casino (largest in Europe!) went bankrupt, is now (2018) totally closed. Nobody could ever imagine that happening. As a result, half the bars and restaurants in the town have folded —with more to follow. Almost all (but 3) of the 30 stores in the town are shuttered & vacant as is most of the rental property. No buyers at all! The once lively, prosperous town is dead.
Reminds me of Dubai’s Demise a few years back — where fortunately he looked, but did not invest.
While our hero made over a million a month in his various businesses, since he retired and went into “passive investments” requiring no work, as an “armchair investor” he has lost an average of over 12% a year since 1985.Some years the paper losses were up to 75% of his net worth. Some investments have made a comeback, but quite a few are dead losses. Naturally not everything tanked, but the stuff that has gone down & come back can’t be sold today to come anywhere close to covering his losses. So where is that 10% return you speak of? Vodaphone stock offers a 9% dividend currently, but will it be around in a few years?
Staying in cash? For your information, the better Swiss and Liechtenstein banks not only don’t pay interest, they CHARGE 1% a year —sometimes more— for holding money in the local currency. They get away with it because the Swiss Franc generally appreciates more than the dollar or Euro. My friend’s CHF cash holding has been his only bright spot. The Swiss Franc used to be USA$ 25 cents.Now it is worth over a dollar. But if you live in Switzerland, the appreciated franc doesn’t buy any more than it used to. So where’s the gain?
Interest on money in USA banks (around 2% a year) is highly taxed as “unearned income.” What is left after taxes and inflation is a negative figure— worth less than the no interest paid on CHF in Switzerland.
The above story is why I rant and rave that passive investments are deadly. No 6% to 10% returns! Sure, a few people may go into a casino with $1000 and come out with $10,000. But there are more who go in with $10,000 and come out with nothing. The rich who get richer all have businesses they run. Few are passive investors. Passive investments like stocks, bonds or cash in the bank is IMO—strictly for suckers.
Finally, a *guy from your neck of the woods (Austin Texas) managed a big portion of this guy’s liquid assets putting this investment a couple years ago into physical precious metals (gold-silver platinum) , rare earth, uranium, gold & silver mines. This portfolio is now two thirds down (on paper anyway). He says “Hold on; in the long run it will roar back.” I’d call that irrational exuberance & probably false hope. Anyway, in the long run, we are all dead.
So if you can get 6–10% returns, this guy told me he will pay you 50% of whatever you earn over 5% a year. But only if you will accept the responsibility for 100% of any and all losses you incur. You can have $20 Million to start managing, and as it grows, you will, at your estimate of up to 10% a year soon be making for yourself around $400,000 per year. Not bad contingent fee commissions. Will you soon be a multi-millionaire? Let me know how it works out.
He had the same deal with the *chap in Austin you may know who now owes him $20 million … His money manager doesn’t have it of course, and my friend will probably never see all that stuff come back. Especially as a lot of his investments with the Texas guy are now expired “out of the money” options. They are dead.
Put this story in your pipe & smoke it. Don’t tell me that some people like him just have “bad luck.” Wrong. When you don’t take an active role in managing your own assets in an active business. NO! You are more likely to to make a small fortune — out of a big fortune unless you work at it. Warren Buffet is anything but a passive investor. You don’t lose most of your fortune because of particularly bad luck, you will lose it with just average luck.
PS- My pal (above) recently went back into his own old business to try and recoup.