Contributed by: Lewis J. Walker, CFP®
The Wall Street Journal, Obituaries, 7/9/16, profiled Jona Goldrich, 1927-2016. As the paper noted, Mr. Goldrich, a “Holocaust survivor came to the U.S., took a bus to Los Angeles, cleared rubbish from construction sites and then built a real estate empire based largely on low-income housing.” Mr. Goldrich’s journey from Nazi terror to self-made riches in America is inspiring.
Arriving in Los Angeles with little money, he stayed in a downtown hotel on $1 per night. He spoke heavily-accented English and had no business or other connections. He started with menial jobs, fixing windows and screens, and eventually cleaning up construction sites. An astute observer, he decided he could be a builder and he founded a development firm in 1956. He died at age 88 with a net worth in the hundreds of million dollars, despite generous gifts to charity.
What struck this writer is the fact that Mr. Goldrich was frugal and risk averse. His motto: “Don’t tell me how much I can make. Tell me how much I can lose.” That’s a useful philosophy as investors wrestle with goals and objectives in a world of risk.
We know about stocks, that they are volatile. If you own a large position in one stock, if the company goes bankrupt, you can lose your entire stake. We saw heavy losses to owners of bank stocks in Georgia following the 2007-2008 credit crunch bust. But if you own a reasonably diversified equity portfolio, it is not likely that every company would go broke. However, we know markets move up and down, and the pain of a “20% down move” greatly eclipses the joy of a “20% up move.” In any financial planning exercise regarding liquid or non-liquid growth- or income-oriented capital, strategies should be in place to deal with volatility.
As part of a “bucket approach,” it is desirable that one have enough ready cash and other low risk assets such as bonds (high quality, shorter maturities and duration in relation to the yield curve) so you can deal with emergencies and run your life for a time without having to sell stocks in a down market.
There are other asset classes, such as “private equity,” that have unique risks. Often such offerings involve real estate in one form or another. Such ventures may involve the construction of new properties, for lease up and sale or for the long term generation of cash flow. Certain net worth and/or income levels are required as regulators want to be sure the investor understands the risks and has sufficient net worth to tolerate the risk. Such investments are offered by prospectus which detail risk factors. Often such investments require $25,000 to $50,000 minimum investments.
Whether you are working with an advisor, or evaluating a personal investment on your own, the Goldrich motto comes to the fore. Someone might try to dazzle you with tales of riches, but don’t let anyone blow smoke that clouds your judgment. While razzle-dazzle is an automatic red flag, your approach should be, “Don’t tell me what I can make, tell me how much I can lose.”
Let’s say you are willing to invest $25,000 in a venture. While an honest adviser would not offer an investment he or she did not believe in, but as there are myriad ways an investment could underperform or outperform, the best answer is, “If you lost your entire $25,000 investment, would that imperil your lifestyle or leave you or your family in difficult straits?” If the answer is “yes,” do not invest.
Investors like Mr. Goldrich learned to take measured risks, because without risk, there is little to no positive reward. Jona Goldrich is an inspiration because he took personal risks early in a new country and a strange city. He worked hard in menial jobs just to learn and get ahead. Stable and dependable, he was married to his wife, Doretta, for 56 years and had a lovely family. His is a story we can learn from.
“Well done, my good and faithful servant.” Rest in peace.
Lewis Walker is a financial planning and investment strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Capital Insight Group.