Where and how do the super wealthy invest?

[NW-Bound]

I think the biggest factor in the unavailability of private deals to retail investors is the hassle factor. If I am a promoter, my goal is to fund my deal with a few large checks written by investors who will not turn into high-maintenance customers. The last thing I want to do is to sell to an army of tiny investors, some of whom are guaranteed to turn out to be clueless and crybababies. An important corollary here is that any deal being offered to the retail market is almost guaranteed to be stinky since if it was any good it would have been snapped up by the heavy hitters.

Yes. Hence, I have never bought any IPO. The companies may not be all bad, but way overvalued. If the price were good, they would not offer it to the laymen. It's not to say that there's no IPO that does not turn successful later, but the point is that one should not clamor after any IPO, any SPAC.

And even venture capitalists get burned with dumb deals like Theranos. Of course, there are more startups going under that we don't know about.

 

[NW-Bound]

Still sounds like Cooperman is not able to enjoy the wealth he has accumulated:

"Their Florida home had a custom-built infinity pool, and in five years he’d never once gone in for a swim."

Were I anywhere near his financial position my "home office" would be a hammock somewhere on a Caribbean island.

I don't know about this man's health, but he's 78.

I am a lot younger, and for many years, I maintained our pool without going into it. Just rediscovered swimming last summer, when we had the company of my 5-year-old grand niece.

 

[OldShooter]

Yes. Hence, I have never bought any IPO. The companies may not be all bad, but way overvalued. If the price were good, they would not offer it to the laymen. It's not to say that there's no IPO that does not turn successful later, but the point is that one should not clamor after any IPO, any SPAC. ...

+100

For any IPO that is really good, the IPO underwriters will have sold it out to their big customers and favored customers. Retail investors will not get an allocation. Little guys are free to bid it up in the aftermarket, though, thus giving their money to the underwriters' friends.

 

[NW-Bound]

As an active investor, I never wasted time looking into IPO. I would rather try to find opportunities like Home Depot, which doubled in the two years of 2020-2021 when cooped-up people spent their travel money on home updates.

Of course, the reason for HD to have excellent sales was clear only in the rearview mirror, but the point is that I think my chance of spotting things like this is better than getting a good deal on IPO.

 

[foxfirev5]

Likewise never an IPO. Furthermore since I don't have the ability to spot anything I no longer do individual stocks. VTSAX/VTI for growth. Just plodding along and satisfied.

 

[ExFlyBoy5]

I think you're being overly paranoid here. "Rules/laws" relate mostly to investors being "qualified" and are attempts to protect the naïve and those who can't afford to lose money on risky deals. Limited partnerships are no big deal; I have been in several small local ones with investments of $20-50K. Lately the LLC format has been more popular but, regardless, they are not highly correlated with large wealth IMO.

I think the biggest factor in the unavailability of private deals to retail investors is the hassle factor. If I am a promoter, my goal is to fund my deal with a few large checks written by investors who will not turn into high-maintenance customers. The last thing I want to do is to sell to an army of tiny investors, some of whom are guaranteed to turn out to be clueless and crybababies. An important corollary here is that any deal being offered to the retail market is almost guaranteed to be stinky since if it was any good it would have been snapped up by the heavy hitters.

No, perhaps I wasn't clear...I wasn't being paranoid. I was speaking to those investments that are only open to accredited investors or those "in the know"...the private equity firms, etc. Many LPs are in literal clubs together and share information. Not sure what the entity type (you mention the LLC) matters, though.

To your point, most of the better deals are certainly going to be snatched up before looking for retail investors. We have been able to invest in a few smaller companies as LPs but only because of knowing someone who knew someone and "getting along" well enough to establish a relationship with that person that grew into investing with them.

And IPOs? A game for suckers.

 

[livingalmostlarge]

depends on how they made their money. Did they earn it? Or inherit in? Big difference I can tell. People who made it tend to want more and invest in other startups and are constantly active and making it (think gates, bezos, musk, buffet). But people who inherited piles of money? Not so much.

 

[OldShooter]

... To your point, most of the better deals are certainly going to be snatched up before looking for retail investors. We have been able to invest in a few smaller companies as LPs but only because of knowing someone who knew someone and "getting along" well enough to establish a relationship with that person that grew into investing with them.

And IPOs? A game for suckers.

Agree completely. My comments were, without really thinking about it, about the larger deals sold through retail brokers. We, too, have invested in a number of local deals mostly where we knew the principals. Those can be available to retail investors and be good deals simply because they are too small for the big guys.

Once, a long time ago, I got a fancy 4-color brochure in the mail and a follow-up prospecting call. I told the sales guy that any deal that needed 4-color brochures to sell was guaranteed to be a stinky deal and sent him on his way. The info for every deal we've been in has come laser-printed on plain white paper.

 

[marko]

depends on how they made their money. Did they earn it? Or inherit in? Big difference I can tell. People who made it tend to want more and invest in other startups and are constantly active and making it (think gates, bezos, musk, buffet). But people who inherited piles of money? Not so much.

True. I went to school with a bunch of trust-fund kiddies. Their main concern is holding onto what they've got, knowing, in their quiet moments that they could not even begin to know how create the wealth they're enjoying.

But it's a crap shoot: some go off to be model citizens, philanthropists, doctors etc and others are complete wastes of life (or dead or should be dead).

 

[HarryHawk]

What's your definition of "super wealthy", OP? I know people at $XM, $XXM, $XXXM, and $X,XXXM.

Simple answer, anyone with alot more money than I have. I asked the question because I think there is something to be said for the value of looking at people who do well at you want to do.

There are alot of general pearls of wisdom that get discussed --

+ You don't need someone to manage your money
+ Invest in a good investment and stay the course in good times and bad
+ Don't try to time the market
+ Don't take risks
+ Don't be afraid to take risks
+ etc

I just wonder if this is how people who have accumulated (or retained) wealth manage their affairs. I realize there is probably no answer to the question, but any insight is helpful since I have no feel for how people who are very good at managing money tend to do it.

The discussion has been very informative and given me at least some good insight.

Thanks to all.

 

[ExFlyBoy5]

I read the WaPo article on Cooperman and towards the end there was a quip about his brother. Personally, I think the brother had the better deal in retirement that the Cooperman has.

For years, he’d been doing these daily walks with his brother, Howard, until he died in December at age 85, and lately Cooperman had been thinking back over their lives. Cooperman had chosen to wake up at 5:15 each morning and devote 80 hours every week to his work, taking off only the Friday after Thanksgiving. His brother, meanwhile, had chosen not to go to college and then retired as soon as he could. He preferred to play racquetball, go to the casino with friends and volunteer as a wheelchair transporter at the hospital. Cooperman had ended up with his billions and his name on top of the hospital entrance; his brother had died with relatively modest amounts of money but with a cellphone loaded with numbers for dozens of close friends.

 

[Winemaker]

I think a lot of wealthy people are business owners/investors that are very competitive. It's in their blood/genes, as is professional athletes. In fact several wealthy professional athletes have gone on to become franchise/ auto dealership/ business owners; they enjoy the rush of being "in the game" one way or another. And if you're in a particular market/business, they always want to be on top. Someone always is painting a target on your back.


That being said, I have an acquaintance that belongs to my church, and is a family friend. He is a business consultant; he makes his dough advising personal and public companies how to streamline, optimize, repair or build businesses. His side gig is a vacation rental home business, where he rents multifamily houses in prime vacation areas up and down the east coast. Some of his places go for $25,000/week and up depending on location. One of the nicest guys I've ever met.

 

[NW-Bound]

True. I went to school with a bunch of trust-fund kiddies. Their main concern is holding onto what they've got, knowing, in their quiet moments that they could not even begin to know how create the wealth they're enjoying.

But it's a crap shoot: some go off to be model citizens, philanthropists, doctors etc and others are complete wastes of life (or dead or should be dead).

How did the original rich ancestors set up the trust funds for their descendants? They did not trust that the wealth could be properly managed.

 

[Retireby45ish]

This self-made billionaire, at 78, sits in his office all day monitoring his money, while his wife goes out and luxuriates. No matter how much he gives away, he keeps making money. It sounds like he has a full-time money manager doing all the work, and checks in with him all day long. The billionaire also goes out and gives talks to students and others, seemingly about why it's not immoral that he has tons of money, while many others have little.

https://www.washingtonpost.com/nation/2022/01/30/moral-calculations-billionaire/

Wow, I would not spend my time doing that (glued to a trading desk) if I already had all that. A very interesting read. Thanks for sharing.

I also got a chuckle at the fact that he was looking for sale meat at Costco. Come on buddy, that’s just silly.

 

[Amethyst]

It's clear that his job and his hobby are one and the same. He simply loves to sit at his desk and manage his money.

Loving what you do is probably the biggest key to self-made money. While it doesn't guarantee you will be rich (or even make a living), I bet it's really hard to attain billions unless you purely love the process. So, for him there's no desire to retire until Nature compels it.

Wow, I would not spend my time doing that (glued to a trading desk) if I already had all that. A very interesting read. Thanks for sharing.

 

[Stormy Kromer]

I've met one billionare (that I know of) in my life. Nice guy.

I was in the local meat market looking to get some ribs, he bumped into me and apologized. He was dressed about like me (not real good) and he noticed my Fire Dept. hat that I was wearing. I was an a 24 year veteran of the Dept next to his and he wanted go buy my check because he said he appreciated me protecting his properties. I told him, Mr. Roooo faaan. Please donate it to our Fire Dept. instead. He did..... times 100.

Not all rich guys are jerks.

 

[luckydude]

Simple answer, anyone with alot more money than I have. I asked the question because I think there is something to be said for the value of looking at people who do well at you want to do.

There are alot of general pearls of wisdom that get discussed --

+ You don't need someone to manage your money
+ Invest in a good investment and stay the course in good times and bad
+ Don't try to time the market
+ Don't take risks
+ Don't be afraid to take risks
+ etc

I just wonder if this is how people who have accumulated (or retained) wealth manage their affairs. I realize there is probably no answer to the question, but any insight is helpful since I have no feel for how people who are very good at managing money tend to do it.

The discussion has been very informative and given me at least some good insight.

Thanks to all.

DW and I are not super wealthy (which I define to be $100 million+) but we broke through the UHNW level last year due to a good-sized legacy + concentrated bet on RE (land) that has appreciated greatly. We expect that as our RE holdings continue to appreciate due (sub)urbanization + two more 8-figure family legacies coming my way (yes, my username checks out), we will eventually break through the $100 million barrier within the next decade or so.

RE your point about not needing other people to manage one's money, we are finding our financial affairs increasingly more complicated to manage as our NW has increased significantly. Relatively straight forward estate planning (e.g. will and living trust) no longer suffice and we're exploring other, more complicated vehicles such as FLP to hold and pass down our assets. Tax planning becomes much more complicated. We consider ourselves fairly educated in these matters (DW is CPA), but we've sort of hit a wall at this point with DIY and are looking at building out a team to help us (and eventually our heirs) manage things going forward. So yes, we still make all the investment decisions, but we're finding that we do need professional help to handle other, equally critical aspects of wealth management simply because we no longer have the time/required in-depth knowledge to do so.

I find that at higher NW level, we can afford to make more concentrated bet with a longer time horizon for payoff (which I define to be 20+ years). We can afford to take more risk with our investment strategy (generally RE) and have extra fund for diversification such as gold and arts (although we don't do more esoteric stuff like cryptos). And as we can afford (and usually do) hold a very large cash position, we are able to "time the market" to some extent by buying on the dip on a larger scale, be it equity or RE.

 

[Bruno]

I would say Warren Buffet is mostly in stocks.

 

[HarryHawk]

DW and I are not super wealthy (which I define to be $100 million+) but we broke through the UHNW level last year due to a good-sized legacy + concentrated bet on RE (land) that has appreciated greatly. We expect that as our RE holdings continue to appreciate due (sub)urbanization + two more 8-figure family legacies coming my way (yes, my username checks out), we will eventually break through the $100 million barrier within the next decade or so.

RE your point about not needing other people to manage one's money, we are finding our financial affairs increasingly more complicated to manage as our NW has increased significantly. Relatively straight forward estate planning (e.g. will and living trust) no longer suffice and we're exploring other, more complicated vehicles such as FLP to hold and pass down our assets. Tax planning becomes much more complicated. We consider ourselves fairly educated in these matters (DW is CPA), but we've sort of hit a wall at this point with DIY and are looking at building out a team to help us (and eventually our heirs) manage things going forward. So yes, we still make all the investment decisions, but we're finding that we do need professional help to handle other, equally critical aspects of wealth management simply because we no longer have the time/required in-depth knowledge to do so.

I find that at higher NW level, we can afford to make more concentrated bet with a longer time horizon for payoff (which I define to be 20+ years). We can afford to take more risk with our investment strategy (generally RE) and have extra fund for diversification such as gold and arts (although we don't do more esoteric stuff like cryptos). And as we can afford (and usually do) hold a very large cash position, we are able to "time the market" to some extent by buying on the dip on a larger scale, be it equity or RE.

Thanks for taking the time to share your thoughts. Personally speaking, your input was interesting, useful and reassuring. I've settled on a similar model, albeit on a smaller scale. Glad to hear it is working well for you.

p.s. I also consider myself to be a lucky dude, I've been blessed far beyond my wildest expectations.

 

[OldShooter]

I would say Warren Buffet is mostly in stocks.

Buffett is thought of as a stock picker, but his wealth began with buying and running companies. If you're interested I know of two bios: "The Snowball" and "Buffett." They are interesting reading, particularly about his early years working with Ben Graham and learning value investing. The books are quite complimentary, with "Buffett" being the older one.

As a stock-picker in recent years he has not done all that well. It's something like 8 years since he has beaten his benchmark.

So I'm not sure we want to look to him as a model for UHNW investing.

 

[pjigar]

They had to do something right to get that $150M. Then, once they have it, why should they convert to [-]cash[/-] gold to hide under their bed? They just continue to do what they do.

That's what I would do. No need to take risk, but no need to go hide either.

That is how I have seen people ( I personally know) wealthier than me behave. They keep doing what they are best at, only bigger. They diversify along the way, they dream big and take bigger risks. I am talking about the self-made wealthy people. Old money might behave completely different. YMMV.

 

[COcheesehead]

I have a friend who won a large judgement to the tune of about $68 million. Not sure if that qualifies as super wealthy, but to me it is.
He no longer works. Has a firm manage his money. He every once in awhile will build a multi million dollar spec house and flip it. They travel a lot and generally have no money worries.

 

[Delawaredave5]

Great book called "millionaire next door" - majority of wealth is small business owners - most of them are "all in" and their business is majority of their wealth

 

[COcheesehead]

Great book called "millionaire next door" - majority of wealth is small business owners - most of them are "all in" and their business is majority of their wealth

I owned a small business and eventually sold it. Started it from dirt, ran it for 24 years. When I finally sold, about 20% of my wealth was equity in the business. Another 20% was equity in the building that it was housed in that was owned separately in an LLC I had and the other 60% was from saving and investing until I retired in 2020 at 57.

 

[luckydude]

Thanks for taking the time to share your thoughts. Personally speaking, your input was interesting, useful and reassuring. I've settled on a similar model, albeit on a smaller scale. Glad to hear it is working well for you.

p.s. I also consider myself to be a lucky dude, I've been blessed far beyond my wildest expectations.

Sounds like you're well on your way as well. Just want to share a couple of other thoughts:

I think for those people who have achieved a significant level of wealth (however that's defined), they usually get there doing something they are good at, whether it's owning or running a business, pursuing a tried and true investment strategy, etc. So at that point, creating wealth isn't an issue for them because they already know how. They may branch out to other investment options for diversification purpose, but in general they can stick to what they're good at in terms of creating wealth and continue to be successful.

But it's one thing to create wealth, and quite another to "manage wealth," which I think it's equally important but doesn't get discussed nearly enough. An effective wealth management strategy consists of tax planning, estate planning, and risk mitigation (i.e. protecting against lawsuits, reducing risks of business and personal liability, and utilizing strategies such as umbrella insurance and corporate/partnership entities for asset protection). I think it's important to have this wealth management "infrastructure" in place as soon as possible and make it scalable as one's wealth grows. That means identifying a team of professionals who can provide these kinds of services and be willing to pay top $ for a good team. These resources don't come cheap, but if done right, they are worth their weight in gold because they can save you huge amount of money and hassle down the line.

Another thing I would suggest is to have a "back-up" plan if case things go south. For me, that means always having around 20-25% of my NW in liquid form invested in broadly diversified index funds, enough for me and DW to FAT FIRE comfortably based on a target SWR even if my concentrated bet on RE goes south for whatever reason.

Best of luck on your wealth creation journey