Read The Very, Very Rich and How They Got That Way Online
Authors: Max Gunther
The Very, Very Rich and How They Got That Way (32 page)
Fred Turner replies that nobody eats McDonald’s food as a regular diet. But Professor Mayer recounts what he heard from a dietician at a veterans’ hospital at Martinez, California. “She told me World War One vets are strictly meat-and-potatoes men. World War Two and Korean vets like a more balanced, varied diet – vegetables, fruits and milk. But Vietnam veterans don’t eat meals at all. They don’t eat breakfast, just pull the blankets up over their heads and go back to sleep. Then, late in the morning, they start getting hungry and begin munching hamburgers, hot dogs, french fries and soft drinks. They’d probably eat every meal at McDonald’s if they could.”
The same point is borne out in a strange batch of letters piling up in a drawer at McDonald’s headquarters. If this mail is to be believed, the young men fighting in Vietnam are not dreaming of home-cooked meals as their predecessors did. What they are dreaming of is well illustrated by this plaintive appeal, which McDonald’s unfortunately was not able to satisfy:
“Dear sirs:
“We are the 1st Platoon of Bravo Company, 4th Battalion, 21st Brigade, Americal Division. We are the infantry. They call us grunts, and we hump in the jungles and rice paddies. Eating C rations is no treat, and grunts are always hungry for some good Stateside food. While thumbing through
Look
magazine, we found a picture of a “Big Mac” hamburger. First Platoon would like to order 50 Big Macs. We know this is a weird request, but we’re so awfully hungry for a good hamburger that we do desperate things like this. When we get back to the world, that will be our first act – going to McDonald’s for a burger and a shake. If you could fill our request, we would be forever grateful.”
9 Copyright © 1971 by the New York Times Company. Reprinted by permission.
[return to text]
A popular sport among high-school and college students is that of assessing each other‘s potential for future success. Almost every class yearbook ever published contains a nomination of the student deemed “Most Likely to Succeed.” The Most Likely student is usually one who has combined academic excellence with a whirl of extracurricular activity. He’s the kid who organizes dances, raises funds, gets elected to high posts in the student government. The big man on campus. The busybody. His fellow students don’t necessarily like him to any great degree and may even consider him a damned nuisance. He seldom wins the title of Most Popular or Most Sexy or Most anything else. He is simply the student who, at this early age, most visibly exhibits the traits – the go-get-’em drive, the frantic pace – that are felt to lead to success in the adult world.
Somewhere, however, something is wrong. Of all the immoderately successful men we’ve studied in this gallery, only one – Benton – was clearly a Most Likely type of kid. One or two others – Paulucci, perhaps the Levitt brothers – might have been voted Next Most Likely if the competition wasn’t too formidable. The rest were clearly out of the running and many, indeed, might have claimed the title of Least Likely or even Absolutely Impossible.
It turns out, as a general rule, that highly successful men tend to be late bloomers. The success drive, whatever it may be, may exist in them during their school days but somehow doesn’t find expression in the school society. They tend to be quiet kids at best, academic flops at worst. Not until the third decade of their lives – the decade between age 20 and age 30 – do most of them begin to show signs of being more than ordinary men. Some even remain semi-dormant until the fourth decade.
Let’s briefly recapitulate the academic achievements and early careers of the men we’ve studied:
Benton.
Most Likely type. Brilliant scholastic record. Graduated from college and progressed evenly, smoothly upward from there. At age 25 held a salaried job; at 30 was running his own company; at 35 had so much money that he was ready to retire.
Stone.
Distinctly Unlikely. Undistinguished school record. Didn’t get along with teacher. Dropped out of high-school. But by age 25 owned a successful small company, and by 30 was a millionaire.
Hirshhorn.
School dropout. Millionaire by age 30.
Cornfeld.
Graduated from college with a good school record but few other claims to Most Likelihood. Gloomy, social-protesting type. Began career as social worker. Didn’t find his stock-market career until his late 20s; began to grow rich in his early 30s.
Hughes.
Mediocre academic record. Other kids in school hardly noticed he was there. Had money and leisure to attend college but refused. But by 25 had multiplied his patrimony into the multimillions.
Getty.
Graduated from college without unusual distinction. Quiet kid. Thought he wanted to be a diplomat or writer. But drifted into the oil business and by 25 had made his first killings.
Lear.
School dropout. Millionaire by age 30.
Land.
Studious intellectual but lacked the Most Likely kind of drive. Finished high-school but dropped out of college. Millionaire by age 30.
Ludwig.
School dropout. Spotty early career. Was broke much of the time until around age 40.
Ling.
School dropout and teenage bum. But had a prosperous small company going by age 25 and was a millionaire by 30.
Hilton.
Ordinary, undistinguished school career. Dropped out of college with thoughts of being a small businessman in a small New Mexico town. Only moderately well off at age 30, but a multimillionaire by age 35.
Levitt brothers.
Graduated from college without knowing exactly where they were going. Small-time builders in their 20s; millionaires in their 30s.
Turner.
School dropout. Bounced around with discouraging results in his 20s. Hit the big time in his 30s.
Paulucci.
Busy kind of kid, junior promoter; succeeded socially and academically in school. Dropped out of college. Made a good income most of his life but didn’t approach millionairehood until his late 30s.
Kroc.
School dropout. Knocked about for years, a conspicuous failure. Didn’t find his career until age 35 and didn’t become rich until after 40.
It seems significant that half these fabulously wealthy men are high-school dropouts and fewer than a third bothered to finish college. But significant in what way? What does it mean?
One possibility, which we’ve poked at before (chapter 5), may be that American schools teach little or nothing that directly prepares kids to be capitalists. Many people seem to think so at any rate, for after school they seek fortune teachers to give them the missing lessons.
A second possibility may be that the school social environment is wrong for the kind of youngster who will become a capital gatherer. Something in his psyche makes him a misfit; the environment is set up in such a way that he can’t succeed in it. Maybe he doesn’t like sitting and passively absorbing lessons taught by adults. Maybe he can’t get interested in the work because his emotional makeup demands immediate, tangible rewards such as money – rewards that are handed out only in the adult world, not in schools. Maybe he is troubled by the tightly organized school society. He wants to control his own destiny, but other people have been granted the power to tell him where to sit, what to read, when to arrive and depart.
A third possibility is that the capital-accumulating type of mind (if there is such a thing) may simply take longer to mature or turn on or gain oomph than other kinds of minds. Or – what amounts to the same thing – this slow-developing kind of individual for one reason or another tends to be attracted to the capital-gathering idea after he is pushed out into the adult world.
There is some scholarly evidence – though admittedly not much – to support the observation that the rich are late bloomers. Some years ago a New Jersey school psychologist, Dr. Paul Feldman, attended the tenth-anniversary reunion of his own college class and was saddened to learn two odd facts. The man voted Most Likely to Succeed had mismanaged his affairs so badly in the intervening ten years that he had run out on a large debt, deserted his family and disappeared. The woman voted Most Likely had been divorced twice and had become an alcoholic.
Feldman wasn’t observing anything startlingly new. At thousands of other class reunions down through history, before and since, returning wanderers have noted that not every classmate turned out as predicted in the rosy dawn of youth. The typical reaction to such a discovery is to shrug, utter a few philosophical banalities and pour another drink. Feldman, however, decided to pursue the matter a little further. He went through a bundle of back-issue yearbooks from several high schools and colleges, then tracked down the Most Likely students to find out what had actually become of them.
It turned out that the Most Likely were, on average, among the least successful in actual post-school performance. “It is a peculiar fact, often noted,” he wrote, “that the most successful adults, at least in terms of our current money-oriented standards of success, are often men and women who, as students, made the least favorable impressions on their classmates. These are the classroom’s social misfits, the shy and the awkward, the ‘oddballs’ and ‘weirdos.’ By contrast, those students who shine the most brightly in the school’s firmament, the ones who impress their peers as being destined for great success, do not in fact reliably go on to fulfil their apparent promise.”
Why not? Dr. Feldman speculated that the Most Likely type may, in effect, burn himself out early, while the oddballs and weirdos and other misfits gather momentum slowly and explode to prominence later in life. Feldman also speculated that the school environment may be so unlike the adult world that it takes entirely different personality types to succeed in each. A personality that succeeds in one environment will not, for that very reason, find it easy to succeed in the other.
Men such as William Benton – absolute conquerors of both environments – are rare. It might even be argued that Benton doesn’t belong in our gallery, for he is not a true capital gatherer. Of all the men we’ve studied, Benton is the only one who didn’t really want to be very, very rich and didn’t try to be – and still volubly insists that he isn’t. He got rich by accident. On this basis it could be argued that he is no exception to the rule: The great capital collectors don’t shine when they’re young.
What does all this mean to you and me? Perhaps that we still have much to hope for.
Our lives may not have started off with a bang. We may have shambled through school with so little distinction that, at the next reunion, nobody will remember who the hell we are. The comments beneath our yearbook pictures may reflect more politeness than enthusiasm. We may be humble wage or salary earners, doomed, it might seem, to oblivion.
But no matter. It is possible to bloom at any age. And if great wealth is what we seek, evidently it is better to bloom late than early.
It was December 1970. Times were tough. The stock market had just come through one of the worst slumps in its history. The nation was in the grip of a severe and stubborn recession. To many who were without work, it was even worse than that; it was a plain, old-fashioned depression. The golden years of the 1960s were over, and nobody knew how long it would be till we saw the next glint of gold in the distance.
In the midst of all this gloom the editors of the
Chicago Tribune Magazine
sent reporter Richard Gosswiller out into their city’s cold and windy streets with an engagingly cheery question. It was a question that assumed the return of golden years at some undetermined time in the future, and no doubt it encouraged some of the
Tribune’s
readers to think about those years instead of brooding about the flat, bleak present. Gosswiller’s assignment was to seek out some of Chicago’s wealthy men and ask each, “If you were a young man today and you had $5000 to invest, what would you do with it?”
Their answers were diverse. Instructive, too, perhaps. Obviously, as we’ve noted before, it doesn’t necessarily follow that a man can teach a thing simply because he has done it. Not all Gosswiller’s rich men may be wise counselors. Some of their advice could lead students to bankruptcy or (what may be nearly as bad) the unhappy state of standing still while everybody else is making killings. Still, it’s probably safe to assume that rich men’s advice on getting rich is better, on average, than advice from the unrich.
The first man Gosswiller talked to was our old friend Clement Stone, who needs no introduction. The others are introduced as they step onstage. Each man began by answering the
Tribune’s
basic question, and Gosswiller then followed up with further questions for clarification.
Here is what nine rich men of Chicago think you should do with your seed capital.
W. Clement Stone
Chairman Of The Board
Combined Insurance Company Of America
If you know me and my operation, you know what my answer will be. If you want to sleep and grow rich, you’ll own Combined Insurance Company shares. When you stop to consider that a $10,000 investment back in, oh, ’51, would have a market value of close to $10,000,000 today, that’s not a bad deal.
Do you mean that if you were a young man with $5000, you’d plunk down all of it into shares of one company?
If I knew about this company’s management and about where the company is going, I would. Other companies are showing less gross income right now whereas we’re showing greater gross income, greater profits.
You mean, if you were a young man reading about companies and you came across Combined . . . ?
Boy, I’d jump at it.
You’d jump at it?
Oh, my, yes.
The whole thing?
Absolutely. And I’ll tell you why. I’m a salesman, and as a salesman I can make an income. If I were investing now, and that was your question, I would invest in what I feel would be a sure thing, by virtue of experience, by virtue of management, by virtue of where the company is, by virtue of where apparently it’s going.
Your stock is at 39 or 40 today. . .
We’ve just declared a stock dividend. We’ve been declaring stock distribution every year for many years.
How much has it gone down in the past year and half?
I would say between 20 and 25%. So it’s a real buy at this time.
Despite the decrease?
I would say that for the investor – that was the word you used, not speculator – even at the 1968 high, it would have been a good buy, because the investor doesn’t buy today and sell tomorrow. Stocks go in cycles and anyone thinking in terms of three or four years will do well. I’m chairman of the foundation for the Study of Cycles, and I’m buying many shares of various stocks for our company and others.
But you’d plunk the whole amount in one company?
Well, when you stop to consider the number of millionaires in the United States who own Combined Insurance shares and who had very little money back a few years ago. . . Check with some broker on the history of Combined. I think you’ll see the point.
But supposing you had to choose a company other than Combined?
Let me give you a basic concept. One way to make a fortune is to get involved with a company whose product is needed by a large market. [It’s not important that the product is actually needed, only that people
feel
they need it.] The product should be expendable and sold at low cost, enabling the company to sell repeatedly to the same customers and in large volume. In addition, the man who runs the company should be dedicated and should have a shareholder’s interest in the company’s growth.
Can you recommend a company that meets all of those qualifications?
I happen to be on the board of directors of Alberto-Culver. I’m one of the large shareholders there. Thirteen years ago I helped finance the company with $450,000, for which I received 25% of the shares. Today those shares are worth something like $25 million.
And you feel Alberto-Culver is still a good buy?
I think it has a great future. But, then again, I’m definitely prejudiced.
Donald O’Toole, Sr.
President
Financial Management Associates
While banks are giving advice to individuals, Donald O’Toole is giving advice to banks. O’Toole, a Notre Dame grad, worked in real estate and banking, then began organizing banks himself. Financial Management Associates, his most recent creation, advises small community banks on how to achieve lower costs, higher profits and greater growth.
If I were starting out today, I would get into a business I could see and understand and over which I could have an effective voice. In other words, I’d put my $5000 in a company only on the assurance that I could have an effective voice in company affairs or would be able to get that voice in time.
Wouldn’t this be rather difficult for the average young man?
Well, I’m a lifelong executive myself. When I got out of college, I went directly into managing my own real-estate office. It was my father’s business, but six months later he had to step out, and from there on in I had to carve out my own destiny. That was in 1931.
How would you go about selecting a business if you didn’t inherit one?
It would depend, first of all, on the man’s own capabilities – his knowledge, interest and background Second, it would require investigation. He might have worked part-time in the company during school. Or he might select a company, work a year or two for it and get to know it – meanwhile keeping his $5000 dry. Then, when he was assured that both his talents and his money could be used to affect the progress of the company, he could invest.
You feel this is a better solution than say, playing the market?
General Robert Wood of Sears, Roebuck once told me – and Sears, of course, is well known for its profit sharing – that when employees have everything they own invested in the business, then they can be motivated to use the last ounce of capability when the situation demands it. Sure, you can have a nicely balanced portfolio of U.S. Steel and Standard Oil and that sort of thing. You’ve got yourself on safe ground, but you’ve also anesthetized yourself. You are literally turning your money over to people to spend. You don’t have the challenge to perform yourself. I’ve told even workingmen who have come to ask about investing much the same thing. They’ll say, “I think I ought to own some stocks.” I ask, “Where do you work?” They say, “I work for Sherwin-Williams.” “What do you think of the company?” “It’s a fine company.” “Then, buy their stock. It will help the company and make you a better employee.”
George Dovenmuehle
Chairman Of The Board
Dovenmuehle, Inc.
In Chicago, Dovenmuehle money is old money. The firm was founded by three Chicago families in 1844 and has been loaning money to build the city ever since. In the process, the company and the families have taken a profit – to put it mildly.
I’d use the $5000 to enter a business, and the business I’d choose would be a service industry. If I had mechanical skills, repairing automobiles, for example.
You’d buy into a business?
Or start one of my own. In either case it takes a long while before you begin to make money.
And if you were going to merely invest the money?
If I were a young man, I’d probably put it in the stock market, with all its ups and downs, and I would diversify to some extent.
Any particular area?
Service industry is one. But I would also look to those industries that employ comparatively little labor. For example, the gas industry. Gas is a scarce commodity that requires very little labor for its production compared to manufactured products.
The service field requires labor, doesn’t it?
Yes, but there are several services that are in great demand and will be in greater demand. The nursing-homes industry, for example. We’ve made a number of loans on them. Well if you know anything about that, that can be a bonanza, because more and more of us are going to need them.
Would you care to mention any specific stocks?
Some might be mining stocks. One example is American Metal Climax. They produce all kinds of metals, including aluminium, which is growing in popularity. But, also, they produce oil, copper, gas – all kinds of things and in many parts of the world.
Why do you emphasize the service industries?
The service business is growing much faster than manufactured products. In our affluence, we are buying more and more services.
How far ahead would you plan for in terms of return on your investment?
I’d be shooting for the long pull, but I’d like to see something materialize within five years.
And what should be a fair appreciation of that $5000 after five years?
Well, I’d certainly be disappointed if it didn’t double.
You wouldn’t invest in one single company that looked good to you?
A young man can even take that risk if he is convinced, whereas an older man can’t.
Joseph Block
Former Chairman Of The Board
Inland Steel Company
Block joined Inland in 1922 in the sales department and moved resolutely up the corporate ladder. Now he is off the ladder – and on the roof. He remains a director and is chairman of Inland’s executive committee. He still keeps an office and regular hours at company headquarters on Monroe Street.
I would buy a diversified list of well-seasoned American corporate stocks and have faith in the future. With $5000 you can’t diversify much, but if a young investor bought six well-seasoned American companies with good records, he wouldn’t regret it.
How would he select them?
I think he’d have to get advice where he banks or from investment counsellors.
Do any specific companies come to mind?
Right off the top of my head I’d say Sears, Roebuck and General Motors.
Would you look for short-term gains?
I’d think of it as a long-term proposition that had to be watched.
E. Stanley Enlund
President
First Federal Savings And Loan
Enlund graduated from Schurz High-School and the De Paul University College of Law, but he’s been with banks or savings and loans ever since, first at Continental and later at Sears Bank. The company he now heads has assets of $778 million.
I think there’s always a value in a guy having a cash cushion, and that probably ought to be somewhere in the range of a thousand bucks. We find in our business that some financial liquidity is vital. Then I think he should look at the dynamic business structure of our country in terms of how does he participate in this growing economy that is going to have some inflation, but hopefully controlled inflation, in the coming years. With the remaining $4000 I would strongly urge that he take a hard look at some of the better growth mutual funds that have had good track records recognizing that this market’s had a lot of squeeze on it – it’s had a 30% wring-out or better. I think with a mutual fund he’d have a balance, and this would be a fine base from which to build a total program as his career potential develops.
Didn’t the growth funds suffer badly in the recent slide?
They took an awful ramming it’s true. They’re off just a shade under 30% on the average. Some performed better than others, however. And that’s something you have to recognize. A fellow might need some help in terms of selection, but there are a solid group of well-managed mutuals operated by men of experience – and that’s really what you’re doing, hitchhiking on their ability and their judgment. All we’re doing with this money, really, is building the foundation.
How does a fellow choose between the several mutual funds that look attractive?
In my own case I’ve been developing an educational fund. I’ve got a little guy – well, he’s not so little anymore; he’s 14. I’ve been buying T. Rowe Price for him for years. Well, this has performed real well, except, with all mutuals, it did suffer from the slugging of the market. I’m involved a little bit with Allstate; so I know that performance pattern. I think if he’s looking for counsel, then he might go to his local financial institution – either the bank or savings and loan.
Will banks and savings and loans give investment advice?
If a guy comes in here, we obviously can’t give him basic recommendations, but we can give him suggestions as to responsible and ethical brokerage houses that can counsel him. And we probably wouldn’t recommend just one; we’d recommend three or four.
The other alternative is no-load mutuals, where no broker is involved. What about those?
T. Rowe Price is a no-load. There you go around the mulberry bush. You’ve got to compare the two. When I look at them, I look at the performance pattern – the bottom line – but I also assess the capability of management. Because when you go into mutuals, you’re buying two things – a spread on our risk because you’re going to be an investor in a group of securities, but, equally important, you’re looking for expertise and capability in the group that’s doing the investing.
How does one determine which managements are most capable?
By performance.
Investment Companies
, a book published annually by Wisenberger Financial Services, evaluates mutual funds over a period of time. This is one of the values a guy gets out of making the selection of the fund, as opposed to picking a half-dozen small companies.
What value?
If he’s doing the research, he begins to find out that every fund doesn’t perform the same way. One fund will be buying and one will be selling. What he’s going to learn is that the marketplace isn’t a controlled environment but that it reflects the judgment of investors large and small. This research will broaden his knowledge in terms of how the whole system functions. And he’s going to be a part of it.
You think he’ll learn more by studying mutual funds than individual firms?
Well, we could develop a brief on both sides. I think though, with the size of the amount he’d have to spend – $4000 – he couldn’t get the kind of mix he should have. So I’d be inclined to go to mutual funds. If he had $50,000, he could spread it himself.
What would you expect to accrue from the mutual-fund investment, say, in five years?
Well, if you go into a mutual fund, you’re not looking for current income. And under SEC regulations they have to define their investment objective. Some funds are geared to a specific income and growth of 10 to 15% a year. Now, if I were a young man, I’d be looking for a fund that would be prospering 10, 20, 30 years from now.
But you describe this investment as the foundation?
Yes, but that doesn’t mean I’d distribute it. I’d have other income and at some point along the way would become an investor on an individual basis.