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Comment by DennisP | Hacker News Reader

A while back I was reading a stack of financial books, and in one of them the author (I think it was William Bernstein) wrote that he'd had the opportunity to interview a member of one of these families, and asked how they'd managed to hold onto their wealth for 600+ years.

The answer was "art, gold, and land." If you had a rich estate back then and a foreign army was on the way, you could roll up your art, put your gold in sacks, and ride away. The title to the land would still be yours, and after the foreign army is expelled you just return home with your stuff.

I can think of some risks with this plan, and some improvements that could be made today, but basically these people aren't chasing returns, they think about preserving wealth for the long haul through worst-case scenarios.

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This idea ultimately didn't work in eastern Europe.

My family used to own some land but after WW2 it became Soviet territory and was lost.

We received some compensation eventually, but it was a pittance comparing to the original value.

Luckily at least you're alive. In my country whole social class was wiped out after ww2.

> After World War II, Czechoslovakia, the predecessor of the Czech Republic and Slovakia, acting to seize what they considered to be German possessions, expropriated the entirety of the Liechtenstein dynasty's hereditary lands and possessions in Bohemia, Moravia, and Silesia which compose the Czech Republic. The expropriations (which were the subject of an unsuccessful court case brought by Liechtenstein in the German courts and the International Court of Justice) included over 1,600 km² (which is ten times the size of Liechtenstein) of agricultural and forest land mostly in Moravia, also including several family castles and palaces.

Yup.

Feudal holdings require feudal power.

Nevermind that the lands were private property and not feudal holdings.

I would say it worked until the world changed in such a way that old systems were entirely dismantled.

But even in previous eras that system of wealth preservation only worked when it worked. If the invading army was never expelled, your land could be lost. And carrying all those valuables around with you while fleeing, well I'm sure people still got robbed sometimes. So it wasn't a foolproof solution. But there were limited options, and maybe not a better options.

Even now, what's the solution for wealth preservation in times of upheaval and displacement? I have no idea. Right now most of us trust in the banking system to some degree and that's only good as long as the system stands. If it collapses we're all boned and might wish for a bit more art, gold, and land to fall back on.

my family was in the same boat but never got any compensation, probably partly due to the territory being swapped to a different sovereign nation ( old Poland -> contemporary Ukraine)

Exactly the same kind of shift here.

That being said the compensation, IIRC, didn't cross 10k PLN, so divided between all people entitled it wasn't much.

Relevant Article: Poland's lost property https://www.ft.com/content/be98d9aa-360d-11df-aa43-00144feab...

So maybe "art, gold, land, and 600 years of government that respects the continuity of property holdings of their subjects".

That's a pretty rare occurrence. IIRC France and Italy(or actually various states occupying this territory throughout history) qualify here.

Not sure about Germany with its cycles of partition and unification but everything east of Berlin to the Ural mountains is out of the question.

We need to tax wealth, not income, to increase social mobility. Taxing income hurts entrepreneurs, taxing wealth pushes the idle rich to work harder.

Taxing wealth will only increase the mobility of the wealthy.

This does all sort of go out of the window once the worst case scenario becomes "the government steals everything from you and kills you if you resist."

Careful with the terminology there. "Stealing" is only really meaningful in the context of a legal framework, which happened to change in most places in Europe around the turn of the 20th century.

I'm more inclined to frame it in terms of an outdated, inegalitarian social order being overturned, resulting in massive upheaval and atrocities due to the power vacuum being rapidly filled again by the most ruthless actors.

It's still stealing even if it's called "eminent domain" or "civil asset forfeiture". It's basically stealing backed by little green men with guns.

That requires land to run to, and sanctuary that doesn't relieve you of your gold when you arrive.

It only works for the 0.001% .

Chasing returns is not incompatible with wealth preservation; they are strategies for different scenariors. No one is chasing returns when the bullets are flying into their face.

unless you sell guns of course

Financing wars has always been lucrative, and remains lucrative to this day.

so the richest families in Florence in 1427 were the 0.001 percent? At any rate it seemed to have worked for them.

Its called survivor bias :)

so you're saying that there are a number of formerly rich families at the time who have not made it to the present with wealth intact? I guess that seems reasonable, but don't have any data yet. On the other hand there should still be some wealth today that was not among the wealthiest then?

(of course I wonder how much of that maintaining wealth was - instead of gold, art, and land - strategic marriage)

Certainly there are a good number of formerly rich, now poor or extinct families. It's practically a cliché of nobility.

yes, it seems likely, even 'certain' but as I understand it also seems not to have been verified using data in this case? I like my certainties verified.

Reminds me of a great post on here a while back from some accountants. They argued (ultra) wealthy families care more about preserving wealth for generations than high interest rates.

High interest rates is how wealth is preserved in the face of spending.

It depends on just how much money the family has. If the pile of cash is big enough even conservative interest rates/rates of return can cover a really good life.

I remember a similar discussion on here about hedge funds. The goals of the ultra-rich investors are often very different than average people.

In a 401k investment account we try to find the best ways to get a return on investment and increase the value of assets. There's risk involved, but for many it's the best chance they have for a true retirement.

Ultra-rich, on the other hand, often go to their hedge fund manager with the simple goal of "can you make sure I'm never not rich." They aren't focused on the upside of their investments (though they probably at least want to keep up with inflation) -- they're concerned with the __downside__ and the risk of becoming 'not rich.'

Might be this recent thread:

https://news.ycombinator.com/item?id=18692108

Yes, this is why I tend to avoid investment vehicles. I'm not wealthy enough to gamble.

Do you plan on just saving cash then for retirement?

Already have, although I doubt that retirement is in my future regardless.

I believe you have seriously overestimated your financial literacy if you don't have any investment vehicles deployed.

I never made a claim about my financial literacy. It's not as low as you assume, though. I've started (and sold) several successful businesses, and am well-versed in investment activity.

It's more a case of everyone having different levels of things they are willing to tolerate. That mine is different from yours doesn't indicate that either of us is incompetent.

That said, if your goal is to be wealthy, investments are an important part of that. That doesn't happen to be my goal, though.

There is a kind of middle ground. A few years ago I had a conversation with a friend that completely redefined investment versus speculation for me.

This friend's grandfather had been a lettuce farmer in Monterey the 1930's. The value of the land rose significantly during his grandfather's lifetime. The grandfather had the good sense to set up a trust for his children. The trust has continually invested in other businesses over the years. My friend manages one of the businesses owned by the trust. Some of his sibling/cousins just get a draw from the trust. Some, like my friend, work for the trust and get both a salary and a draw.

In the mind-blowing conversation I had with my friend, he told me about his plans for the upcoming weekend -- a combination family reunion, barbecue, and trust board meeting. Agenda: discuss the "cousins" -- that is to say, the kids of the next generation from age 7 to 17, thinking about which ones are likely to be in the "I'll just take my draw, thanks" group, and which would be likely candidates to be groomed for the next generation of trust management.

At that point, it hit me like a ton of bricks: investment is when you expect your as-yet-unborn grandchildren to someday take over and operate the asset as a on-going business. Anything else is speculation. For me that illuminated a whole different way of thinking about business and investment.

Maybe influenced by Tywin from Game of Thrones after he talked a lot about legacy, but it seems wise and a fun thought process to think of your family in dynastic terms and planning for future generations.

I think it’s a good way to stay grounded and towards harmony with family.

Of course it’s not realistic if you’re not going to pass on wealth, but interesting to think about if that’s the goal.

Also makes pursuit of $billion$ more altruistic as you’re planning for your dynasty, rather than just yourself.

There was a whole Economist Article on this last month

https://www.economist.com/leaders/2018/12/15/how-the-0001-in...

Pretty much the House of Saud strategy, and may be the strategy of every powerful family there is out there.

In the House of Saud case, its basically 'brother-stab-brother' process to become a king, the children nodes(cousins) in the tree generally get contracts to build airports, roads, or become police commissioner of some city. More powerful cousins get to become foreign ministers and run the economy etc.

Cousins who fork off too far away from the branch, typically settle for pensions and may be get their kid's educations in some foreign university sponsored. But again these sort of cousins eventually are the last generation to receive these draws. Because if you let power slip, its basically over. In things like these, money follows power.

Recently I heard of a similar case here in India. Where family politics had forked off a colleague too far away from the home branch. Or he would be pretty darn rich. Apparently his great grandad was a major feudal lord, his father settled for draws, the more powerful uncles have now pushed most other cousins out. And they and children pretty much keep every thing for themselves.

Once you get to a non-trivial money to give away in inheritance, bringing order to family politics is another big thing to do.

Political families in the Sub continent are another interesting thing. Every decade you see a powerful brother/cousin die. Only one survives. Then the game starts again between his kids :)

The quality of life difference between being poor and being rich is much greater than the difference between being rich and being ultra rich.

From that perspective it makes sense to focus on wealth preservation.

This seems to rely pretty heavily on the "title" to the land being respected. Works fine until the foreign army ISN'T expelled.

Of the foreign army gets expelled by a force that has zero interest in respecting whoever was there previously. At that point you might as well throw in the towel and open up a cheap Chinese buffet restaurant in a former mill town in upstate NY (or something like that).

If the title is not respected, they still have their art and gold. I think the real statement here is: have something that afterwards still has some value, which you can use to build upon. Other sources of wealth like money, will more like be gone when the state folds, or time goes on. Timeless wealthes are the way to stay rich over the ages.

For most of those 600 years gold was money.

Coins were money. Gold was just one of the materials they were made from. There also was copper, silver, and others. Raw gold alone was somewhat useful, but AFAIK usually not as valuable as local gold-coins. Usually trading something golden meant accepting some loss, like today.

And even then it sometimes works. Many (but not all) large Spanish land grants were respected in the US southwest/California after the Mexican/American war.

>>these people aren't chasing returns, they think about preserving wealth for the long haul through worst-case scenarios.

Once you make a non-trivial amount of money. Preserving it becomes way more important than adding deltas to it.

Not getting famous, keeping low key and not breeding exponentially also helps.

I believe you are paraphrasing James Rickards, EG from US News:

> When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is "a third, a third, and a third." This is shorthand for dividing one's wealth into one-third land, one-third gold, and one-third fine art.

https://www.usnews.com/opinion/blogs/economic-intelligence/2...

Since I'm fairly familiar with finance and could not find this rule anywhere else I assume he means "a lot of people say" in the Trumpian sense, IE he made it up. There's no data backing the idea that families that have stayed rich invested in those particular assets.

While it's fun to think about escaping from the invading hoards with you sack of gold and a rolled up Old Master in your sack, my guess is that the continued wealth of the Florentine families has more to do with passing on education and cultural advantages, and being lucky enough to live in a relatively stable society.

I wonder if the Italian states had a hands off attitude on inheritance and titles because of the church?

That's a nice anecdote, but it's really bad science.

They took advantage of diversification. Unfortunately most of us don't have access to more esoteric asset classes (e.g., fine wine, art, high end cars).

That's not the point at all. The point was that their wealth was in assets that do not depreciate, and are hard to take by force.

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