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Beta Investing: How to Grow and Maintain Family Wealth

• dailyreckoning.com/Bill Bonner
We agreed to write a book on “family money,” that is, on how families get and keep their fortunes over generations. We are completely unqualified to write the book, because our family never had any money. Still, it is a fascinating subject…and the more we look into it, the more we write about it, the more we come to understand what it is all about. It is not about “safe, conservative” strategies. Instead, it is a manifesto for the most dynamic capitalism on the planet.

The rich are not like everybody else. They shouldn’t try to be. Most people don’t have any money. People who have money are different. If you want to have money, it stands to reason that you have to do things differently. It’s that simple. Especially if you want to have money for more than a single generation.

For example, everybody is trying to find the stock that will go up. They all want to be an alpha investor — the big man on campus who puts his money into Google when it opened for business…or the guy who bought Berkshire Hathaway back in the ’70s. That’s the whole game, they believe…seeking alpha.

Alpha is what they call the above-market gains you can get by selecting the right stocks. But the trouble with alpha is that it is as unreliable as a teenage employee. You think you’ve got him all set…and he doesn’t show up for work. You choose one stock that goes up. Then, you choose two that don’t. And then you get a real nightmare stock…and you’re wiped out. Over the long run — by definition and observation — most alpha-seeking investors cannot beat the market averages.


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