In my last post I introduced the wealthy Titan family, as featured in my most recent book, Family Capital.(1) The Titan family was founded by George (né “Georgio”) and Ellie (née McCabe) Titan. George Titan Jr. sold the family company, Titan Industries, just before the Great Depression, and George Jr.’s cousin, Jake, had in the meantime founded a successful law firm, further enlarging the family fortune. By the mid-1970s, George Titan III was the head of his branch of the Titan family and it is George III that I want to focus on here, because that branch of the Titan family made two very unfortunate mistakes, the one leading to the other.
The first mistake was placing George III in charge of the family’s affairs in the first place. Though George certainly looked like the original George, he was a pale imitation of his grandfather, and even a pale imitation of his father. Meanwhile, however, George had an older sister, Grace, who clearly got most of the brains in her generation. But in those days (the 1930s and 1940s) family leadership almost always followed in the male line, and nobody (including Grace) dreamed of putting Grace in charge.
Notice that that approach – family leadership devolving down through the male line – was extraordinarily common at the time, and it continued well into the 1960s. It was a kind of American version of primogeniture. But what it meant was that many families weren’t fielding their A Team. Sometimes a family could get away with this – though it was never ideal – but sometimes the price they paid was very high. Unfortunately, that was the case with the George III branch of the Titan family.
George III had succeeded George Jr. as head of their branch of the family in 1938, when George Jr. died suddenly. Then there was the war and the great post-war boom, which had been great for the stock market, and the bull market momentum had continued through most of the 1960s. George III had become head of the family knowing virtually nothing about the investment process, and you might imagine that he would take advantage of these halcyon decades to learn the ropes. But George didn’t bother – he had financial advisors to handle that sort of thing.
Then, in 1973, the stock market suddenly collapsed. During the good times, George III’s portfolio had gradually increased its allocation to stocks, so that by the mid-1970s George was almost 90% exposed to equities. But so what? As I said in the book:
In 1972, the Dow Jones Industrial Average had gained 15%, and most investors believed that the good times would continue. The 1970s would be at least as good as the 1960s, and maybe as good as the 1950s. Time magazine, for example, in early January 1973, predicted that 1973 was “shaping up as a gilt-edged year.”(2)
But “the prognosticators were badly off-target.” Through all of 1973 and the first half of 1974 the markets continued to swoon,(3) while at the same time inflation was raging. The net result was that by mid-summer 1974 George III’s portfolio had lost nearly half its value. Meanwhile, George’s family had been spending 5% of the original value of the portfolio, so spending was now approaching an alarming 10%. The family’s wealth was evaporating before their eyes and George was coming under pressure from his family to do something.
Finally, mere weeks from the market bottom, George III assembled the adult members of his family at their swanky country club in the highlands east of Pittsburgh and told his relatives that he was selling all the family’s equity positions. Although 90% of Family Capital consists of conversations among the Titan family members and their financial advisors, this particular chapter consists substantially of George Titan III’s monologue, which I’ll merely excerpt here:
“I want to be quite clear about this,” he said. “All across the world investors are dumping their stocks because of the bear market. But that’s not what’s driving my decision. * * * If I continued to have confidence in American industry—indeed, in America itself—I would simply hold on, knowing that sooner or later the markets will turn and we will be making money again. But—and I say this in sadness and regret—I’ve lost that confidence.”(4)
George went on to make a litany of complaints about America (radicalism on college campuses, Vietnam, the Arab oil embargo, Watergate), but:
“The worst of it all is what’s happened to American industry. When my grandfather—your great-grandfather and great-great-grandfather—came to America he came because we were the greatest country in the world, a country full of opportunity. American companies were the most competitive anywhere. * * * If I had confidence in America, in American business, I wouldn’t be selling stocks. No, I’d be a buyer at these prices! I’m not selling out because of the bear market, I’m selling out because the American Century is over.”(5)
George Titan III had developed an elaborate rationale for a very unfortunate decision. In reality, he was selling out because he was in a panic over the loss of his capital and because he had very little understanding of how equity markets or market economies worked. While it’s true that America – and American industry – seemed to have lost its way in the 1970s, the country would come roaring back in the 1980s, becoming quite possibly the most dominant civilization in history.
But George didn’t understand much about American democracy or the American version of capitalism. His family would miss the entire stock market recovery in 1975-76 and they would remain uninvested throughout the historic bull market that began in 1982. By the end of the 1990s, the George Titan III branch of the family would be known as the “poor” Titans.
(2) Family Capital, p. 3.
(3) And not just in the US. During this same period the FT 100 declined 73%.
(4) Family Capital, p. 5.
(5) Family Capital, p. 7.
Next up: On Family Capital, Part 3
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Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.