The Missing Billionaires: A Guide to Better Financial Decisions

The Missing Billionaires: A Guide to Better Financial Decisions

by Victor Haghani, James White
The Missing Billionaires: A Guide to Better Financial Decisions

The Missing Billionaires: A Guide to Better Financial Decisions

by Victor Haghani, James White


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An Economist Best Book of the Year

"Making Money and Keeping It" – The Wall Street Journal

Over the past century, if the wealthiest families had spent a reasonable fraction of their wealth, paid taxes, invested in the stock market, and passed their wealth down to the next generation, there would be tens of thousands of billionaire heirs to generations-old fortunes today. The puzzle of The Missing Billionaires is why you cannot find one such billionaire on any current rich list. There are a number of explanations, but this book is focused on one mistake which is of profound importance to all investors: poor risk decisions, both in investing and spending. Many of these families didn’t choose bad investments– they sized them incorrectly– and allowed their spending decisions to amplify this mistake.

The Missing Billionaires book offers a simple yet powerful framework for making important lifetime financial decisions in a systematic and rational way. It's for readers with a baseline level of financial literacy, but doesn’t require a PhD. It fills the gap between personal finance books and the academic literature, bringing the valuable insights of academic finance to non-specialists.

Part One builds the theory of optimal investment sizing from first principles, starting with betting on biased coins. Part Two covers lifetime financial decision-making, with emphasis on the integration of investment, saving and spending decisions. Part Three covers practical implementation details, including how to calibrate your personal level of risk-aversion, and how to estimate the expected return and risk on a broad spectrum of investments.

The book is packed with case studies and anecdotes, including one about Victor’s investment with LTCM as a partner, and a bonus chapter on Liar’s Poker. The authors draw extensively on their own experiences as principals of Elm Wealth, a multi-billion-dollar wealth management practice, and prior to that on their years as arbitrage traders– Victor at Salomon Brothers and LTCM, and James at Nationsbank/CRT and Citadel.

Whether you are young and building wealth, an entrepreneur invested heavily in your own business, or at a stage where your primary focus is investing and spending, The Missing Billionaires: A Guide to Better Financial Decisions is your must-have resource for thoughtful financial decision-making.

Product Details

ISBN-13: 9781119747918
Publisher: Wiley
Publication date: 09/06/2023
Pages: 416
Sales rank: 36,225
Product dimensions: 6.30(w) x 9.10(h) x 1.50(d)

About the Author

Victor Haghani has 40 years’ experience working and innovating in the financial markets, and has been a prolific contributor to academic and practitioner finance literature. He founded Elm Wealth in 2011 to help clients, including his own family, manage and preserve their wealth with a thoughtful, research-based, and cost-effective approach that covers not just investment management but also broader decisions about wealth and finances. Victor started his career at Salomon Brothers in 1984, where he became a Managing Director in the bond-arbitrage group, and in 1993 he was a co-founding partner of Long-Term Capital Management. He lives in London and Jackson Hole, Wyoming.

James White has spent two decades working in finance, covering the gamut of quantitative research, market-making, investing, and wealth management. He is currently the CEO of Elm Wealth, and previously has held research, trading, and executive roles at PAC Partners, Citadel, and Bank of America. He lives in Philadelphia.

Table of Contents

Foreword xiii

Preface xvii

About the Authors xxi

Acknowledgments xxiii

Chapter 1: Introduction: The Puzzle of the Missing Billionaires 1

Section I: Investment Sizing 13

Chapter 2: Befuddled Betting on a Biased Coin 15

Chapter 3: Size Matters When It’s for Real 27

Chapter 4: A Taste of the Merton Share 41

Chapter 5: How Much to Invest in the Stock Market? 49

Chapter 6: The Mechanics of Choice 67

Chapter 7: Criticisms of Expected Utility Decision- making 103

Chapter 8: Reminiscences of a Hedge Fund Operator 117

Section II: Lifetime Spending and Investing 127

Chapter 9: Spending and Investing in Retirement 129

Chapter 10: Spending Like You’ll Live Forever 149

Chapter 11: Spending Like You Won’t Live Forever 165

Section III: Where the Rubber Meets the Road 173

Chapter 12: Measuring the Fabric of Felicity 175

Chapter 13: Human Capital 193

Chapter 14: Into the Weeds: Characteristics of Major Asset Classes 201

Chapter 15: No Place to Hide: Investing in a World with No Safe Asset 235

Chapter 16: What About Options? 245

Chapter 17: Tax Matters 265

Chapter 18: Risk Versus Uncertainty 275

Section IV: Puzzles 285

Chapter 19: How Can a Great Lottery Be a Bad Bet? 287

Chapter 20: The Equity Risk Premium Puzzle 291

Chapter 21: The Perpetuity Paradox and Negative Interest Rates 297

Chapter 22: When Less Is More 303

Chapter 23: The Costanza Trade 309

Chapter 24: Conclusion: U and Your Wealth 319

Bonus Chapter: Liar’s Poker and Learning to Bet Smart 327

Cheat Sheet 335

A Few Rules of Thumb 340

Endnotes 343

Suggested Reading 357

References 359

Index 373

What People are Saying About This

From the Publisher

"This is a marvelous book that importantly extends the literature on financial decision-making. The authors creatively weave together the essence of practical considerations with insightful academic theory. One of a small handful of books that is timeless and should be read and reread over a lifetime for enjoyment and substance."
Gary P. Brinson, CFA, Author, and Founder of Brinson Partners

"The missing billionaires in the book's title allude to the difficulty of keeping already-made fortunes. Believing that nobody should get rich twice, Victor and James arm investors with lessons galore, drawn from their long practitioner careers. Yet the core lessons come from academia, and this wonderful book gives the best shot for Expected Utility and lifecycle models to finally become widely used in real-world investment decision-making. Uniquely, this book puts position sizing in the center, showing through many illustrations how 'too much of a good thing' can be just too much."
Antti Ilmanen, Principal at AQR Capital, Author of Expected Returns

"The Missing Billionaires addresses a topic that gets far too little attention in the investment community: how much to invest. The book is a terrific blend of theory, practice, and stories from the front lines. This is must-reading for anyone seeking to invest and spend wisely."
Michael Mauboussin, Author and Head of Consilient Research, Morgan Stanley

"I enjoyed and learned from Victor and James' book on incorporating uncertainty directly into making better financial decisions. Rightly so, for them, risk is front and center. This book is a great education for all of us, seamlessly marrying sophisticated theory with applications, demonstrating the beauty of a risk architecture that combines specificity with illuminating implementations into the lifetime wealth management problem."
Myron S. Scholes, Frank E. Buck Professor of Finance, Emeritus, Stanford Graduate School of Business, Nobel Laureate in Economic Sciences

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