Lessons Learned from the Rise & Fall of the Wealthy

Building great wealth is challenging and can take time. However, it is not only accumulating wealth that can be challenging, but it can also be difficult to hold onto for long periods of time, especially over generations. In fact, roughly 90 percent of wealthy families lose their wealth by the third generation.

If you want to build great wealth and to have your family preserve this wealth over many generations, then you need to learn the lessons from the rise and fall of some of the wealthiest families and individuals in America. In this article, we will go over 3 key lessons that you can learn from once-great American families and individuals who possessed enormous wealth and then squandered it. Let’s get started.

The Pulitzers

The Pulitzers are the family who was responsible for the creation of the famous Pulitzer Prize which is awarded to people who make worthy contributions to the arts. The Pulitzer Prize was set up by Joseph Pulitzer, who was the patriarch of the Pulitzer family. Joseph Pulitzer funded the prize and worked with Columbia University to distribute it. He also built a publishing empire and founded the Columbia University School of Journalism.

At one time, the Pulitzer family’s net worth was about $60 million. However, one bad mistake from Joseph Pulitzer’s grandson, Peter Pulitzer, resulted in a catastrophic dwindling of this fortune. Peter Pulitzer, unlike his grandfather, did not go into the publishing business. Instead, he went into the orange business. Peter Pulitzer bought an 800-acre citrus grove in Florida. Unfortunately, this grove experienced a terrible outbreak of citrus canker, which decimates oranges.

Because Peter Pulitzer put all of his eggs (or oranges in this case) into one basket, he experienced disastrous financial consequences when his entire orange crop was ruined. He tried to save the business, but eventually, he had to be bailed out by his ex-wife’s husband. This business failure, along with a slew of pricey divorces in the Pulitzer family, resulted in the loss of the family fortune. Now, the family is estimated to have a net worth of -$1,000,000 (one million in debt).

Lesson: In order to avoid the fate of the Pulitzers, make sure to diversify your investments and not to bet everything on one risky business venture, especially if that business venture is prone to periodic devastation.

The Vanderbilts

The Vanderbilt family fortune was largely built by Cornelius Vanderbilt, who started a shipping and railroad company in 1810. During his life, Cornelius Vanderbilt amassed a fortune worth $100 million, which today would have been worth about $185 billion. Cornelius’s son, William Henry Vanderbilt also had a serious talent for business and doubled his father’s fortune (95% of which he inherited) in just 8 years. However, he sadly died shortly thereafter.

Over the years, as the generations passed, the Vanderbilt fortune, mostly built by Cornelius and William Henry Vanderbilt was spread amongst more and more sons, daughters, nieces, nephews, etc. The Vanderbilt descendants became famous for lavishly spending money. They bought dozens of mansions in many different states and even owned ten separate mansions on Fifth Avenue in Manhattan.

They consistently threw lavish parties, gambled, spent money on expensive yachts and other luxuries, and eventually squandered all of the money. In 1973, the 120 living Vanderbilt descendants had a reunion and not one person among them was even a millionaire. This is incredible considering that at one time the family’s fortune had been over $200 billion in inflation-adjusted dollars.

Lesson: The lesson to be learned from the squandering of the Vanderbilt family fortune is to control spending and to incorporate financial literacy. If the Vanderbilt family had been able to do these things, they could still be one of the wealthiest families in the world. For example, if they had invested more money in real estate and other appreciable, cash-flowing assets, they could still be incredibly well off and perhaps even have a greater fortune today. It is also crucial to avoid excessive gambling because few things can squander money faster than gambling.

Bernie Madoff

Most people today in the U.S. and in many places around the world know the name Bernie Madoff. This is because the man is notorious for committing the largest Ponzi scheme of all time. Bernie’s Ponzi scheme cost investors over $65 billion dollars. However, before his gigantic fraud was revealed in 2008, Bernie was known as one of the most reputable men on Wall Street. He was at one time the Chairman of the Nasdaq stock exchange and is known for advancing the proliferation of electronic trading platforms.

Because Bernie Madoff had earned such an esteemed reputation on Wall Street during his career, tens of thousands of individuals, families, and businesses trusted his firm, Bernard L. Madoff Investment Securities, to manage their money. However, instead of investing the money that clients gave him, Bernie would simply deposit it into a bank account that he would use for his own personal use to live a lavish lifestyle. He then printed up fake trading reports and sent them to his clients so that they believed their wealth was steadily growing over time. Occasionally, clients would want their money back and he would give it to them out of the bank account. But, as with all Ponzi schemes, when too many people want their money back at the same time, the whole thing unravels, which it eventually did.

Bernie Madoff started out his career as a hardworking, brilliant financial professional. But his greed and hunger for more and more money caused him to forego integrity and decency. He victimized roughly 37,000 people ranging from everyday working people all the way to top-level celebrities like Steven Spielberg and Kevin Bacon. When Bernie Madoff’s fraud was uncovered, he was sentenced to 150 years in prison.

Lesson: Lack of integrity will cost you everything. Bernie was smart enough to the point where he probably could have been a billionaire, or at least a multi-millionaire living a straight life as an honest man. But he decided to steal from tens of thousands of people instead and ended up in prison. Never let the quest for wealth cause you to betray your integrity and harm people.

Summary

The Pulitzers, the Vanderbilts, and the Madoffs were some of the richest and most powerful families in America during their day. Yet, the vast fortunes of all of these families are now gone. If you want your family to preserve its wealth over time, then you need to focus on diversifying your family’s holdings, controlling your spending, increasing financial literacy, and upholding your integrity.

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About the Author

Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specializing in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the host of REady2Scale, a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.