- En mathématique, dans les pays utilisant l'échelle longue (c'est-dire tous les pays à l'exception des pays russophones, arabes, anglophones et du Brésil), un trillion représente 1 milliard de milliards (109x109) soit 10 puissance 18 ou, en notation scientifique à 1018, c'est-à-dire 1 000 000 000 000 000 000, encore un million de millions de millions (106x106x106).
Un trillion est alors égal à un million à la puissance trois, d'où le terme. Le préfixe correspondant à ce nombre dans le système international d'unités (SI) est l'exa. Le SI est également utilisé dans les publications scientifiques anglo-saxonnes (non destinées au public). Dans l'échelle longue, mille trillions (103 × 1018) est égal à un trilliard (1021).
- Dans les pays utilisant l'échelle courte et notamment dans les publications scientifiques anglo-saxonnes destinées au public (vulgarisation d'articles scientifiques, la précision est importante car elle a fait l'objet d'une loi aux Etats-Unis), un trillion représente mille milliards ou, en notation scientifique à 1012, c'est-à-dire 1 000 000 000 000. Il est appelé billion dans l'échelle longue (ce qui ajoute à la confusion lors des traductions).
Le préfixe correspondant à ce nombre dans le système international d'unités est le téra.
En informatique, on utilise rarement ces termes et ce symbolisme, préférant les préfixes du système international. On parle plutôt d'un disque d'un téraoctet, bien que la dénomination anglophone de terabyte se généralise.
Rien n'interdit d'utiliser la même convention dans les autres domaines, ce qui évite tout risque de confusion. Toutefois, il faut garder à l'esprit qu'il faut respecter les lois édictées en ce domaine (notamment aux Etats-Unis sur l'usage de l'échelle courte).
Les sommes en économie et en finance ainsi que les grandeurs en informatique, astronomie et en physique peuvent atteindre ces ordres de grandeur et on trouve fréquemment des erreurs de traduction entre le sens anglophone de trillion et son sens francophone ou dans le reste du monde.
You Just Got $1 Million. Now What?
Summary
What do you do with a windfall?
Why do most people fail at handing it?
How do you avoid the common traps?
Congratulations
Congratulations, you are a newly minted millionaire and are looking at what to do next. Learn the proper technique for lighting cigars with a rolled up $100 bill? Find the nearest shop that sells monocles and gold-tipped canes? Should there be a mad rush to invest it all in the S&P 500 (NYSEARCA:SPY) or ahedge fund?
Being a millionaire
It ain't what it used to be.
The first written use of the word 'millionaire' in America was in the 1843 obituary of Pierre Lorillard II. He was one and he also created many more through his tobacco company which is now part of Reynolds (NYSE:RAI). But things aren't what they once were.
If you make a million of today's dollars each year in New York City, you probably lack a washer and dryer, a parking place (or car to park on it), and struggle to send your kids to one of the better preschools. After the ravages of 172 years, 5 months, and 26 days of inflation, it takes over $30 million in 2015 to equate what the obit writer meant by "millionaire" back in 1843.
Receiving a windfall
If you earn your money slowly over time, you have a chance to acclimate to having and using it. But what do you do if you get your money all at once? The record of windfall beneficiaries keeping their new riches is not a happy one. A significant number of lottery winners, professional athletes with short but spectacular careers, and heirs (especially those who did not anticipate an inheritance) lose everything and are subsequently worse off than they were before. How do you avoid joining them?
Staying anonymous
Catch your breath and keep your own counsel. The best way to avoid being pressured, manipulated, robbed, or merely pestered is to keep quiet. If you want help (or you want to help someone else), then seek out the people you want to interact with. Don't let them seek you out. That will help meaningfully cut down on the number of charlatans that you will have to contend with.
Stop and think
Don't just do something, stand there.
- The White Rabbit in Disney's (NYSE:DIS) Alice in Wonderland
When in doubt, do nothing.
- Mikhail Kutuzov
Principals make money when there are returns while agents make money when there is activity. So as soon as you are surrounded by brokers, lawyers, private bankers, and accountants, they will all have different ideas of what to do, but they will be unanimous that you should be doing stuff. Wait.
Year 1 - Defense and preparation
One of the keys from transitioning from "get rich" to "stay rich" is to remind yourself that you don't have to do anything. You will have to be your own advocate in terms of minimalism, simplicity, and radical selectivity. Situate yourself so that you can pause for a full year while you plan for the future.
You have to put the money somewhere. To start off with, get it into federally insured increments. You can get a Goldman (NYSE:GS), JPMorgan (NYSE:JPM), or Bank of America's (NYSE:BAC) U. S. Trust to deal with the deposits, but it is not that complicated and pretty much any bank can help. If you have a masochistic streak, you can do this all yourself, but the paperwork will be substantial and your mailbox will be stuffed with statements on a daily basis. I recently wrote up some quirky but attractive places to park cash, but only look if you are interested in such things.
Once the money is safe and secure in federally insured accounts, then you can begin to map out your priorities. The first two will probably include paying any taxes owed on the windfall and paying off any bad debt that you have accumulated. Once you are dealing with your after-tax money and it has been netted out against any high interest loans, you can think about next steps. Over the course of the year, you can plan out your top priorities for your giving, investing, and spending. Here are some priorities that I set for 2015 for myself; I will go through the same exercise for next year. You should go through the same exercise of setting your own annual priorities for giving, investing, and consuming.
Refocus on everything that is important to you in your life other than the newly secured windfall. Between a library card, running shoes, and family, much of the happiness that you could have with $30 million or more is identical to the happiness that you could have with $0. If you are able to read, run, goof off with your kids (or whatever free or virtually free activities bring you joy), then it takes off an enormous amount of pressure to succeed in using your money well. It just matters less and so will create less anxiety. What do you love to do that is free or virtually free? You should have a good answer to that question and should dedicate much of this year to focusing on those activities.
But is there enormous cost in taking off 2016?
Probably not. The US total market capitalization is about 119% of GDP. Historically, prospective annual equity market returns from the S&P 500 have been under 1% from such prices. There will probably be plenty of chances to deploy capital when the market cap is less than the GDP.
Another measure to follow is the Shiller PE. It is currently about 26, over 50% above its historical average of around 17. Historically, when the equity market is priced at this level, the prospective return on the S&P 500 is slightly negative.
Both of these measurements have their limitations and their detractors. My conclusion is not one of pessimism, but one of patience. If there is a reason to go slow - as I believe there is when dealing with a windfall - then these metrics offer no countervailing encouragement to rush.
What about the bond market? The US 10-year government bond currently yields about 2.25%. Spreads between that yield and corporate bonds are tight as are spreads on "high yield" bonds. As with the equity market, the cost to waiting is probably either low or negative.
Planning Year 2 with Warren Buffett's 25-5 Rule
Berkshire Hathaway (BRK.A/BRK.B) CEO Warren Buffett has a prioritization strategy that works well here.
- Step 1: Write down your top twenty-five goals; in this case, I would have a list of twenty-five each for philanthropy, investing, and spending for a total of seventy-five priorities.
- Step 2: Circle your top five goals in each category.
- Step 3: Eliminate any distraction from the other sixty items until you have accomplished the top five priorities in each category.
Dealing with new topics at a new scale, success is going to depend upon protecting your focus and keeping it simple. This 25-5 process will force you to make decisions and choose what is important to you.
Year 2 - Protecting capital and priorities
If you combine cautious sizing with limiting yourself to about five positions, you can make an initial allocation of anywhere from 5-10% of your new capital. This balances putting real money to work with allowing yourself an opportunity to learn from your mistakes with actual funds. Many investment problems that were hard to notice when you were building a model portfolio become clear once real money is moving around.
Take much the same approach to philanthropy. Whatever your budget is (I will assume 10% of the windfall, but it will of course vary based on your priorities), plan to allocate about five gifts worth 1-2% of that allocation. Before you allocate any additional money, See what happens in practice and how the use of these gifts compares with your intent and instructions. While you are not personally capturing the value that is being created, philanthropy is otherwise much the same as investing. All of the same concepts apply - what matters is the probability-weighted relationship between risk and reward and the relationship between cost and benefit.
It is essentially never a good idea to give away any money to someone because they ask. Too high a percentage of people who ask are either dishonest or irresponsible. Instead, be intentional about your priorities and seek out the beneficiaries you deem to be most worthy.
In my case, I simply explain that I do not make any direct gifts or loans; I have a foundation that handles philanthropy but it does not take requests and we have policies in place that prevent me from altering our process. All of that is true and coincides with my preference to spend none of my time being asked for money.
In terms of spending on consumption, put as much time as possible between your enthusiasm and your purchases. Let early adopters pay big premiums to get stuff first. Let seasonal premiums come and go. Track prices and only pounce after they are down. In my experience, waiting even a few months for big purchases can save a lot. Prices can come down. However, the bigger impact is that I frequently lose interest and don't want to buy the same things, even for a discounted price. That being said, if you go ahead and put down adeposit on a significant boat or plane, that deposit can easily be resold, often with an attractive gain.
Get used to saying, "I can't afford that". It is harder for someone to argue with than if you say, "I don't feel like it". Even if you have the money to buy something, it can always be true that you cannot afford the opportunity cost to spend money on something that is not a top priority.
Evasion and deception defense
When you have a windfall, you will also have liars who want your money. While you will make plenty of mistakes, make sure that the mistakes are yours. It will be crucial to cultivate skills at detecting evasive and deceptive behavior. One book that has been particularly helpful to me on the topic is The Gift of Fear. The more that you know about evasive and deceptive behavior, the harder a target you will become.
It would also be useful to study the details of people such as Bernie Madoffwho defrauded investors and Greg Mortenson who defrauded donors. They were both friendly. They both offered people exactly what those people were looking for in return for money and trust. Neither would have stood up to even cursory due diligence.
Throw your weight around
The more money you have in your wallet, the less you have to pull it out. You should be able to get the best treatment from financial institutions for the lowest possible price (in terms of percentages if not dollars). Make certain that everyone you deal with is focused on price and knows that you will notice price carefully (they need to be on notice because unless you let them know, they might confuse you for any number of customers who don't care enough about price to do anything about it). Don't pay fees for anything. Let service providers know that the relationship will work on the basis of scale and a long-term commitment, not by gouging you for petty fees.
Act like you own the place
With deference to the virtues of adequate statistical diversification, you should also concentrate your investments enough that your interests and opinions are taken into account by managers. This does not require you to be an "activist", only to act as if you are an owner when, in fact, you are one. This can be an opportunity for board seats or at least a value-adding relationship with company managements.
Wait 'em out
Windfall recipients should do what they can to protect your capital while securing at least a reasonable rate of return. If possible, beat the market as represented by the S&P 500 over the long-term. One of your best advantages is the ability to wait 'em out. You are in no rush; in fact, you could just keep the money in the bank and don't need to do anything with it. So your time horizon is essentially infinite. Use that time-insensitivity to exploit the time-sensitivity of others. You can take advantage of having strong hands to become a service provider for the short-term needs of panicky traders.
Whenever you look at an investment, start at the end and consider its ultimate terminal value plus whatever cash it will generate in the interim. Don't worry too much about what will happen next. In your circumstance, why should you really care about the immediate future? Just figure out an approximation for the net present value for what you will get over time, even if it is a lot of time.
For example, when volatility is extremely high and markets are pricing in a lot of uncertainty, you can be perfectly positioned to bet that volatility will eventually decline and that uncertainty will eventually be resolved. If there is reputational cost associated with owning something, then you can be well positioned to buy (at a steeply discounted price, of course). You can set up shop as a permanently available buyer of last resort wherever and whenever there is a market whose other participants are losing their minds. Even without any other advantage in terms of information or judgement, your new scale is an advantage when it is used opportunistically.
Conclusion
In short, you should keep quiet, go slow, and avoid being tricked out of your windfall. If you accomplish those seemingly easy and obvious tasks, you will be way ahead of most people who have ever been in your situation. You will have some chance to still be in this enviable situation once you are used to it. In time, you can strengthen your position by taking every possible advantage of your new scale.
Additional disclosure: Chris DeMuth Jr and Andrew Walker are portfolio managers at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.
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