It’s no secret that most wealth in the United States is so-called stealth wealth. We now live in a country where roughly 1 in 5 families earns six-figures a year or more, which most people wouldn’t believe, and for those who put aside money, something like 80%+ of millionaires hide their net worth from friends and family, who are clueless as to the capital they have amassed, often living in normal houses, driving normal cars, and doing normal jobs. Interestingly, it is not just the six-figure families who end up being millionaires. There are a whole lot of cafeteria ladies and retired janitors on the list, too, none of whom ever made a big annual salary but instead lived below their means, investing the surplus.
Why am I bringing this up right now? Another secret fortune has been uncovered, this one belonging to Lewis David Zagor, who left behind an apartment filled with expensive goods and $18,000,000 in cash, stocks, mutual funds, and other securities. (I want to thank Jay Tank for tipping me off to this story.)
I know several people like this in my own life, who appear economically ordinary on the outside to the point you’d never guess they’d built compounding machines for themselves. Obviously, I can’t talk about them for privacy reasons (it’s not my secret to tell) so when a textbook example shows up in the national press, it makes me happy because I can highlight it as a real world illustration of how powerful compounding really is if you get the base conditions right.
Just like Jack MacDonald, who secretly amassed $188 million, Grace Groner, who secretly amassed $7 million, science fiction writer Hayford Peirce who collects six-figures in dividends each year from a portfolio of 14 stocks, the late retired IRS agent Anne Scheiber, who amassed $22 million by the 1990’s from her New York City apartment, Agnes Plumb, who left behind $98 million despite living in a tiny Studio City, California apartment, twins Robert and Kathleen Magowan who built a $10 million fortune from their home, Curt Degerman, who built a seven-figure estate by recycling trash he found then investing the change he was paid, and countless others we have talked about over the years, Lewis David Zagor lived in a small apartment, worked as a programmer for awhile, but eventually began managing his money full-time. His widow estimates his fortune at $18 million, accumulated by his investing activities. She provided the reporter writing the story with examples of his bank statements as proof, one of which had $2 million in cash, as well as the five-figure checks that are still showing up to her late husband’s apartment. She can’t access any of it until the court sorts everything, which is itself complicated by the fact the real estate company running the building locked her out of the apartment.
(That in itself is a story and relevant to our recent discussion about the economics of real estate. For decades now, it has been settled that rent control destroys the quality and quantity of housing stock in a city so that, eventually, only the rich can afford to live there. It is akin to declaring war on the poor because of the incentive system it unleashes, ultimately having the exact opposite effect it was intended to have, benefiting a select few who were first-comers. This was a man who, when alive, appears to have no debt and an $18,000,000 fortune gushing dividends upon him so he can go spend it at Saks (he spent so much money at the luxury retailers in New York, they would personally deliver the packages of his spending sprees to his homes, neatly wrapped in boxes like in the 1950’s). Yet, he was paying only $1,640.85 a month in rent for an apartment on one of the most famous streets in the world, distorting the relationship between supply and demand. And he is far from unusual. That is not much more than what Aaron and I paid for our college apartment in New Jersey ten years ago!)
The backstory seems to be that when Zagor died, the management company reportedly wanted to charge his widow market rent and she refused since they were married. She says they changed the locks so she couldn’t enter the apartment, but she isn’t concerned. She has another apartment on Fifth Avenue where she lives and provided the reporter with her own bank statements showing she has $1 million in cash sitting in her own checking account. Still, she can’t do anything until the mess is sorted out as Zagor was a hoarder of “expensive clothes, exquisite silverware and pricey paperweights”, meaning the apartment is a wreck, and even if she could get in there to organize everything, she’s unable to even cash his dividend checks as they are in his name. Zagor never bothered to draft an estate plan and has no other beneficiaries so it seems like a fairly straight-forward case but it’s still a paperwork nightmare to try and get a handle on something like that.
The saddest lesson from the story is that the widow thinks he died because he was cheap. He was getting free medical care for heart and kidney failure (he was 300 lbs.) and wouldn’t pay for better medical treatment despite her entreaties. It’s such a waste. In order to get a little more utility from his funds, he wiped himself out so now he gets zero utility from them.
I would love to get my hands on his account statements to analyze his holdings. You can tell a lot about a person by how they manage their money. I can’t recall who said it but either Galbraith or Keynes once mentioned if you look at the transaction register for a man’s investment holdings, a portrait of who he is begins to emerge over a long enough period of time. His temperament and values show themselves. How often does he trade? What types of companies does he prefer? Where does he want to sit in the capitalization structure? How diversified does he like to be? How does he handle tax strategy? It starts to shine through the pages of the ledger.