Financial and Life Lessons We Can Learn from Dr. Walter Palmer’s Cecil the Black Maned Lion Debacle
I’ve been thinking about the story that has captivated the country over the past two days – how, if various news reports are to be believed, Dr. Walter J. Palmer of Eden Prairie, Minnesota, owner of a practice called River Bluff Dental in Bloomington, Minnesota, and two of his guides poached the beloved Cecil the Lion from a national park in Zimbabwe, luring him from the sanctuary where he was protected, injuring him with an arrow before tracking him for two days, shooting him, beheading him, skinning him, and leaving the body behind with plans to mount the trophy in his office. The dentist, a big game hunter who donates tens of thousands of dollars to conservation efforts at auction in exchange for the right to cull rare animals at certain times or toward the end of their life cycle in a case of philanthropy meeting practicality, claims he was unaware that the aforementioned guides did not have the right to authorize the hunt, for which he paid an estimated $54,000 according to The New York Times.
In less than 72 hours after his identity was discovered, it would be easy to conclude that Walter Palmer’s world has fallen apart. His business has been shut down (read the earlier linked Times article for more), his online reputation and ratings decimated, he’s had to refer patients to other dentists, he’s gone into hiding, and there’s no doubt he is, and will remain, a social pariah for many, many years, unwelcome everywhere from Christmas parties to restaurants. His primary economic engine – the thing that generated the lifestyle that allowed him to live so well and took more than a decade of of hard work and advanced, expensive schooling – has been wrecked; permanent impairment that will be difficult, if not impossible, to recover. Every day that goes by, he loses more and more money, not to mention more and more former (and would have been future) clients, while the costs of his practice remain in place, draining wealth.
Leaving aside the other issues that are being discussed elsewhere involving the ethics, morality, fairness, and appropriate, if any, punishment he should suffer, I want to John Stuart Mill the situation and extract the lessons we can learn from his suffering. Like Justine Sacco, who had her life destroyed by a single, stupid Tweet (a Tweet that divides people fiercely if you get them into private conversation; some have said is blatantly, offensively, inexcusably racist, some contend was merely vapid or insensitive, and others say a reasonable person might have interpreted it as sardonicism intended to mock racial disparities and first world privilege, the nuance being lost in a world of black-and-white pixels and absence of context clues), Dr. Palmer has discovered in a world of smartphones, tablets, computers, watches, traffic cameras, security cameras, Tumblr, Twitter, Facebook, and Google, there’s not many places people can hide unless they remain off the grid. (And it’s only going to get worse – computer scientists at the Karlsruhe Institute of Technology in Germany have developed a new technique that can use thermal signatures to do facial recognition in the dark.) If he happens to own a 10,000 acre ranch in Colorado, now would be the time to high-tail it to the cabin and sit on the porch with a cup of coffee because this thing isn’t going to go away anytime soon unless some larger news story bumps it off the cycle. That is, of course, assuming he isn’t extradited for criminal poaching charges as some are attempting to have done. He very well could be looking at the inside of an African jail cell for awhile.
1. Financial Independence Is Taken for Granted But When It Is Necessary, There’s No Substitute
Given his high income, it was probably unthinkable this time last week for Walter Palmer to contemplate that his source of cash flow could dry up. If he was smart (and he very well may have been), he’d have used a lot of that money to acquire other, non-disclosed cash generating assets that are pumping out the dividends, interest, rents, and royalties we so often discuss.
Imagine he had a block of 12,100 shares of Exxon Mobil, the descendant of John D. Rockefeller’s old Standard Oil of New Jersey. Not only is it still worth $1,000,000+, no matter how hated he is, he’s still getting his $2.92 cash dividend each year, or $35,332 per annum, from his cut of the oil, gas, chemical, refining, transportation, and other activities. Every three months, he’d open his statement to see another $8,833 deposited. It doesn’t matter if he is loved or despised. It doesn’t matter if his reputation is in tatters. It doesn’t matter if he loses his medical license or school children hiss at him in the street. As long as his name is engraved on those stock certificates, his ownership still gives him the right – whether someone likes it or not – to collect his pro-rata share of the distributions. Unlike a small business, you can’t exactly boycott Exxon Mobil over a single, relatively small investor (and everybody is relatively small to Exxon – the empire has a market capitalization of around one-third a trillion dollars).
Sure, there are times when this rule doesn’t hold – like the night Black Wall Street burned or the experience of equity investors in China prior to the communist takeover that plunged the country into generations of grinding poverty (a condition that only ended in recent times – those of you my age (32) and older probably still remember being told, “Eat your dinner, there are starving kids in China”) but overall, if it is violated in a rich, first-world country, you probably have bigger problems beyond a mere paycheck or your reputation. You’re probably dodging bullets and running for the border.
2. Stealth Wealth Is Invaluable
The advantage here is that, unless you open your mouth, stocks can largely be hidden so people wouldn’t even know to boycott Exxon Mobil in the first place because nobody would have any clue he owned it! There are almost no disclosure requirements under most circumstances for a U.S. based investor acquiring a U.S. based stock provided he or she doesn’t cross the 5% ownership threshold, which is easy to stay under even for billionaires given the size and scope of the domestic equity markets. The same goes for bonds, REITs, (to some degree) MLPs, royalty unit trusts, and anything else that allows him to “disappear”, in a sense, into a broad crowd of thousands of other owners.
In fact, I’d go so far as to say if someone approached me with $5 billion tomorrow and said, “I want to make sure I always pay my taxes, and never do anything questionable, but you need to keep this entire empire hidden from sight so nobody has a clue I have more than a typical middle class fortune”, I could absolutely do it. It’s not that hard once you understand the framework in which we are all operating. Without a doubt, I could keep them from ever appearing on the Forbes list with no one, not even their own children, being clued in to the extent of their net worth. It’d take some time but it is doable.
On that note, early this morning, I published a piece over at Investing for Beginners called Naming Your Family Trust. One of the suggestions was a refrain heard by some attorneys, estate planners, and wealth managers these days who encourage investors, business owners, and other affluent individuals who are using trusts to pass on assets: Take advantage of the privacy trust funds can provide by using a generic or anonymous name. Instead of calling something the “John Smith Family Trust”, consider, instead, naming it something like “General Midwestern Properties Trust”. That way, any property held directly by the trust can’t be traced back to the family by outsiders without considerable effort and luck – for example, if it acquired an office building, the trust name is going to be on the title deed at the county recorder’s office, along with the assessed value and property taxes. I guarantee that right now, somewhere, somehow, there is a reporter looking through property records for Walter Palmer trying to fill in more detail about his life. If he happens to own duplexes or car washes, they’re going to be next up on the boycott list; another source of cash flow impaired.
If you really want to go dark – to take your stealth wealth full blown black ops as it were (legally and ethically, of course – we’re not going down the route of Afghanistan’s Hawala money laundering network) – there are a number of things you can do, such as using a combination of Nevada LLCs with generic names managed by the attorney-of-record and anonymous sounding trusts (perhaps even New Hampshire silent trusts) to hold those membership units. Nobody except the IRS, and in a few cases, your state tax agency, is going to have any idea where the money is unless you screw up or have paperwork mailed to you, which you should most assuredly not do. (Even then, when you look at families like the Rockefellers, to go back to our Exxon Mobil discussion, you could theoretically use entity-level taxation to avoid disclosing or having any record of the wealth on your personal tax return, making it hard for even the government to know the extent of your wealth, but it would take many millions, if not billions, of dollars to achieve that in any scale-efficient way and in almost all cases, why bother? The Rockefellers were running part of the government itself back in the days when Nelson was the Vice President so they had motivation to conceal the extent of their ties to commerce, maintaining plausible deniability through a network of advisors overseeing dozens, now hundreds, of individual trusts and thousands of individual holdings. Still, it’s an interesting intellectual case study for those of you who like this sort of thing – go back and look at the 1960-1970 behavior of the family office, the Senate testimony on the family holdings, and anything else you can find. It’s a fun diversion.)
3. Be Careful About the People with Whom You Go Into Business – Their Reputation Is Now Your Reputation Risk
At the moment, I have no idea if Walter Palmer is the sole owner of the dental practice that is, as I type this, being boycotted up in Minnesota. Imagine, though, he had other partners in the firm; others who worked just as hard, and had their own net worth tied up in the place. They would be experiencing a financial emergency right now if they hadn’t prepared beforehand for a situation like this because of something someone else did; to which they were no party and, perhaps, of which they had no knowledge.
4. It’s Usually the Small Oversight Failures That Lead to Life-Altering Consequences
People like to think it’s the big stuff – tsunamis the size of mountains, hurricanes visible from space, coups overthrowing entire governments – that are the biggest risk. And, sure, they are definitely worth attention. (One example: Everyone in the insurance industry knows there’s something like a 1-in-10 probability that the Pacific Northwest is completely and totally destroyed within the next 30 years, killing 7+ million people and wiping out nearly all of Seattle and Portland. Every few years, someone will write an article about it until it is once again forgotten; sort of like Berkshire Hathaway pulling back its hurricane premiums in the Gulf of Mexico due to warmer waters prior to the active hurricane season a few years ago that cost so many other insurance companies billions of dollars more than it should have.)
More often, it’s small oversights in critical engineering breakpoints. Like the Great Boston Molasses Flood of 1919 from a few rivets giving out due to shoddy welding, or a little too much sugar in the air at a sugar refinery turning the whole place into a bomb that levels multiple city blocks, all of this could have been avoided if Walter Palmer had checked his permit, ensuring it was legitimate; such a tiny thing. (On a related note, this is one of the reason certain tool manufacturers have competitive moats in the investing world. Wise management knows it. It’s often been said if you aren’t going to be able to undercut the leading oil rig drill bit makers, even if they are charging more than a house for each drill bit, because you have potentially billions of dollars of liability exposure on the line. Going with a less-tested product, from a less-known manufacturer, to save what isn’t even a rounding error despite being a lot of absolute dollars, isn’t rational. Who behaves like that?)
The twin qualities of neatness and fastidious, done so gracefully they look effortless, can save a lifetime of work from being wiped off the board. Cross your “i”s and dot your “t”s. In the case of Walter Palmer: If you’re going to pay tens of thousands of dollars to kill the most famous lion on the planet – a lion who is so famous, in fact, that he has his own licensed image collection from photographers at major image repositories (the graphic at the top of this page is of Cecil the Black Maned Lion running in Africa prior to his murder) – you should not act surprised when everyone gets angry.
Generally, a good rule in life is to try and avoid anything that cause small children to weep uncontrollably and build tiny alters with stuffed animals in memory of whatever you destroyed. You’d think this goes without saying but we apparently need to cover all of our bases these days.