Money Management and Philanthropy

From Whitney Tilson: I got quite a bit of feedback from my article about the extreme amounts of money being made in the hedge fund business and how it’s being spent (or misspent). Some said “hear, hear!”, while others felt I crossed the line from being provocative – which I intended (heaven forbid I be boring!) – to being obnoxious (an admittedly fine line at times).

This is a complex topic and I don’t claim to have all of the answers about how someone who has made a ton of money should allocated his/her wealth, but I’ve done a lot of thinking about it, have observed many people in this situation, the choices they’ve made and the impact it’s had, and have some strong opinions on the subject. That being said, it’s obviously a free country and everyone has the right to spend their money as they choose and ignore the opinions of pundits like myself, but that’s never stopped me from expressing an opinion before!

By way of background, my parents were inspired by John F. Kennedy’s calls to “ask not what your country can do for you, but what you can do for your country” and “of those to whom much has been given, much is expected”, so they joined the first group of Peace Corps volunteers in the early 1960s (and were the first couple to meet and marry in the Peace Corps). Since then, they’ve spent many years working on international development projects in Tanzania and Nicaragua (where I spent half my childhood) and, over the past 11 years, Ethiopia and now Kenya, where they plan to retire. My sister followed in their footsteps and has done famine relief and public health work in Sudan, Mozambique, Guatemala, Zambia and how Kenya.

So, “do-gooder-ism” is clearly in my genes and there’s no doubt a bit of guilt that the profession I love and have chosen to make a career of involves trying to pick stocks that will go up. Not very inspirational, is it? Nor do I think it makes any sense at all to have a society that showers massive rewards on people who are particularly skilled in identifying stocks that will go up vs. those who are, say, especially good at healing the sick or teaching children to read. But it is what it is, so I cope with my guilt in three ways:

1. Give until it hurts;
2. Roll up my sleeves and get involved with worthy causes that I care about, either as a board member (4 boards currently; two related to school reform and two in Africa) or founder (I helped start three nonprofits: Teach for America, Initiative for a Competitive Inner City and Democrats for Education Reform); and
3. Encourage others to be more philanthropic.

Many people don’t have the time or interest in #2 and #3, but everyone can do #1, which raises the question, as one of my friends asked in response to my email: “How much philanthropy would stop you from puking?”

As an aside, my puking comment was less aimed at the lack of philanthropy – it’s rarely public knowledge how much anyone gives away – than at the over-the-top consumption, which seems designed to impress others – but which makes me think LESS of someone, unless they’re giving away equally large amounts of money (see below). I have no problem with someone spending a lot of money on a nice, spacious place to live, but at some point it gets ridiculous.

If you’ve seen children in Africa unable to go to school or dying of hunger or malaria for lack of a few dollars, it really does make you nauseous to see extreme, excessive consumption from someone who, to greatly simplify, like me, had to good fortune to be born in this country and have a skill of picking stocks that go up. And I’m not exaggerating when I say “for lack of a few dollars” – for example, every child I’ve ever met in Africa understands that education is the key to a better life, so they are desperate to at least attend primary school, which is now free in much of Africa. But even when school is free, children are required to wear a uniform, which costs $5. When millions of people are subsisting on $100/year and the average family has many children, you can imagine that even a measly $5 is beyond their means, so millions of children can’t go to school for lack of $5 for a uniform. This is WRONG! And the mind-boggling contrast between this extreme poverty and the extreme consumption I witness is difficult to reconcile.

Back to the question: how much philanthropy is enough? Here are three possible answers:

1. Give away (or at least put into a foundation) 10% of one’s after-tax income each year;
2. To the extent one wants to buy an over-the-top house, jet, car or the like, match this spending dollar for dollar with charitable gifts; or
3. If one doesn’t give it away along the way, then leave at least 90% of one’s estate to charity.

In my last article, I cited Chris Hohn of the Children’s Investment Fund as an exemplar. He’s built his philanthropy into his business and, in a few short years, he’s set aside HUNDREDS OF MILLIONS of dollars and his foundation (www.ciff.org) is already funding amazing work.

I think Bill Gates is another exemplar – his foundation now has $29 BILLION, by far the largest in the world, and is focused in the two areas I happen to care most about: reforming K-12 public education in the U.S. and helping address the suffering in Africa. I think that 100 years from now, Bill Gates will be remembered more for his philanthropic accomplishments than for his business ones. I think every person who’s been fortunate enough to accumulate extreme wealth should want a similar legacy. And even though I won’t make so much money that I will be able to have a global impact like Gates, when I’m on my death bed, I’d rather be thinking that I’d used whatever wealth, connections and talents I’d been fortune enough to accumulate to make the world better for as many other people as possible rather than thinking about how much money I’d hoarded and spent on myself or left to my heirs (who will, to quote Buffett, get enough to do anything, but not so much that they can do nothing). What a total waste of a life that would be!

Speaking of Buffett, I’ll cite him as a philanthropic exemplar as well, which I know is controversial given that he’s only given away a tiny fraction of his fortune. But giving away money sensibly takes a lot of time and energy and, in addition, some people (like Buffett) don’t enjoy it, so he’s decided to focus on compounding his money and then leaving virtually all of it to a foundation that will focus on the world’s most pressing issues, with a particular focus on ones that have no natural constituency. I have no problem with deferring one’s giving – there will be plenty of worthy causes in the future.

I also admire the frugal way in which Buffett lives – imagine how many billions of extra dollars his foundation will receive because of this. For example, let’s say that he’d taken $200,000 out of his fund 40 years ago and bought a fancy house. Compounded at 25% over 40 years, that $200,000 is worth $1.5 BILLION today!

Comments

[WC Whiner:]

The federal government will spend about $2,500 billion in the coming fiscal year. In the last half-decade, Congress has shifted the US tax burden alone by amounts in the trillions, ceteris paribus onto future generations of wage earners. You'll forgive me if as a result I shrug at Gates's $29 billion and barely notice you and Buffet.

Get yourself elected and try to make a real difference. If your policy attitudes reflect your personal ones, you'll have my vote.

2006 Jun 14 04:11 PM

[DonSuper:]

I hope more people working on Wall Street thought like you, Gates, and Buffett.

Congratulations on an excellent article, and on living life with a purpose! =)

2008 Nov 21 11:24 AM