Once named the richest man in the world, Jean Paul Getty was said to be the first billionaire. But how did he amass – and keep – that wealth?
Getty has recently shot to the public’s attention once again after the release of the film All the Money in the World – about his life and his grandson’s kidnapping.
In it Getty, played by Christopher Plummer, is depicted as a tight-fisted man who is hell-bent on retaining his fortune. His decision about how much ransom money to pay is even motivated by how much can be used as a tax write-off.
However, during his life Getty made some astute investment decisions, took risk and was very conscious of not losing his money. In 1965 he wrote down his secrets to investing in the book How To Be Rich – revealing the blueprint of how to invest like him.
The book was born out of a series of columns Getty wrote for Playboy magazine – at the behest of editor and publisher Hugh Hefner. Getty said that his book was not intended to tell people how to get rich, but instead how to be rich.
Getty’s first tip for budding investors is not to panic, and to buy when others do panic. He uses his experience of Black Monday to show how to react in times of crisis.
When stock markets plunged on May 28 1962, Getty said all around him panicked but there was “little if any reason for alarm and absolutely none for panic”. He said: “As for what I was doing, the answer was simple, I was buying stocks.”
Getty bought the stocks as a long-term investment, not to make a quick buck when the share prices rose once again. This is his second tip: there are no get-rich-quick schemes that pay.
“Get-rich-quick schemes don’t work. If they did, everyone on the face of the earth would be a millionaire,” he said.
Instead, he advised: “Don’t misunderstand me. It is possible to make money – and a great deal of money – in the stock markets. But it can’t be done overnight or by haphazard buying and selling. The big profits go to the intelligent, careful and patient investor, not to the reckless and overeager speculator.”
Getty was a big “value” investor. This means he believed in buying stocks that were down on their luck, for various reasons, and so had a lower cost but the potential to resurge.
He said that with careful research investors could select the stocks that were unfairly undervalued, buy them when prices were low and then enjoy the gains on the way up. For modern investors there are fund managers who invest in this style – either with a UK focus or buying “value” stocks elsewhere in the world.
Getty bemoans the trait displayed by many investors to wait until a share price is high before they feel comfortable enough to buy the stock. Making this error worse, he said, is when investors then panic at the first drop in a share price and sell at a low – thus cementing their losses.
However, buying at the lower-cost end of the market can often end up with investors delving into what are known as “value traps”. These stocks are bought at a low price but never recover, risking heavy losses for investors.
Here, Getty dispenses his third tip – never buy a share until you fully understand its business. “No one should ever buy a stock without knowing as much as possible about the company that issues it. Some so-called investors have insisted on buying large numbers of shares in companies without having the foggiest notion of what those companies do or produce,” he said.
Investors should also buy stocks listed on reputable exchanges, said Getty in his fourth tip, rather than more obscure companies that may be peddled by “promoters and theorists”.
He said he was often asked what advice he would give if someone had £1,000, £10,000 or £100,000 to invest. His advice for all these investors is simple: “I would consider buying only such common stocks as are listed on a major stock exchange. I would apply my rules and tests, and select the soundest and more promising growth stocks.”
The valuation of a company in relation to the value of its assets is an important consideration too. Getty used the example of Honolulu Oil, a company that he had invested in that was dissolved.
The shares of the company were each valued at $30, but the value of the assets when it was dissolved was about $100 per share – handing shareholders a windfall.
Clearly, this windfall happens only if the company dissolves, but Getty points to this factor being an important metric when weighing up whether to buy a stock: “It should be plain to see how much added safety there is in investing in a company that has tangible assets with a net liquidation value greater than the value of its stock.”
Getty did not invest his money only in the stock market – he was also a big believer in putting your cash in property and art. His art collection was so great that a museum was opened in his name. This is now split across two sites in Los Angeles and houses a variety of art.
However, he warns art fans not to buy works just to make money – but instead for the joy and interest of collecting.
“Nonetheless, it remains an undeniable fact that fine art is a fine investment. The dollars-and-cents values of paintings, sculpture, tapestries, fine antique furniture and virtually all forms of art have shown a tendency to rise – and even soar – over the years,” he said.
Art collectors also do not need to start with lots of money. Instead, they can buy relatively cheap works of art from undiscovered artists to begin their collection. Ultimately though, Getty advised, collectors should be able to live with the piece, and like it personally, before they commit any money.
While Getty has a lot of advice about how to become wealthy and navigate investments, he also advises investors that they have to handle being rich.
At the age of 24, when he had made his first million, Getty decided to retire. However, just two years later he returned to work, having realised that he was bored not working.
Getty thought that to be successful people needed to have the “millionaire mentality”. He added: “In short, the millionaire mentality is one that is always and above all cost-conscious and profit-minded.”
Investors and businessmen should be focused on the small, rather than the big, he added. For modern-day investors, one way to put this into practice is to make sure you are paying the lowest costs for buying and selling investments.
Every investor will pay fees to a broker, either online or over the phone, to buy and sell stocks and funds – they should ensure they are paying the lowest possible while still getting a good service.
Another application of this wisdom is keeping an eye on the costs you are paying for the management of funds and investment trusts – and pushing them as low as possible.
