The quick answer is because they can, but that answer is not satisfying enough for me right now.
Let’s define the type of money wasting I am talking about. Not the type of money wasting, like buying a boat, leasing a high-end car, eating out every night, or shopping for junk you don’t need. No the type of money wasting that I am talking about is something most of us cannot even imagine. What I am talking about is spending millions on a massive non-charity base business venture that has no hope of ever making money.
I had the privilege of staying at a high-end resort in the Blue Ridge Mountains this week. The Bank I work for had a retreat there, so I got to enjoy this amazing place for a couple of days. The resort was beyond beautiful, with views you would see only in a movie. The service was 5 star, including a valet service that drove you anywhere in the resort upon request.
The entire property was privately owned and consisted of 12,000 acres (4,850+ hectares) of woodland, with several rivers running through the property. The resorts have fly fishing, champion-style golf course, horseback riding, an award-winning spa, and plenty of other outdoor activities. My room was actually a small cottage house that had views of the golf course and completely geared to make you feel thoroughly relaxed. The main lodge overlooked the golf course and had an amazing restaurant.
Clearly, I was lucky to get an opportunity to enjoy this amazing place, but I had a long conversation with my boss on how this place can even exist. You see there is no way they were generating enough money to pay the staff expense, maintenance cost, administration costs, and regular capital improvements all great resorts need. They simply didn’t have enough guest to ever cover the cost, even if they were full every day of the year. Part of my job is being able to examine a business and make risk decision based on limited information. No, this resort clearly had a very wealthy patron.
Of course, that patron was a foreign billionaire. Why would they continue to funnel money into a venture that clearly had no hope of really ever turning a profit? Tax shelter? Maybe, but the reality is likely something else. Ego!
Now everyone has an ego, some are more prominent than others, but when it comes to the “uber”rich (my term for people worth over $100 million) ego becomes part of being rich. Dealing with wealth clients for a living, I see the toys they buy and some of their spending habits. Ego plays a big part in those spending decision. I am sure most would deny it, but after a few drinks, it is amazing what someone will tell you. Having something that is bigger or better or something unique enough that it makes your name known.
Now maybe they created the place to help the local community or preserve the natural beauty of the area. Of course, if that is true then why build a 5-star resort, to begin with?
No, “ego” has an impact on the decision of those with money. When you are a billionaire, you can take on a project that is basically a money pit. You have the resources to do that, but this “ego” filters down into those that cannot afford a money pit. Even if you are a millionaire several times over, you likely have a limit on how much money you can waste.
Ego is something that comes into play when you hear stories of lotto winners going broke. Ego comes into play when a doctor gets into financial trouble for investing in a project they have no knowledge of, like a new restaurant concept, nightclub, or real estate investment. Ego even comes into play when your standard middle-class family buys the latest iPhone or new 4K TV, then finances the purchase with a credit card.
If you are uber rich you can afford to satisfy your ego. Anyone else is simply wasting money they cannot afford to waste in the first place.
Having been in a finance and private banking for nearly 20 years, I have seen clients with such massive egos that I knew lending them money was a mistake. Unfortunately, in the private banking world, you sometimes make loans even when the business purpose doesn’t make any sense.
We all have an “ego”, the question is do you let that ego get in the way of making sound financial decisions?
Please share your comments
Sincerely
GB
http://gratefulbanker.com/2017/10/01/why-wealthy-individuals-intentional-waste-money/
Grateful Banker 