Rich man...poor man
By 1975, geologist Gerald Loucks had spent nearly a quarter of a century looking for oil. Though royalty arrangements between independent geologists and drilling companies are common industry practice, Loucks had always been a salaried employee. The security of that regular paycheck kept him from the rich profits generated by the wells he'd found. "I had nothing," recalls the 79-year-old Cedaredge, Colo., resident.
Then he and a partner were presented with the chance to forgo a salary, gambling that if they found oil, they would find royalties, too. "We were sticking our necks out a mile," Loucks says.
In the end, the gamble paid off. Loucks ultimately discovered Utah's Pineview Oilfield, part of the vast pool of oil deposits stretching from the Northwest Territories in Canada to Arizona. His royalty arrangement with the drilling company brought him the first significant money he'd ever seen--and problems holding on to it. Says Loucks: "You find out pretty quick you're very good at finding oil but very poor at managing your money."
In the hole. Risk-taker enough to stake his income solely on his geological talents, Loucks applied the same daring--though not the same knowledge or experience--to his investments. "I did not know how to play the stock market at all. I tried and I did everything wrong." Bit by bit, his money disappeared down a hole. "When your income is about $20,000 a month you can lose a couple of thousand and not worry about it. But," he says now, ruefully, "it gets to you after a while."
Those who manage fortunes professionally see such behavior all the time. Financial planner Mary Malgoire, head of the Family Firm in Bethesda, Md., cites the example of a former client who founded a successful consulting business, sold it to another company, joined that company, and then ascended to the top of the firm. When the stock market bubble came, the consultant, although sufficiently acute to have built and run successful businesses, put his entire fortune in one place--the technology-laden Nasdaq stock market--and lost big.
Lewis Altfest, of New York's L. J. Altfest & Co., offers another sad case, that of a technology executive who netted the majority of a $100 million initial stock offering. "His business talent was the reason his company was a success," says Altfest. Unfortunately, the executive had a blind spot: "Taken with his own cooking," he couldn't see that technology expertise didn't automatically translate into expertise in doing business on the Internet. He's not exactly poor nowadays, but he has worked his way down from the original IPO riches. There's only $3 million left.
Ask if there is any real difference between these high rollers and the individuals who piled into Internet and other technology stocks in the late 1990s, and experts would say that entrepreneurs who built successful businesses believe that, since they did so, their skill extends to everything else. "They're entrepreneurs, and they're very self-guided," notes Malgoire. That self-determination can be dangerous when it comes to handling money where forces beyond individual control--like national or world events--affect the bottom lines of investment portfolios.
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