Family Capital. Curtis Gregory

Hotel, lingering for hours, Jake regaling Margaret with stories of the clients whose affairs he handled. Since Jake was now the managing partner of J. Titan & Partners, and since the firm was growing rapidly once again, Jake had many stories to tell.

      On one of these occasions, Margaret expressed disagreement with Jake about how he was about to proceed on a matter. Astonished, and at first annoyed, Jake demanded to know how Margaret would handle the case. Patiently, and a little delicately, Margaret told him. The essence of the matter was that Jake was representing a young man named Eldridge who was hoping to build a better barge, barges being critical to Pittsburgh's reputation as America's then-busiest inland port. The ideas young Eldridge had come up with were quite interesting – they promised to shorten the time required to complete a barge by nearly 50 % – but the young man himself was too much of a dreamer ever to put his ideas to work.

      Jake's plan was to ease the fellow out of his own newly formed company by merging the firm into a holding company controlled by Jake and several of his clients. Margaret objected, not so much because she thought it was unfair, but because she felt that if Jake continued to follow in his father's footsteps, that is, developing a growing reputation as a sharp dealer, both Jake and his law firm would eventually suffer.

      Jake could hardly believe his ears. Who was Margaret Ellison to give business advice to Jake Titan? But as the conversation continued, Margaret remaining completely unflappable in the face of Jake's irritation, Jake found himself coming around to her point of view. His father did have a reputation for engaging in sharp practices – not precisely dishonest dealings, but barely honest ones. And Jake had learned some of these practices all too well. He'd already noticed, though he'd mainly tried to ignore it, that many young entrepreneurs were taking their business elsewhere.

      Impressed with Margaret's insight, Jake asked her to marry him on the spot. And on the spot, Margaret agreed that she would think about it.

      They did eventually marry, of course. By that time Jake's son, Ned, was four years old, as was Margaret's youngest daughter, Rose. Ned and Rose would grow up almost as twins, remaining remarkably close throughout their lives. Ned would eventually become the managing partner at J. Titan & Partners. Rose would marry a young client of J. Titan, a fellow named Landon Wainwright, who'd started a business offering commercial laundry services to hospitals, hotels, and similar businesses.

      The Titan Family Tree

      George Titan Branch

      George Titan, 1834–1915 (m. Ellie McCabe)

      George Titan Jr., 1868–1938

      Ellie Titan, 1901–1908

      Grace Titan, 1902–1978

      George Titan III, 1904–1981

      (Other descendants, no longer wealthy)

      Jake Titan Branch

      George Titan, 1834–1915 (m. Ellie McCabe)

      Andrew Titan, 1869–1919

      Jake Titan Sr., 1891–1945

      Jake Titan Jr., 1921–2007

      Ned Titan, 1948–

      Suzy, 1984–

      Geoffrey, 1991–

      Rose Titan Wainwright, 1949–

      Ellen, 1983–

      Billy, 1987–

      Summary

      Now that we've introduced the first three generations of one branch of the Titan family (the one now headed by George Titan III), and five generations of another branch (the one now headed by Ned Titan and Rose Wainwright), we'll move on to their various adventures with managing their capital.

      But before we do, I would emphasize the importance of a family's history and background to a financial advisor's ability to succeed with the family. You can't really know the man or woman without knowing something about their parents and grandparents. It's not always easy to get this kind of information, but it's worth going after it.

Chapter 1

      George Titan III and His Catastrophic Mistake

      Preparation and Use

      George Titan III was the third child and only son of George Titan Jr. and his wife, Mary (see Chapter 1). George had a difficult career at Titan Industries, and was let go by Smythson Brothers following its acquisition of Titan. However, when his father died George became the patriarch of that branch of the family and inherited responsibility for its investment portfolio. His sister, Grace, would probably have been a better choice, but in those days it was assumed that the males in the family would handle business and investment matters.

      And this is an important point. In some families in the early and mid-twentieth century, the brains of the family happened to fall mainly on the female side. But decision-making responsibilities continued to lie in the male line, right up until fairly recently. This meant that those families were fielding second-string players instead of their best, and sometimes that situation would come back to bite them. As we will see, such was the case with the George Titan III branch of the family.

      How Not to Manage Your Family's Money

      For decades, the capital of the children of George Titan Jr. had been managed by a local Pittsburgh trust company, the one selected by George Titan Jr. years earlier. But shortly after World War II the trust company was acquired by a local bank, and over the years that bank decided it wanted to become a world-class investment manager and to compete globally for investment business.

      Up to that point, the family's portfolio had been managed very cautiously, with half the capital always invested in bonds. But as time went by, and as their bank advisor developed many new products, they sold those products to George III, convincing him to invest more and more aggressively.

Quick Note

      This episode illustrates the danger of a family behaving too passively in the face of industry changes. The acquisition of the trust company by a bank completely changed the identity and nature of George Titan's advisor, but he went along with it without, apparently, realizing how consequential the change was.

      Note that there is nothing wrong with investing aggressively. Many families have done it with great success for many years. But aggressive investing leaves precious little margin for error. If you're driving your car at 40 miles per hour, a lot of bad things can happen on the road and you'll still have plenty of time to adjust. But at 80 miles per hour, you'd better be on high alert at all times. George III thought of himself as a far-above-average investor, but as we will see, he was confusing brilliance with a bull market.

The American Stock Market Turns Sour

      The late 1960s had seen strong equity markets in the United States, but the year is now 1974 and it is mid-July. George III is 70 years old and has been overseeing the family investment portfolio from his office at Lawburn (the Titan family office) for many years.

      George III considered himself to be an astute investor, and both under the local trust company and, later, under the bank, George believed that the family's capital had been well-managed. Following the Allied victory in World War II, the United States had become the world's most powerful country. It's main competitors at the time – Germany, Japan, and Britain – had all been devastated in the war and the U.S. economy expanded rapidly.

      The American stock market had kept pace with this growth, so that even net of the family's rather heavy spending – about 5 % of the capital's value every year – the portfolio had continued to grow in both nominal and real terms. Basically, since the end of World War II the U.S. stock market had been on a consistent upward march. During the decade of the 1950s, for example, the Dow rose from just over 200 to over 600. The surge slowed a bit in the 1960s, but even so the Dow rose to 800 during that decade, and there were several official bull markets late in the decade (1962–1966 and 1967–1968).

      In 1972, the Dow Jones Industrial Average had gained 15 %, and most investors believed that the good times would continue. The 1970s would be at