4 Things Harvard's Guru on Wealth & Families Taught Me

Few people have thought as well and as deeply about making money and passing it on as Howard Stevenson. I learned a lot from interviewing him. I also laughed a lot at his dry humor and unabashed frankness.

He gave up a tenured position at Harvard Business School (how many people would do that??) to go out into the world to make money and build things. Among those things he helped build was the legendary hedge fund Baupost Group. Seth Klarman, a former student of Professor Stevenson’s hired as a twenty-something to run Baupost’s portfolio, has accumulated a record that rivals Warren Buffett’s. Howard Stevenson’s own angel investing has also produced results comparable to the Sage of Omaha’s. Howard Stevenson knows how to make money and how to keep enough of it to need a family office to manage his wealth.

After a sojourn in entrepreneurship, Professor Stevenson was lured back to HBS to build their scholarship on entrepreneurship. There he would also become the famously rich school’s biggest fund raiser. There is now an endowed chair professorship in his name, that’s the academic equivalent of having your football jersey retired.

On to the things I learned from Howard Stevenson:

1.  Assets, Not Income, Build Wealth: Prof. Stevenson recalls fellow faculty members who were paid handsome consulting fees and soon were driving around in Jaguar XKEs, the era’s equivalent of Tesla Roadsters. Howard Stevenson took a different approach:

 “I went off to places like Lima, Ohio, and I was paid $300 a day, but I got 1% of the company”.

By forgoing high cash income in favor of modest cash plus shares from promising enterprises, Howard Stevenson simultaneously protected himself from the temptation to spend and built an attractive and diversified portfolio of assets. His approach is a two-edged tool for wealth creation.

2.  People Stay Too Long at Jobs They Hate: During his initial stint at HBS, Howard Stevenson noticed that some of his colleagues with tenure had fallen into the “Velvet-lined Rut”, they had become captive of a comfortable position from which they derived little satisfaction. This is what drove him to pass a tenured professorship when it was first offered and instead go out into the world and take risks. As a trustee at Olin College, he appreciates the school’s policy of not having tenured faculty. He believes it is better to have people stay on only as long as they contribute and as they themselves enjoy it.

He explains the dynamics that leads to this behavior. If a person has reached the pinnacle of a certain activity it’s hard to step down into the valley of learning before again climbing an even higher peak of achievement. Here is a quote that elucidates this:

“A lot of people are fairly miserable in their job, but they fear change more than they look for the optionality that comes in change.”

3.  Invest in Stupid Businesses Started by Fantastic Founders: Howard Stevenson’s best investment ever was in a business that he thought was really stupid. He was not alone, venture capitalists passed up on it because of that. However, Professor Stevenson thought the team was fantastic. The investment, Asurion, would go on to return 400 times the amount invested.

Howard Stevenson was demure about what Asurion does but I looked them up, they insure cell phones from breakage, definitely a stupid business.

The key here is the fantastic founders. I missed investing in Love Pop (Love Pop Site) because I thought the business of greeting cards cut by lasers was stupid so I never met the founders. It turns out they are some of the most dynamic young founders in America and I missed the Love Pop boat! Bet on the jockey not the horse.

4.  Track Your Wealth: Peter Drucker is supposed to have said “If it does not get measured it does not get done”. Howard Stevenson was punctilious about tracking his assets and liabilities. Over the years he included in the equation those to who he had given money so that he would not feel poorer from engaging in estate planning or charitable giving.

Howard Stevenson is a rich source of wisdom about money dispensed in pleasantly spicy morsels.

Listen to this delightful podcast interview or read the annotated transcript here: Howard Stevenson's Page on Angel Invest Boston