Why Rich Men Go Broke

Chief David Ajibosho in his heyday was a well-to-do socialite, a member of some of the elite clubs in Lagos. His lifestyle was funded by a booming transport business and a printing press. He had three wives, a fleet of cars and a large house in a low density area in Surulere, Lagos. He was a virtual showstopper at the parties he attended religiously every week, resplendent in all white flowing robes.
But just as he turned 56, the music stopped. Despite, his seemingly solid financial standing, all it took to bring him to the ground was one “hit” by scammers and he lost everything. He had taken the wrong bet and by the time the banks closed in, he suffered a stroke and died, penniless, a few days after.
The gossip columns of celebrity magazines here and abroad are full of similar stories; of yesterday’s men who had made it big time or at least lived comfortably but still ended dead broke.
The list includes company owners, top politicians, civil servants, failed contractors, military officers, musicians, journalists and lately executives and directors of failed banks who have been stripped of their assets by the Economic and Financial Crimes Commission.
Most are mired in debt, lured into investing into business they know nothing about, or were victims of 419ers. But the most common scenario is that they were victims of themselves. Extravagant lifestyles, poor financial planning or none at all; greed, lack of depth or just plain bad luck is sometimes to blame.
And the consequences can be dire as those who have treaded this feared path will tell. A sudden loss of self respect, loss of prestige among peers and family members, health issues, homelessness etc readily come to mind.
It baffles less privileged mortals that those higher up could crash easily. “It cannot happen to me” is a usual refrain when such issues come up for discussion. Boxer, Mike Tyson, reputed to have earned over $400m in his short-lived career as world champion recently filed for bankruptcy due to his inability to repay almost $30m in debts. United States rapper- turned preacher- Hammer, went into bankruptcy several years ago; his fortunes having been eroded by his decision to live a life of opulence and support a 200-man entourage consisting of friends and family.
Many lottery jackpot winners have ended up broke just a few years after multi-million wins: They could not just handle their good fortune.
Here at home, once high rollers such as Chief Femi Adekanye and Mr. Ralph Osayeme, former chairman and managing director of defunct Commerce Bank respectively, are on the run, their fortunes gone after the bank went bust on a failed sugar importation deal, and expensive legal fees spent to defend charges before the Failed Banks Tribunal.
Why does this happen? And why do people fail to learn lessons from the fate of others.
Head, Asset Management at IBTC Chartered Bank, Mr. Akeem Oyewale, says that windfalls or wealth built over time through savings needs to be managed knowledgably.
“The key issue is not to be greedy and to be knowledgeable about how to make money work for itself”
He points out that many people make the mistake of quitting work after they hit a wind fall not realising that expenses of every day living, school fees, hospital bills, rent, handouts and other forms of recurrent expenditure can make a significant dent on any cash stack.
Oyewale points out that the key to wealth protection is defining your objective and finding the right type of investment or investment mix commensurate to one’s risk appetite.
The questions to be answered, he says, include: whether the client wants more money or just wants to live off the accretion on current holdings. But he cautions that people should not expect N1m to turn to N2m overnight, pointing out that this is one of the reasons people fall for schemes offering 100 per cent to 200 per cent returns per month and end up losing money.
According to him, three classes of investments – money market, capital market and real estate – which all require specialised knowledge are available for the picking, to cater for varying tastes.
The capital market, which is his company’s specialty, offers a good hedge against inflation over the long term as the market usually outpace, inflation. But it carries some risk too. “You can make 20 per cent return in a week if you make a good decision, but if the market is bearish (share prices are falling), you could also lose even part of you principal.
Real estate could be the best bet, he points out, as land appreciates all over the world but it is less liquid and could prove problematic to convert to cash quickly. Money market instruments such as treasury bills or bankers acceptances, he notes, have fixed guaranteed returns, but this is usually low and if lower than inflation rate, returns could be in the negative.
However, if one is considering investing in a line of business, he says it is important to acquire some knowledge in that field and people should avoid joining the bandwagon or else one could find himself on a slaughter slab.
Experts elsewhere attribute financial failures to overconfidence and refusal to acknowledge signs of looming disaster. They find that it is difficult for those accustomed to betting and winning, making decisions that unlock wealth, to accept that they could be wrong.
Many of the owners of the banks that failed last year did see the ominous signs. But greed and dishonesty in some cases egged them on to sink deeper into the murk of borrowing to pay for previous borrowings until the bubble burst.
It was a matter of huge egos and keeping up appearances, usually testosterone induced, as studies have shown that men are more prone to risk taking.
The financier and speculator, George Soros, known as the “Man who broke the Bank of England” earned a whopping $1.1bn return in a single day by gambling his entire $10bn fortune in a spectacular attack on the British pound in 1992.
According to a recent article in the International Herald Tribune, business professors at the University of California at Berkeley, Brad Barber and Terrance Odean, in an analysis in 2001 of stock trading, titled: “Boys Will Be Boys,” pointed out that psychological studies demonstrated that men tended to be more overconfident than women.
Psycologist and Chief Executve, Simple Solubles, Mr. Folusho Ayodeji, points out that those that make their money through easy or fraudulent means are more likely to lose it.
“If a man works hard for his money, the tendency for him is to protect it. But if you inherit money, or win a lottery or you get lucky and someone gives you a contract and you make a lot of money from it, you are more likely to be careless, on the assumption that it can be replaced. But as we know, an opportunity once lost can hardly be regained, so we usually advice that people slow down and reflect and do some planning for the future.”