LESSONS FROM A HOUSE ON A HILL

Tough times don’t last forever but they do sneak up on us when we least expect them! Be prepared. I knew a gentleman, now deceased, who ran a professional practice that thrived in the 1960s and 70s but declined in the 1980s and 1990s. For the sake of anonymity and privacy, we’ll call him David.

When David was in his 40s and 50s, money was abundant. Sadly, he never saved consistently. Neither did he apply his prodigious intellect to even the simplest basics of investing, such as learning about the risk-reward relationship or committing to long-term investment strategies like dollar-cost averaging and dynamic asset allocation.

Instead he lived extraordinarily well during his decades of bounty when he employed gardeners, servants and drivers. Tragically, later in David’s life, as the torrent of business income into his practice slowed to a stream and then a trickle, he had to relinquish more and more of his office and personal staff. I remember thinking 20 years ago, after observing those gradual changes of economic fortune, that it’d have been better for David to have had his driver in his 70s instead of just in his 50s!

The character failing that usually leads to such outcomes is disregarding the key principle of abiding financial success: Delayed gratification. When a wise person opts to delay gratification, he or she exhibits a willingness to sacrifice some comforts and luxuries today in the hope of securing a better, longer lasting economic future.

But it’s easier said than done.

I have just returned from a holiday in Canada that took in Whistler and Vancouver on the west coast and Toronto and Niagara Falls in the east. The most interesting tourist attraction I visited in Toronto was Casa Loma, a 98-room castle built in the 1910s by one of the wealthiest men in Canada, businessman Sir Henry Mill Pellatt.

It’s a magnificent structure set above downtown Toronto. The name Casa Loma can be translated as House on a Hill. Pellatt had a reputation, according to biographer Carlie G. Oreskovich, of living large even by the standards of that gilded age of robber barons and extreme excess.

In Oreskovich’s book

he describes an era that “readily lent itself to pompous shows of wealth”. (I bought his book in the shop at the basement of Casa Loma to learn more about a capitalist who soared too high before crashing to Earth.) Oreskovich writes, “High society and the

of this time were unabashedly ostentatious, consumption was decidedly conspicuous, and Pellatt was, without a doubt, a prime consumer — definitely one of the chosen. ‘It was a period in which clutter was adored,’ notes one historical observer. ‘Whatever was sparse, lean and simple and without ornament, seemed in the (1890s) to indicate a state of pauperism.’ This pervasive psychological mood encouraged excesses that strained the finances of some and frustrated others.”

Pellatt built his fortune through land speculation and by investing in faraway Brazil and, closer to home, in the Toronto Electric Light Company as early as 1883; other investments included beet sugar manufacturing and silver mining.

In the run up to the First World War (1914-1918), Pellatt’s fortunes declined. But just five years prior to the outbreak of the Great War, in 1909, two years before Pellatt began construction of Casa Loma in 1911, he was described as one of 23 people who ‘owned’ Canada!

By 1913 the city of Toronto turned on him, demanding escalated property taxes on Casa Loma. Pellatt fought back in court and succeeded in securing a reduction in the tax bill. Unfortunately, his business income continued to nosedive.

Oreskovich describes this sad time: “Sir Henry’s empire was crumbling, even as his partially completed castle was showing signs of decay.” Then as things turned from bad to worse, Pellatt was forced out of Casa Loma in 1923.

Soon after, Pellatt brought down a bank in which he was a major shareholder that he had involved in convoluted land deals. On Aug 18, 1923, all 83 branches of the Home Bank of Canada were shuttered. At least five deaths were linked to the bank’s collapse, with two officials and six directors imprisoned.

On Apr 15, 1924 Pellatt’s first wife, Lady Mary Pellatt, died. While the cause was listed as fatty degeneration of the heart, there was speculation she had committed suicide by taking slow acting poisons.

After leaving Casa Loma, Pellatt lived in various homes, ending up in a small house in West Toronto he rented for C$100 (RM338) a month. He died there at 80 on March 8, 1939.

As we mull the salutary examples of both David and Sir Henry, consider three truths:

1. Economic fortunes are cyclical. Prepare for lean times by living way below your means during good ones.

2. Less is more. Choosing to live simply early on and gradually escalating your lifestyle is wiser than enjoying too much too soon.

3. The future is unknown but likely to grow ever tougher. Prepare for the winter of your life by saving and investing throughout summer and autumn.

Finally, if you’re ever in Toronto do invest a day to soak in the soaring sights and sombre lessons of Casa Loma.