The upside-down
Businesses suddenly become beneficiaries
Wealthy people with cash to deploy tend to grow their fortunes when economic crises end and recovery begins, says Jeff Matthews, a Forsyth Barr investment adviser. ‘‘Most of them end up being wealthier because they have the cash, or funding lines available, so they are able to pick up bargains,’’ he says.
‘‘Ordinary people don’t have that ability to go out and buy a whole lot of Auckland Airport or Heartland Bank shares, if they think they are good value.’’
Although wealthy people take a hit in crises, they do not enter panic mode, providing their wealth is not built on an edifice of suddenly unsustainable debt.
And if they have cash to invest when prices are low, they can position themselves to profit from rebounds in share and property prices, Matthews says.
This was a strategy most famously adopted by legendary investor Warren Buffett which he outlined in a New York Times column in the immediate aftermath of the Global Financial Crisis, saying he would be buying American company shares at bargain prices because it made sense to ‘‘be fearful when others are greedy, and be greedy when others are fearful’’.
Briscoe Group majority owner and managing director Rod Duke says he has taken an eyewatering wealth hit from Covid-19, but he is not panicked.
Duke’s 77 per cent stake in the retail group which owns Briscoes, Rebel Sport, and Living and Giving was worth around $775 million in January before US and New Zealand Covid-19 panic set in.
His stake is now worth around $505m, having at its lowest point, hit just under $400m.
Duke is no longer drawing a wage from Briscoe Group, and the dividends he was being paid, which totalled more than $33m in the past financial year, have been suspended.
But Briscoe shares were being valued as a result of other people, not Duke selling them. And on March 20, he bought another 216,000 of them.
‘‘If you sat down and tracked all the purchases and sale of Briscoe shares over the last 19 years, the one thing that would be abundantly clear is that I am not a seller. I have never sold,’’ he says.
In March, Kein Geld (NZ), a company in which Duke is a shareholder, bought just over 200,000 shares in Briscoe.
The reason he keeps buying, Duke says, is because Briscoe has been a great investment, as illustrated by its increasing its dividend for each of the past 18 half-years.
When asked how he feels about the $300m-odd drop in his wealth, he says he doesn’t feel anything. ‘‘I don’t think about it.’’
His eye remains on the long-term value of Briscoe, and he does not track the daily movements to see how his wealth is increasing, or decreasing.
‘‘None of my friends, who have been relatively successful, do that either,’’ he says.
The decline in wealth of other big shareholders in listed companies can be tracked by share-price movements.
Members of the Hill family, of Michael Hill Jewellers, had 483 million shares in the NZX-listed company.
They were worth 76 cents at their high point on January 13, and were around 25c cents last week, making for a drop in value from just under $370m to just over $120m.
But the wealth of some very rich people is in unlisted assets, which are not priced daily, making their rises and falls in wealth trickier to track.
Rank Group, owned by New Zealand’s richest person, Graeme Hart, is not listed on any sharemarket.
But on March 8, US wealth publication Forbes estimated he was the world’s 127th-richest person, with a real-time net wealth of US$11.5b based on estimates of value for his packaging empire.
‘‘People tend to get wealthy by concentrating their wealth, having a mass of money in Microsoft, or Apple,’’ Matthews says.
But once they’ve made a fortune, they tend to diversify to reduce the risk of losing that fortune, he says.
That often means buying into property as well as buying into other businesses either directly, or through bespoke share portfolios.
Of the top 20 people on New Zealand’s rich list, almost half built their wealth through property investment.
The wealthy have other advantages in a crisis. They tend to be able to make use of tax losses in recovery phases, while ordinary people whose wealth is in their homes and KiwiSaver, cannot, Matthews says.
Wealthy people also tend to have advisers who can help them sweep in to buy up unloved stock in a company, or find bargain investment properties.
The rich are good at weathering crises, and overseas and in New Zealand it’s been observed many head to out-of-town second homes to distance themselves from centres of viral activity, a tradition going back to the plagues of medieval Europe.
But in the age of social media, it has become harder for wealthy business leaders to avoid sharing some taste of workers’ pain.
The share prices of listed companies have plunged on the NZX, executives and directors have been giving themselves pay cuts.
If those pay cuts aren’t deep enough, protests can force them to dig deeper.
That happened to Fletcher Building chief executive Ross Taylor, who was forced to increase his temporary pay reduction from 15 per cent to 30 per cent, after Fletcher employees protested.
The workers had been forced to take a 70 per cent pay cut for 12 weeks.
But leaders in some industries, such as banking and insurance, remain more sheltered, and have so far not announced they will be taking pay cuts.