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Wealth 101: Managing Your Money

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Stewart Horejsi answers our questions on how to maintain and maximize wealth. The Horejsi Family Enterprise owns Alaska Trust Company, specializing in wealth accumulation and preservation, disciplined asset protection, and financial and investment planning. More than 1,000 people throughout the country have entrusted more than $4 billion in assets with the company.

What attracted you to set up shop in Alaska?
We retained experts who checked out every venue in the United States and offshore for our own trusts. We found the advantages provided by Alaska’s laws were so great that we moved our trusts there from Bermuda and South Dakota. We felt that all the offshore options could risk an appearance of illegality and concluded that we could accomplish everything in Alaska that we could accomplish legally offshore. In addition, Alaska uses the same language and culture that we are familiar with, and we take comfort from knowing the trust company is regulated by the Alaska State Banking Regulators.

Alaska’s unique laws liberate us from state income tax on our trusts’ investment income, state and federal estate taxes (forever), lawsuits, and risks of unknown unregulated offshore jurisdictions. In Alaska, earnings compound inside the trust estate and are gift tax free.

Some states have copied some of Alaska’s favorable laws, but no state has all the advantages of Alaska, yet Alaska has all the advantages of the other states. Alaska Trust Company is trustee or co-trustee for all 10 of the Horejsi family trusts.

What are your personal experiences in investing?

I started in the welding business and it was very profitable, with $500,000 in annual sales. Everyone but me took those profits and invested them back into the same business. Seeing a decline in profit margins, I invested most of mine in BRK (Berkshire Hathaway). I started buying in 1980 when it was trading at $265 per share and have not stopped buying since. One mistake many make is doing more of what they know over and over, even if it doesn’t increase the value of their holdings. I sort of saw this on my own, but later had this concept reinforced by Warren Buffet. If you can’t make your existing business grow, move the capital to one that will. All businesspersons have two jobs: One, to operate a profitable cash-generating business. Two, to invest that cash. Unfortunately, there are a lot of people who do the first job well but do a mediocre to awful job with the second. I don’t know one thing about how to make money fast. I know you can lose money fast. I’ve always made money slow and steady.

What investment philosophy has worked best for you?
Buy and hold. Almost all the famous American names you can think of got that way by owning one company (no diversification) for two, three or four generations. Walton, Gates, Wrigley, Rockefellers, Vanderbilts…none of them got rich by buying and selling.

Find partners who treat their fellow shareholders fairly and be partners with them for life. Every time you sell a successful investment, you pay tax (short or long term). Seldom do you know as much about what you are buying as you do about what you are selling. Buffett says his favorite holding period is forever. Mine too.

Be a bargain hunter, not a momentum investor. Buy stocks like you shop at the grocery store. There’s never been a shopper who says, “Gosh, chicken is at an all-time high. I think I’ll buy all this chicken for my family!” People should buy stocks the same way.

What challenges are ahead and what advice do you have for investing?
The big unknown is what the new administration will do in future with gift, estate and income taxes, so it’s best to act now to protect your wealth before any major changes. But be conservative.

• Never be at the mercy of your lender. Don’t use debt (unless it’s long term) and don’t invest in companies with lots of debt. It’s almost impossible to go broke if you don’t have debt. The problem with debt is it always has to be paid back, usually at an inconvenient time—this is what is occurring now in the world. Buffett said he could never understand people risking money they have and needing money they don’t have and don’t need.

• Invest in companies that generate generous returns on capital in cash with little need for compulsory reinvestment. Two great examples of this are See’s Candy and Dairy Queen.

• The best companies generate good cash returns and can continue to invest in their own business generating the same good cash returns. And
companies with a moat around them —strong brands and strong barriers to entry. Moats allow freedom to price.

• Be honest. Buffett is one of two people I’ve met in my life that within 60 seconds of listening to him, you can feel an aura of integrity around him. It’s very comforting.


Alaska Trust Company

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