Met an underclassman for a case interview practice session some time ago. He wants to break in into management consulting, so I helped. Got treated to a ton of Chinese food at Golden Chopstick.
Along the way, we also talked about family business. Family business are often not so sexy, but handled correctly, the financial gains are handsome. This underclassman of mine has his family involved in trucking business from Tanjung Priok port to Bekasi industrial area. Their service is ordered by companies that need trucking services like Nike and the likes of them. The family business owns the trucks and lease the container boxes from companies such as Maersk. Total monthly profit is 500M IDR for non-peak season, and can be ~1B IDR for peak season. Trucking is unsexy, rarely capture the newspaper headlines, but there is money there, substantially earning more than employees or even some executives at top companies.
Of course there is even bigger versions of family businesses, while they don’t make it to Forbes list, they still earn vast fortunes. These wealths fall outside the radar of average person, making them ignorant of the prospect of making enormous money outside being an employee.
Family business is good and all, but what I need is beyond merely that. I want to accumulate vast amount of wealth, but I also want the wealth to last for generations. Like Utsman bin Affan’s bank account that last to today, spanning some 1400 years.
Every Friday it’s a sunnah to read Surah Al-Kahfi. After reading it so often, I don’t want to be like a dumb average layman Indonesian Muslim who doesn’t understand what he read. So I opened the Tafsir Ibnu Katsir, a gargantuan series of 10 volumes and 800-900 pages each of tafsir. Ten pages of Al-Kahfi become 140 pages in its tafsir. In the story of Prophet Khidr and Musa, they traveled together for Musa to learn from Khidr. After Khidr “controversially” attempted to sunk one ship that he rode to avoid confiscation by a local king and killed a boy before the boy become kafir, Khidr did something that I see as not as controversial as the former two events. He tried to straighten up a leaning wall in a village. For what reason? To help local orphans to discover their father’s inheritance beneath the leaning wall at some point in the future. That is because their father is a pious person.
But the word “father” in Arabic can also translate to all possible fathers from an entire lineage, which includes grandfather, great-grandfather, great-great-grandfather, and so on. It is said in a source that it is the seventh great-grandfather whose piousness is being referred to. It is very interesting to see how the benefit of the piousness of someone that lives 150-200 years ago can actually trickle down to his distant descendants.
What is the said inheritance? Some sources said it is wealth. Other sources said that it is knowledge that will help them get closer to Allah. Still other sources said that it is knowledge to get closer to Allah inscribed in gold bars, which makes it kinda both knowledge and wealth.
I think that is very cool. Of course, knowledge > wealth. Knowledge, which in this context I defined it as religious knowledge, can save a person’s fate in the hereafter. But it’s a bit hard to transfer knowledge to your offsprings. It needs a significant amount of time and effort from both parties (the parents and the children). But wealth transfer can be instantaneous and easier to manage. Knowledge restarts at every generations, but wealth can persist almost indefinitely. (Hence the sayings “kaya tujuh turunan”. But in the book The Son Also Rises: Surnames and the History of Social Mobility, which analyses surnames in societies, suggested that wealth persist even beyond the seventh generation). You can’t get born with Quran memorization already in your brain, but you can be born rich indeed. And those riches can be used to do good.
Nonetheless, wealth is very vulnerable to market shocks. For example, families that got rich from railroad companies in 19th century US got their wealth decimated by the declining airline fare, which steals their customers away from them. Benjamin Graham, Warren Buffett’s teacher, pointed out in his book, The Intelligent Investor, that it’s hard to stay in Forbes Richest list, simply because businesses have cycles for each sector. Most rich families got their fortunes by exposure to one or two sector. They are heavily exposed to the ebbs and flows to that particular sector. If that sector is ruined, so will their wealth. This is further corroborated by Federal Reserve Survey of Consumer Finance data where people in $10M, $100M, and >$1B wealth bands have their assets heavily concentrated in forms of business interests, which might be not so diversified, sector-wise. I don’t want my wealth be wiped out by market shocks. Within 1000 years or more, a LOT can happen. Who knows how many market shocks or any other Black Swan events can accumulate within that timeframe.
With that in mind, I need to plan my estate to be hedged. I need to have a diversified portfolio which assets are uncorrelated with each other.
The set of risk for the next 10 years would be very different with the set of risk for the next 1000 years. Some risks that I can imagine:
Family risk. For example, dilution of capital because number of family member rise exponentially faster than capital growth of estate wealth, or incompetency of family members to run business. Some families like Rothschild solve this by inbreeding with close relatives to protect family wealth from outsider. Others like newspaper mogul William Randolph Hearst keep his fortune away from his family. None of his five children (all sons) was competent to run the business. Control was to be in the hands of professional managers answering to a self-perpetuating board of trustees on which Hearst family members would have only 5 of 13 votes. The trusts would last until all the then-living grandchildren had died—an event likely to occur sometime around 2035. Any heir who challenged the will would be disinherited. Maybe this is dzalim in Islamic view because a will is only allowed for up to a third of total wealth because family members have unconditional rights for their respective fair share of inheritance. So I have to come up with a estate management system to minimize these kinds of family risks in a Sharia-compliant way.
Sectoral risk. Different sector behave can behave similarly, uncorrelated, or opposingly. For a brief example, oil companies and oil service companies tend to move along together because they are very related. Oil companies and energy-consuming industries tend to move opposing each other; low oil price is bad for oil companies but a boon to these industries, and vice versa. Construction companies and technology companies might be somewhat uncorrelated. So the idea is to avoid overexposure to closely related business to avoid total meltdown when the economy goes sour, killing the estate in the process.
Legal risk. What kind of legal guarantee that I need to protect my wealth? Should I break up the estate to several smaller component stationed within shell companies established tax havens under different law and jurisdictions to minimize over-reliance on any single state ? What if there is a change in the legal framework used to govern wealth? How will Indonesian law progresses from here? Still like a derivative of Dutch civil/colonial law? Adopting common law? Change to Islamic law? Even within Islamic law, what kind of interpretation will be used?
Political risk. Regime change can spawn a lot of uncertainties. I estimate there will be between 25 to 200 different regimes for the next 1000 years. One extreme case is 25 dictators-for-live with an average ruling duration of 40 years. On another extreme is 200 of one five-year-term presidents. They can enact various policies. Loan forgiveness, agrarian reform, abolition of private property, changes in tax policy, and many other factors can have extreme effect on my estate.
Geopolitical risk. US-dominated world order has been around for 70 years post-WWII, but only a fool would assume this is going to continue indefinitely. For the past 3000 years, kingdoms, empires, and nations rose and fell. Borders redrawn. Even Indonesia can be an empire of its own, or be annexed by a greater power, or be broken up to several mini-states. Indeed, these 70 years is puny compared to hundreds or thousands of years of geopolitical dynamics. How can my estate survive those turmoils?
Technological risk. What if humans can venture beyond Earth in the future? Netflix’s series Altered Carbon offers a fun thought experiment that a person’s wealth is calculated independently for each planet. Someone can be rich on Earth but that Earth-bound rich is excluded when calculating his riches on, for example, Europa or Ganymede (Jupiter’s moons), With the the separate economic system and the significant light-lag between each colony (which distorts electronic transfer of wealth), managing estate across different worlds will be a totally different level of challenge
This illustration by Muslim Show touches me deeply. The orphans’ seventh great-grandfather piousness has been rewarded far beyond his own lifetime to his descendants. I hope I can do well enough that my descendants can somehow benefit from my work in my life, both in their Dunya and Akhirat.
It’s funny. I am still 24 but already sounded like a grandpa in his deathbed worrying about the well-being of his family after he passed away. I haven’t even started a family yet. But when paradise is the ultimate prize, there is no such thing as over-planning.
Leave a Reply