The way of the dragon

Being a banker, I suppose it was logical that I would be drawn to read dragon books to my kids. These complex creatures remind me of some of my more demanding customers. Rich, smart, and powerful personalities, but with very dysfunctional relationships with their wealth.

And my kids loved books with scary dragons. What child doesn’t want to sit in the security of a parent’s lap and learn about fire breathing monsters? It’s a teachable moment we should take advantage of to give a lesson on money.

The ways of the dragon are clearly seen in classics like The Hobbit where the powerful Smaug is the main antagonist. The author, J.R.R. Tolkien, gives us timeless insights about the power of wealth to corrupt character.

And I love C.S. Lewis’s The Voyage of the Dawn Treader. It tells the story of how a selfish young boy named Eustace gets turned into a dragon. Spoiler alert—his transformation has something to do with gold and jewels.

I’m happy to say, none of my SMWP readers remind me of dragons. But I think it’s a good idea to learn from classic literature how our relationship with money might go astray.  Here are five lessons.

First, dragons suffer inconsolable rage if others around them are growing rich. Envy is the disease that motivates the dragon to hate the prosperity of others. It is why Smaug had to have the wealth of the dwarves in Lonely Mountain as his own. He didn’t work for the gold that the dwarves had mined out of the mountain, but it didn’t matter. He wanted it for himself.

J. P. Morgan put it this way, “Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” And today we have social media with our friends and celebrities bragging about their lifestyle and wealth. Smaug would have incinerated a lot more people if he’d been on Facebook.

Second, let’s think about the dysfunction of saving money dragon style. A dragon never lets go of any gold. Anyone who knows the first thing about dragons knows they only accumulate more and more.

In fact, there is not one recorded instance of a dragon spending their gold for the joy of improving their caves or supporting a worthy cause. The dragon has no capacity to enjoy their wealth by spending it on anything. Hoarding is the dragon’s only joy.

I know retirees who sometimes struggle to spend down ample savings too. The problem? Many of us were wired to save diligently for forty years. It can be tough to reverse course and spend it. Reading about dragons can remind us the purpose of saving for retirement was to be able to enjoy spending it when we don’t have a paycheck anymore.

I’ve also seen customers worth millions who seem incapable of enjoying spending their money. They may buy a big house, but as some have explained to me, it was never for the pure utilitarian joy of using it for their own pleasure. Sadly, it is only another investment that they expect will appreciate like a stock or bond.

Third, think about the loneliness of a dragon. Dragons always live alone. They don’t believe in community, only life spent guarding their gold.

And accordingly, they don’t spend their money by participating in the fund raiser to improve the local hospital, church or homeless shelter. They grow wealthier in terms of gold coins piled up underneath them. But they grow poorer every day in their inability to connect with the community and all the potential friendships around them.

Dragons would never understand why Saint Francis of Assisi would say, “For it is in giving that we receive.” But it’s a good lesson to teach our children as we discuss the ways of dragons.

Fourth, think about the poor investment decisions dragons make. They prefer to hoard gold instead of investing it in growing productive businesses. I like this Warren Buffett comment back in 2009 which remains true today:

“I have no views as to where (gold) will be (in the next five years), but the one thing I can tell you is it won’t do anything between now and then except look at you” 

I don’t know how long Smaug laid on the dwarf’s gold he stole, but let’s assume he held it 100 years. It wasn’t productive. It didn’t replicate. It was the same amount of gold 100 years after he stole it.

But if he had stolen an index fund in the S&P 500, well, that’s a different story. Those businesses were out there becoming more and more productive. The statistics show an average gain of 10% in the S&P 500 over the last 100 years. Enough to make a dragon sleeping on non-productive gold coins roar.

Finally, the dragon doesn’t realize the limitations of the accumulation of money. It’s easy to dream that more money is the answer to all our problems. But idolizing money is just not going to live up to our expectations.

For example, we all grieve when we see the news about a prominent marriage like Bill and Melinda Gates about to dissolve. But it should remind us that money has its limitations in life. A $100 billion net worth doesn’t ensure a good marriage.

In fact, we know that money can be a contributor to the problems of life. As we accumulate wealth, like a dragon, we can ascribe god like power to that wealth to solve all our problems. And just like Smaug, we find our money doesn’t bring us the ultimate health, wealth and happiness we thought it would.

Money is a wonderful tool to support a well lived, purposeful life. It’s important. But, if we see signs we are failing to enjoy our wealth, we may need to revisit the wisdom of the dragon literature.

Joe Kesler

Smart Money with Purpose