NEW MILLIONAIRES:

How to Make a Fortune

ONE persistent bit of modern business folklore is that a man can no longer make a million, that the day of opportunity in the U.S. is past. The best evidence against such a pessimistic view is the number of new millionaires sprouting up from coast to coast every day. On that basis, the U.S. millionaire is more alive in 1954 than he ever was in the golden '20s.

A prime example of the new breed is Los Angeles' Howard F. Ahmanson, 48, who made his fortune in the savings-and-loan business, real estate, oil and fire insurance. Says Millionaire Ahmanson: "When I was a kid of 16, all the greybeards used to say: 'It's too bad, son. There's no opportunity any more for youngsters of your generation.' Well, they were wrong. And today, I've got fifty million bucks to prove it."

The big reason the skeptics are wrong is that they look solely at the statistics on incomes, and the high income-tax rate. During the 1920s, an executive could make $1,000,000 a year in salary and take home $850,000. But now, under taxes that take as much as 87% of such income, he can take home less than $150,000.

FLAW IN THE FIGURES

THE misleading flaw in the figures is that none of the new millionaires count on salaries alone. By whatever energy, invention or imagination they make their big stake, they keep it by taking careful advantage of the capital gains tax,* under which assets held for six months can be sold as a long-term capital gain and the profit taxed only 25%. A single man who invests his money in an apartment house, for example, then sells it six months later at a $300,000 profit, would have to pay $247,280 to the Federal Government if the profit was taxed as income. By taking his profit as a capital gain, the tax bill drops to $75,000.

Such big rich Texas oilmen as Clint Murchison and Sid Richardson (TIME, May 24) have made their millions by a variation of the capital gain--the depletion allowance. Others have made their millions in a dozen different ways, helped by capital gains. They have built up old companies, formed new ones, invented new products or services and even entire new industries--all with profits (when and if they sell out) subject only to the capital-gains tax. Los Angeles' William Lear, for example, has built his Lear, Inc. into a $50 million company making automatic pilots and other electronic gadgets, has also taken capital gains by selling off inventions.

THE ROADS TO RICHES

THE new uranium boom on the Colorado Plateau has spawned another crop of big rich, led by Vernon Pick, who sold his uranium mine to Floyd Odium's Atlas Corp. for $9,000,000 (75% of which Pick kept under capital gains), and Charles Steen, whose Utex Exploration Co. (90% owned by Steen) has an estimated $150 million worth of uranium underground. Hollywood's high-paid stars, who by tradition blow their wealth on caviar and Cadillacs, have also learned how to join the ranks of the new millionaires. Bing Crosby, for example, was able to buy 20,000 shares in Minute Maid stock for 10-c- a share in return for singing on the company's radio programs (the stock later sold for $15). Since then he has gone on to many other fields, including electronic tape recorders. Such cowboy stars as Roy Rogers, Gene Autry and Hopalong Cassidy have set up their own corporations to license some 300 manufacturers who want to use the actors' names on products. In return the stars get either an equity in the company or straight cash on royalties, which in any event are not taxable as personal income since they go into the star's company, but at the lower corporate rate.

One traditional way to make a million has been to buy an ailing company cheap and put it on its feet. The new way is to buy a prosperous company cheap. Despite the big bull market, the book value of a large number of U.S. companies is greater than what the stock is selling for.

For example, Louis E. Wolfson, who is now waging a proxy war to take over the $999 million Montgomery Ward Co., bought control of Washington's Capital Transit Co. five years ago for $2,100,000. Since then Wolfson has paid out $5,911,200 in dividends from cash in the till. As a result, the stock has soared, bringing Wolfson and his associates a whopping $4,378,320 profit on the stock alone.

Another road to riches has been found by Thomas M. Evans, 44, boss of Pittsburgh's H. K. Porter Co. He paid only 10-c- to 15-c- on the dollar when he bought H. K. Porter in 1937. Porter has since expanded into eleven divisions (wire rope, industrial rubber products, electrical equipment, etc.), as Evans bought up successful small companies, often with sizable cash reserves, then put them to work making more money. Porter stock, which was selling for less than $1 in 1944, last week was selling at $100 a share, as Tom Evans announced a 4-for-1 split. His overall profit on his Porter deals: some $20 million.

SOME OTHER NEW millionaires who have hit the magic mark:

LOS ANGELES' AHMANNSON, who started out with $588 from selling insurance and was well on his way to his $50 million fortune by the time he was 30. Ahmanson's big secret is keeping plenty of hard cash on hand to invest in profitable deals. In 1947 Ahmanson plunked down more than $100,000 for the city's Home Savings & Loan Association. Today it boasts assets of $220 million and is the world's biggest loan company. After World War II, Ahmanson bought up the 290-acre Baldwin Hills district in Los Angeles, the last big undeveloped piece of residential property in the city. He paid $5,500 an acre, two years later sold it for $18,000 an acre.

BOSTON REALTOR ABRAHAM M. SONNABEND, 58, admits to a fortune of "a few million" made by buying up properties cheap and improving them for resale. Sonnabend has won control (chairman of the board) of Botany Mills, is president of the Childs restaurant chain, now runs a string of seven hotels, including Manhattan's Plaza and Ritz Tower. In 1950 Sonnabend and his associates bought Cleveland's $100 million Van Sweringen property for a total of $35 million, of which they had to put up only $8,000,000.

MISSISSIPPI'S ROBERT C. MILXER, 37, who borrowed $3,000 to open a Shell Oil distributorship when he was 21, now owns businesses grossing $20 million annually, including an export-import company, real-estate holdings in Jackson, Miss. (including a ten-story office building), Milner Products Co., one of the world's biggest makers of pine oil deodorants. With four auto agencies, he is the South's biggest Chevrolet dealer. Milner's income: about $1,000,000 annually, of which he keeps half, since much of it is in capital gains.

SOUTH CAROLINA'S OWEN RAY MOORE, 53, who owns 60% of the American Security Insurance Co., has $250,000 invested in four auto finance companies. In 1945 Investor Moore was one of a half-dozen businessmen to take over North American's idle Dallas airplane plant, helped organize the Texas Engineering and Manufacturing Co. Temco now grosses $72 million a year as an Air Force subcontractor, with profits of $2,668,210. Says Millionaire Moore, who owns 85,534 shares of stock: "Getting in on the ground floor of anything is the surest way to make big gains. You put in $25,000 and suddenly it's worth a million and a half."

CHICAGO'S ARTHUR RUBLOFF, 52, a Russian immigrant's son who began selling real estate at the age of 17, now controls a real-estate firm that grosses $40 million annually, is one of the ten biggest in the U.S. Like Manhattan's William Zeckendorf, Rubloff is a man for grandiose projects, built Chicago's $15 million Evergreen Park shopping center, planned and redeveloped North Kansas City, Mo., launched Chicago's $200 million project to make a "magnificent mile" near the Loop, the city's most spectacular shopping district.

JACKPOTS FOR EXECUTIVES

As for the salaried executives who spend their lives working up the ladders of big U.S. companies, an increasing number are learning that they, too, can become wealthy, if not millionaires. The device: stock option plans, which many companies use as an incentive. Under the plans, a company usually gives an employee an option to buy its stock at 5% below market prices. If the stock goes up, the executive can take the profit, pay the capital-gains tax. One out of every three companies (some 400) on the New York Stock Exchange now has a stock option plan for employees; the average gain in a survey of 263 company officers was $83,000 per man by mid-October 1954. When George M. Bunker, for example, took over the bossing of the sick Glenn L. Martin Co. in 1952, he got an option on 70,000 shares at $9.75 a share. Martin stock now sells at $30, and President Bunker already has a paper profit of $1,425,900, as a capital gain. Considering their own millions, and the dozens of ways for making more, the new U.S. tycoons have little sympathy for those who believe the myth that the day of opportunity is ended. Says Los Angeles' Ahmanson, speaking for all his class: "The chance for a big jackpot is just as good as it ever was --maybe better. The trouble is, too many people like to rationalize themselves into the comfortable conviction that it can't be done, so there's no use trying."

*Which became law in 1921 to get an additional source of U.S. revenue. At first, the rate was 12 1/2%, was later boosted to 25%. As income taxes climbed, the capital-gains tax remained the same (except for a temporary jump to 26%), on the theory that 1) those who risk capital are entitled to a lower rate on profits, 2) high capital-gains taxes would paralyze business by drying up risk capital, and 3) it is unfair to apply annual income-tax rates to profits that it may have taken a lifetime to build up.

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