Before we start, I want to say the intent and purpose for this article is to make an apolitical point about the financial illiteracy of Americans in general.
And today Donald J. Trump is in the spotlight as a candidate for the office of the President of the United States. So we’ll use this as a proxy for making our points.
Now let’s make some assumptions here…
You, as the reader here, have an intellectual curiosity as to how finance and the economy works.
You are very discerning as to what news sources you read. You can think on your own, and you’re not easily influenced. Through these characteristics I’ve mentioned above, you make up the minority of most Americans today judged by intellect and deductive reasoning skills.
Most Americans have a very low financial IQ.
They believe everything they read or hear from main stream media new sources, and lack any critical thinking skills. Football is on tonight before Dancing with the Stars. Did you see what Kanye West wrote on Facebook?! I’m going to click on this story to “see what happens next…”
Financially, they take advice from someone who doesn’t have skin in the game and who doesn’t have to suffer the consequences of a bad decision. Which leads me to…
Most journalists are financially ignorant.
Journalists render financial advice readily because their newspaper, magazine or television channel accepts advertising money for the stories they write or produce from their sponsors.
Besides, have you ever heard of an economist being correct?
Or a Financial Advisor telling you to actually sell your high-fee mutual funds?
There’s a saying, you get what you pay for and the free financial advice you see on the morning talk shows or read about in the paper isn’t worth the paper it’s printed on to you as the reader.
After these assumptions, maybe you and I can agree the person making $45,000 as a journalist for a website or a newspaper probably isn’t qualified to understand the complication of a 92 page financial disclosure document.
But rest assured, like Joe Six-Pack can readily quote useless sports statistics, yours truly did the financial sleuthing to see how much Donald J. Trump is worth.
Remember, although the markets and investing are my passion, I’m looking at this dispassionately without any political bias.
Business Builders vs. Silicon Valley Unicorns vs. Speculators
First, I’ll say Donald has built several businesses from the ground up. Most of which are successful using my “free cash flow from operations” metric.
Conversely, most Silicon Valley companies do not throw off any cash flow. But to them, just raising money is seen as success. It’s not. It’s the economic return on the invested capital that determines success.
Dealmaker’s Tip: Success is success and raising money is raising money. Never confuse the two.
So there are businesses, and there are unicorns. A Silicon Valley startup may have a great idea, and may have raised a lot of money, but until that company sells or goes public, no money has exchanged hands and the valuations are completely made up.
These valuations are only representative of anything worth value if they can be sold.
That’s fine, but it’s very difficult to know how much a company is worth if it is not generating any revenue.
Going deeper, Mitt Romney through his Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise…
Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better…
A few of Donald Trump’s hundreds of companies have failed. Which statistically makes sense. Economic conditions change over 40 years. Think about how many times people have been laid off in their careers. Working for the same company for 40 years and getting the gold watch and a pension died in the late 90s.
If there hadn’t been any failures, then that would be suspect as they were when Bernie Madoff was consistently showing singles and doubles – too often… Every name-brand billionaire and serial entrepreneur fails. It’s part of the fun. You simply get up, dust yourself off and get back into the game.
Bankruptcy has a negative normative connotation with most Americans and politicians like to use that as the boogey man. Companies go bankrupt all of the time, and there is no shame to it unless you purposely overleverage it (I’ll get to that in a moment).
But for the low-financial IQ American out there, they confuse corporate bankruptcies with personal bankruptcies, which are not the same.
In business, we’ve had to bankrupt many projects before taking them over or adding fresh capital to them. It happens. Ever seen a busted real estate development? Look at oil, mining and gas companies today. They are going bankrupt quickly and bankruptcy is the tool allowing companies to pay their employees while they renegotiate the terms of their debt or liquidate.
Personal bankruptcy is the taboo and politicians comingle that with corporate bankruptcy to persuade the financially illiterate American into thinking a candidate is “bad” because they filed bankruptcy.
Mitt Romney would leverage a company to the hilt, pull all of the cash out for him and his partners – similar to a home refinancing – and let the company drown in debt before going into bankruptcy.
Dealmaker’s Tip: Leverage is meant to amplify the returns. Not to justify the investment.
The difference being one person built the company from the ground up and created jobs, whereas the later purposely destroyed value by pouring on debt with the intent of letting it fail later. You can’t run a marathon running with a ball and chain tied to your ankle.
Is this making sense now? Good.
Tax returns are a very poor proxy into someone’s net worth. But to the ordinary financially ignorant American, it has an emotional attachment. That of the IRS boogey man, audits and all sorts of bad things. So politicians love to use this manipulate the financially stupid into using their emotions to come to a “I’m purer than he” decision.
The fact of the matter, large companies with complex accounting are routinely audited. Shark Tank Crank Mark Cuban (the only one I really do respect on that show) recently spoke about releasing one’s tax returns being used as an intimidation technique politicians like to use.
What really counts though is the Personal Financial Statement. This is where the rubber meets the road. This is what banks use to determine how much you’re really worth when they give you a loan. They never ask for your tax returns other than to prove a) you’re filing your taxes and, b) there is some congruity between your PFD and your tax returns.
So How Much Is Trump Worth?
After poring over his marks on his Personal Financial Disclosure he filed in July 2015, he is really wealthy. He has stakes in many businesses, and hope certificates in many development deals in top tier cities throughout the world.
Most of it is real estate, or license of the Trump brand he leveraged to get stakes into these development deals. And after speaking to a few family office friends of mine, a few of us who know of these development projects know they are high-end, upscale, desirable geographies. So, if you do some back-of-the-envelope math, you come to the conclusion that $10 billion is conservative, and could arguably be worth much more after these deals are completed and the terminal value of these projects are taken into consideration.
In fact, one piece of real estate Trump controls is worth conservatively $500,000,000 dollars. That would be – again – conservatively more than twice the net worth of Mitt Romney.
Numbers Are The Single Biggest Negotiation Tool Of Them All
If I have 2 yachts, that’s 1 better than you, who has only 1 yacht. In our status-obsessed American culture today, he or she who has the most is seen as being the winner.
Not me. I’m not that easily impressed.
I’m cynical at best, and paranoid at worst…
The numbers that mean the most to me when you really, truly break down who’s the better man is how many people are employed or have been employed during the entrepreneur’s ascent. Not how many have been laid off in a series of strip-mined LBO deals fueled by easy financing where the benefits are asymmetric to one party only.