Wednesday, 18 January 2017 12:54

Is Donald Trump Truly Successful or Born With A Silver Spoon? An Analysis Featured

Trump trump towerIn social media and mainstream media, I often hear Donald Trump quoted (by himself, and others) as an extremely successful, self-made man. As an entrepreneur for nearly all of my life, hailing from a working class family - with a strong bent for numbers and analysis, I questioned this. 

 

Let's take a simple, yet serious look at what Trump has produced from an ROI perspective. Trump took over his father's roughly $250 million real estate business in 1971. He admits to getting a $1 million loan from his father to start investing and is purported to have received a $40 billion inheritance in 1974. I will root this off-the-cuff analysis from a 1974 starting point. Keep mind that this is more than just numbers. The $1 million loan doesn’t include any of the benefits Trump received from his family’s connections, business credit and general credibility. Working/investment capital, connections and credibility are the hardest things for entrepreneurs to come by, partiuclarly as a startup.

Bloomberg News has estimated Trump's current net worth at $2.9 billion, while Forbes put it at $4.1 billion ("Trump Exaggerating His Net Worth (By 100%) In Presidential Bid". Forbes). Since Trump’s businesses aren’t public it is difficult to know for sure, so we will take the simple average of what we have. Trump essentially turned $41 million in financial and real assets plus several million in intangible assets (those connections, which we will not try to calculate but to be realistic we really should) into roughly $3.5 billion (the average of the two estimates from the most credible sources I could find) over 43 years.

Is this the hallmark of a strong businessman or a good investor? Well, if you would have put that same amount into the US stock market during the same time period you would have had about $1 billion, but with much more liquidity and much less risk (bankruptcy, litigation, etc.).

SP500 1974 to 2017

So, investiing in Trump.co would have given you more return for more risk and less liquidity, about 3.5x more more return. What if you wanted to take more risk? Well, you could have bought real estate. I mean just buy it, not develop (more risky), flip, trade or finance - just outright buy it. Trump got his start in NYC, so let's use that as a benchmark. In 1974, NYC condo prices went for ~$20.50 per square foot. As of last quarter, Corcoran has condo (the primary housing vehicle in Manhattan) prices at $1,841 per square foot.

Q4 2016 NYC housing

Doing the math on this, we get...

  1974 2016 % gain Value of Trump's Inheritance & loan
Price per sqaure foot  $   20.50  $        1,851 8,929%  $      3,661,000,000

 

To be clear, if you would have simply bought apartments in NYC at the time that Trump inherited his money and took loans from his father, you would be about 5% wealthier than Trump is now. This, again, does not take into consideration the value of the soft dollars that he had access to - the credit, connections and credibility - which would have given him a much higher basis, lowering his ultimate ROI. Since this would be speculative (though realistic) we're going to leave it out. Even counting only the hard dollars, I can say with confidence that Trump's business acumen has not shown that it outperforms (or even matches) the performance of a buy and hold in NYC real estate. 

This was, admittedly, a simplified analysis, but i feel a useful one nonetheless.

Last modified on Wednesday, 18 January 2017 18:46

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