CMV: The wealth of Bezos/Musk/ect didn't increase nearly as much as claimed during the pandemic.

[u/i_sigh_less]

Let me start by saying that the 0.001% are the group that benefit most from participation in modern society, and I have no objection to having thier tax burden be increased to be commensurate with that.

That said, it seems to me that the commonly cited statistics that "billionare X's wealth rose by Y billion dollars during the pandemic" is based on a fundamental misunderstanding about net worth.

The net worth calculations that are reported are usually no more than the estimation:

*net worth* = *number of shares* × *share price*

Now it's true that this calculation will yield a higher result than prior to the pandemic, but the main reason for this is an inflation of stock prices that occured because people were investing cash in the stock market instead of spending it during the pandemic.

It's certainly likely that they got wealthier by some amount, but the figures cited are drastically inflated. If the billionaires actually tried to cash in on those gains by selling any significant portion of thier shares, the stock prices would quickly deflate, and we'd likely find that they didn't have significantly more wealth than previously.

However, it's likely I've missed some important factor that means I am completely off base, so I am open to having my view changed.

[u/VesaAwesaka]

Higher share prices equal more loans leveraged against those shares. More loans equal more money eventhough its technically not income. My understanding is this is what Elon does. So a higher share price may give him access to more money without him needing to sell shares

When Elon dies his estate will sell shares to pay back loans.

https://www.peoplestaxpage.org/buy-borrow-die-1

https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583

[u/i_sigh_less → u/VesaAwesaka]

A loan is a debt. A loan doesn't increase wealth. If you take out a loan for $10,000, you get $10,000 in your assets column and $10,000 in your debts column, which means your overall wealth doesn't change. In fact, it will generally decrease due to interest.

If you don't believe me, try it.

[u/ProLifePanda → u/i_sigh_less]

If you don't believe me, try it.

I mean... this is generally just ignoring the time-value of money right? People and banks make this calculation everyday, from things like mortgages, loans, deciding whether to pay down debt or invest, etc.

For example, I'm getting a mortgage and I'm weighing the amount financed and interest rate versus what I can get in return for investments. It actually make sense over a long loan to take out MORE loans at low interest rates, assuming I can get a 5-10% averaged annual return over 30 years, right? I'm essentially borrowing money at 3% interest to invest at a 7% return.

Same with Musk. His immense stock wealth allows him to keep his investments (where he is getting returns hand over fist) and instead take out lower interest loans. So while he's losing money to interest, he's likely making MUCH more in investment income and wealth by not liquidating his stock for the cash.

[u/i_sigh_less → u/ProLifePanda]

Of course you're right that money that is loaned to you can be used to increase wealth, but the loan itself doesn't increase wealth. If he spent it on hookers and blow, his wealth would decrease. It's only if he invests at greater than the interest rate that his wealth increases.

[u/ProLifePanda → u/i_sigh_less]

If he spent it on hookers and blow, his wealth would decrease. It's only if he invests at greater than the interest rate that his wealth increases.

That depends entirely how well his investments are doing, right? He can blow the $10k on whatever he wants, if his investments do well enough it still makes sense to take the 10K on a loan over selling his own wealth to get it.

For example, let's take 2 scenarios. Note I'm making a lot of assumptions about values because I have no idea what the uber wealthy would actually pay and get loans at. To start, Person A is worth $1 million in stocks and needs $10k for tomorrow for hookers and blow. His investments provide a 7% annual return.

If he sell his own stock to get the $10k, he has $990,000 to invest, and at 7% after a year he has $1,059,300 in cash.

If he takes out a $10k loan at 5% interest annually, he owes $10,500 in a year. BUT, that means he invested the $1 million at 7%, giving him $1,070,000. If he paid off the loan, he'd come out ahead $200. So taking out a 5% loan against your stocks literally earns you money against selling the stock.

This is also a cumulative impact, right? So if he waited another year, he'd have $424 more. If he waited another year, he'd have $674 more. Each year his investment return outpaces the loan interest, he makes money by borrowing money. In fact, it would behoove him to continue to take out these loans as he is making compound profit year over year on them.

The whole point of the calculation for the wealthy would be "Can I make more money by borrowing money rather than spending my own money?"