Here's a quick video rundown on the 2021 Forbes 400 list. For almost 40 years now, Forbes magazine has listed the 400 richest people in the U.S., in a Fall issue of the magazine. Generally speaking, the ultra rich got ultra richer last year. It took over $4 billion in net worth to make the list this year, the highest base level ever. Since about $5-$6 TRILLION in new money has been created, because of the Covid/financial crisis, that's not surprising. Donald Trump and Oprah Winfrey dropped off the list, leap-frogged by people with faster growing fortunes. Melinda Gates is now on the list, after her divorce from Microsoft founder Bill Gates. Dozens more made the list this year, for the first time, and crytpo fortunes are one big reason why. You can read the 2021 Forbes 400 list here.
All the way back in high school, I had this idea that I wanted to work for myself someday, to run my own business of some kind. Technically, that's never happened. I was a taxi driver for 6 1/2 years, which operates like a very small business, it's not an actual job, with guaranteed pay. I've made it to the gray area on the edge of a "real" business, but I'm not there yet.
When I got into BMX and freestyle in 1982-83, I started reading magazine articles about all these young entrepreneurs, all in their teens or early 20's then. Rider/entrepreneurs like Bob Haro, R.L. Osborn, Bob Morales, Scot Breithaupt, and Ron Wilkerson, were a huge inspiration for me then. Much to my surprise, I ended up getting into the BMX industry, and got to know these guys. I actually worked with Bob Morales and Scot Breithaupt on projects, worked at Wizard Publications, where R.L. Osborn had his office, owned by his dad, Bob Osborn a fireman, photographer and entrepreneur. Later I was friends with Pierre Andre' Senizergues, who started Etnies, and after that, I was a roommate of Chris Moeller, during some of the early years of S&M Bikes. Hanging around these, and other highly entrepreneurial people, I ached to start my own business. But I was deathly shy back then, and just couldn't sell things, and selling is a huge part of entrepreneurship. So I wound up working as a sidekick to several young entrepreneurs instead.
Being a pretty smart, geeky type, I started reading about real estate investing in the late 1980's, and that led to reading all kinds of other books on business and marketing later on. During this time, 1991 or 1992, I first picked up a copy of the Forbes 400 magazine. I wanted to know what the richest people in the United States knew that I didn't. That was how it started. What were they doing that I wasn't, and how did they look at the world, and at business? The annual special edition of Forbes listed the top 400 wealthiest people, what business or industry they were in, and had two or three paragraphs about each person. So I just dove in to that list, to see what I could learn.
The first thing I remember learning was that I, and pretty much all of us "average people," had a whole lot of misconceptions about wealth and how people got wealthy. I realized that the vast majority of people don't really know much at all about money and wealth, yet we spend 40-50+ hours a week, our whole adult lives, working to earn money, to survive. But very few people really try to learn to understand money, and the financial world. This hasn't change, the vast majority of people are still pretty clueless about the big picture of money, and the investment world. And yes, I recognize that irony that I'm writing this blog post as a person who is homeless these days. Stop reading, if you want, my living situation is plenty of reason not to listen to what I have to say.
Still here? OK. Let's continue. The first misconception is that super rich people have this huge pile of money sitting in their bank account, and a then own bunch of stocks. As a general rule, that I learned from reading the Forbes 400, the ultra rich own a big part of a major business, or they're part of a family that owns a major business. Second, and I learned this from other business books, the super rich do not have a lot of money sitting in standard bank accounts. They own assets. Yes, they have bank accounts, with a lot of money by working class standards, but that's a bad place to keep money long term. They own things like businesses, stocks, bonds, real estate, copyrighted intellectual property (songs, books, software, movies, etc), that are worth money, and often have some cash flow coming from them.
The next big lesson was that about 1/3 of the Forbes 400 list, on average, inherited their money. One in three super rich people did not create their fortunes, their dad, grandpa, or great grandpa did, in most cases. No ladies, there were no self-made billionaire women when I started reading this list, Oprah, Meg Whitman, and others came later. So the easiest way to get super rich is to be born into a wealthy family. The second easiest way is to marry into great wealth. But there's a lot of competition on that front.
Another big misconception I had was that most rich people got rich by investing in the stock market. Nope, Warren Buffet and Charlie Munger of Bershire Hathaway are the only two ultra rich guys that made their wealth from investing in stocks. Buying and trading stocks IS NOT a good way to get ultra rich. You can make millions, maybe, if you're really good and really lucky, but not billions.
But, a huge portion of the Forbes 400 have much of their wealth in stocks. This was a huge insight for me. The people who were stock billionaires started a business that became huge, or were angel investors in one, and in most cases, they took that company public in an IPO, where their stock became publicly traded. That's where most of the stock fortunes in the Forbes 400 came from. People built huge companies, owned millions of shares of their own stock, and that stock increased in price when they went public on the stock market, making them multi-millionaires or billionaires.
Another interesting thing was what types of businesses created billionaires. When I read that 1991 or 1992 Forbes 400, there were family members of companies like Coca-Cola, Seagrams, Levi's and major brand name products on the list. Those fortunes went back 80-100-150 years. Guys like Bill Gates and Steve Jobs were just getting on the list in the early 1990's. "Tech billionaires" wasn't even a thing in 1992, it was brand new.
Have you ever eaten a Milky Way or Three Musketeers candy bar? Of course you have. That light colored nougat in those created one of the biggest fortunes on Earth, for the Mars family. That candy business started in 1883, and 3 or 4 members of the family are still on the 400 list. Cargill, one of the largest privately owned companies ever, started with a grain storage business in the 1800's. Several members of that family are still on the Forbes 400 list. Much more widely known, the Walton family, kin to Sam Walton, who created Walmart, is another family fortune that has several members on the 400 list.
As I watched the Forbes 400 list change over the years, I could see the long term trends in business play out, by counting how many people in various industries were on the list. In 1992, I think it took a net worth of about $400 million to get on this list, 1/10th of what it takes today. Most of those people were owners of stock in older, industrial, consumer, media, or energy (like oil, coal), businesses, and in real estate. A lot of people in the mid 20th century made millions in some business, then many millions more in real estate, making the list using both.
As the 1990's progressed, the new and rapidly growing high tech sector thrust several billionaires onto the list. There are names we know, like Bill Gates and Paul Allen of Microsoft, and Steve Jobs and Steve Wozniak of Apple, and Michael Dell of Dell Computers, but also a lot of lesser known players in tech, from computer, chip, and software companies. It soon became obvious that high tech was creating levels of wealth in 10-20 years that took generations before. Later came hedge fund managers, a few more real estate people (like Donald Bren, who owns much of Irvine, CA), financiers like Bill Gross of Pimco, and more computer related billionaires. As these fortunes grew, many of the older, industrial based members of the list dropped off, as tech fortunes soared eclipsed them.
And I haven't even got to social media yet. Guys like Larry Ellison of Oracle (the richest guy I've met personally, I gave him a ride in my taxi in 2003, he was only worth $9 billion after the tech crash), were getting to the top part of the list, as were the two founders of Google. A few years later, making fortunes even faster than the computer billionaires, were the social media posse, Mark Zuckerberg and the Facebook crew, guys from Twitter, and several others. Now we're seeing the crypto billionaires wealthy enough to make it onto this list. So the types of industries that pump out billionaires changes over time, and the time it takes to generate those types of fortunes has dramatically decreased, as our society becomes more tech enabled, and business moves and changes faster.
Another interesting thing I found was where these people lived, or were based. The older, industrial fortunes were often across the Midwest, largely. Financiers of all kinds centered mostly in New York City, and that region. Tech companies clustered as they began, building Silicon Valley (San Jose area of CA), as well as Seattle, Austin, New York City, and San Francisco itself. New York, California, and Texas have the greatest numbers of the super rich, but little Jackson Hole Wyoming had 3 billionaires, last time I checked. Why? Really good skiing, and they all inherited their wealth, as I recall. Those three didn't need to sit in an office somewhere else.
So the basic things I learned from reading, and really studying, the Forbes 400 list for about 20 years, was that it takes a lot of work and hustle to become a billionaire, if you're not born one. The way to do it is to build a business at the start of a major trend or wave in business (like computers/software in 1970's/1980's, internet in 1990's, social media in 2000's, crypto in the 2010's, etc.). Just build a giant business, hold it together, change the lives of millions of people with your products or services, and then go public, making your stock worth billions. That's the scenario. Heck, Kylie Jenner did it with make up by age 21. No big deal, right? Actually, it's a huge deal.
Right now we're in a place in history where the working class have been screwed over for about 40 years. But it's not the dozens of self-made tech billionaires that screwed most of them over, it's the older, industrial companies, that don't have the profit margins tech businesses do. So they can't pay tech-level salaries. Those older corporations still employ tens of millions of the working population. Also, new technology and industrial robots have taken over a lot of those jobs, as has outsourcing. IN addition, people are mired in debt today, as are businesses, and the various levels of government. That massive amount of debt is a major reason people have to work so hard to make a living today, they're paying personal, corporate, and government debt off, all at once. Jeff Bezos and Elon Musk aren't conspiring to make your life harder, they just have cool ideas, and a lot of momentum that keeps growing their absurd fortunes.
One last thought. Inflation. My first real job paid me $2.05 an hour, $1.30 under minimum wage, legally, in Boise in 1984. When I started reading the Forbes 400 in 1991-92, the biggest fortune was about $4-5 billion dollars. Now Jeff Bezos is worth about $201 billion. That's 40 times as big a fortune in nominal dollars. Inflation, the rising of prices, or more accurately, the devaluing of the dollar, is a big part of that difference. One dollar in 1992 is worth about $1.98 today. Even adjusting for inflation, Jeff Bezos' Amazon fortune is still 20 times bigger than the top 1992 fortune. Why? Amazon and online shopping is such a huge part of everyday life for millions of people. And they dominate the online shopping world, and he owns a major chunk of Amazon. But another huge factor is that stock prices have soared, even after a large stock crash in 2020. This is why all the super rich are so much super richer, the assets they own are rising in price because of the trillions of new money created. The whole system is out of whack right now, and I think we'll see a pretty big drop in some of that in 2022. We're in for a big correction in almost everything this year, it appears.
So that's some of the more basic things I learned by simply reading the Forbes 400 list, and analyzing the info, over about 20 years. Oh yeah, taxing the rich won't work the way politicians and working people want it to. A good inheritance tax would help, but the rich always find ways around taxes. We need a better tax system, but full blown socialism isn't the answer. But that's what the cries on the street will be for for another 2-3 years. We're in for a few more "interesting" years.
Just a reminder, you just had your mind blown by a blog post written by a homeless guy. Think about that one...
I've got a new blog out, check it out:
No comments:
Post a Comment