“If Donald Trump had invested his $500 million in the S&P 500 in 1982, he would have been worth around double what he is claiming he is today.”
The 2012 Republican presidential nominee, Mitt Romney, was a co-founder of Bain Capital, a spin off investment fund from consultancy giant Bain & Company. Throughout the 2012 presidential race he repeatedly and extensively referred to his ability to manage and run a business, and presented himself as an American success story. This flagging of business success is perhaps one of the only two commonalities between the 2012 and 2016 Republican nominees. Donald Trump, the 2016 Republican nominee, has also ventured down this path, constantly emphasizing how he turned a small investment from his father into the vast amounts of wealth he holds today. However, he is yet to display this to us in his tax returns.
The usual metric for assessing the success of an investor is to compare them to the returns of either the market or low risk bond yields. Essentially, this gives you a comparative of how much money they would have made if they had left their money in an incredibly safe investment, such as a US Government Bond or the S&P 500 (this is a collection of 500 firms representing the US stock market). We use percentage returns in order to make a fair comparison, so that firms and people with different starting amounts can be compared fairly.
There are currently two estimates of Trump’s present wealth. One of these is $10bn, as stated in a press release he issued in July 2015, and the other is an estimate of $4bn from the Associated Press. Both of these numbers stem from an initial investment of around $500mn, as claimed by Trump himself in 1982. The purpose of this article is to compare the performance of the S&P 500 versus both of the estimates we have for his current wealth, assuming he lived off dividends and his salary as CEO of his own company.
Assuming no reinvestment of dividends, the S&P 500 has increased on average by 8.84% each year from 1982 to 2014. This means that if Donald Trump had invested his $500mn in the S&P 500 in 1982, he would have been worth €7.5bn, about three-quarter of what he claims he is worth. Leaving his money sitting in an index fund would have increased it by 1700%, as opposed to the 1900% he claims to have gained However this assumes that you take Trump at his best. With the Associated Press estimates of $4bn as his present worth, the success of Trump looks quite meek. A return of 700% pales in comparison to that generated by the S&P 500.
Successful business people are considered successful because they managed to beat the market. They were able to invest their money wisely, rather than letting it sit in a safe mutual fund earning an almost guaranteed return. Over a similar period, billionaire and founder of Microsoft, Bill Gates, grew his fortune from $1bn to $80bn, achieving a growth rate of 7173%. Similarly well-known business people, such as Michael Bloomberg or Warren Buffet, all well outperformed the market over their careers.
The finer details
“His career is a long list of lost contracts, bankruptcies, defaults, deceptions and indifference to investors.”
If you actually look into Trump’s business career, you start to see why this is the case. His career is a long list of lost contracts, bankruptcies, defaults, deceptions and indifference to investors (whether that’s his failed casinos in the 90s that allowed him to write off $1bn and subsequently go 20 years without paying taxes, or flops such as Trump Steaks, Trump University, Trump Magazine, or Trump Airlines). In fact, the main reason he has managed to get away with so many failures is due to his father’s deep purse strings. As well as helping with initial investment, Fred Trump was able to provide collateral against loans and set his son up in his already well established real estate empire. Hardly the features of a self-made man.
In fact, the one place where he does seem to have been successful is real estate. His Trump Organisation owns a portfolio of valuable properties all over the world, notably including Trump Tower on Fifth Avenue, and Mar-a-Lago, a private club in Palm Beach, Florida. Yet despite these investments, and an image as a top real estate mogul, Trump hasn’t made it onto any top 10 lists of New York’s real estate power players. The Mayor of New York City, Bill de Blasio, has talked about Trump’s lack of influence in the real estate market, saying in the New York Times: “At this point I don’t see a lot of influence from Trump in New York City. You see his name on buildings, but you don’t see him.”
There are obviously many more factors to consider. However, on the face of it, Donald Trump generated significantly less wealth than he could have. If he had retired 30 years ago and invested his fortune in an index fund, one which is more than likely part of your parent’s pension fund, then he would be billions of dollars richer.