there are only three things in this
world with that kind of unconditional
acceptance
dogs
Donuts
only money is better
Forbes and Bloomberg both published
lists that detail and rank the richest
people in the world these are the
businesses most popular Publications and
for good reason Forbes and Bloomberg
both want to be the brands people think
of when they think information for rich
people and about rich people and what
better way to Market that idea than a
list people like top 10 lists and people
like reading about rich people it's no
wonder that there are endless copycats
out there tracking everything from the
richest influencers to the richest chefs
the top Google Search terms for most
celebrities is their net worth people
just have an inherent need to provide a
nominal skill to someone's success and
as a society how much wealth you have
managed to accumulate is about the most
universal Benchmark we have a lot of
people wonder how we compile the Forbes
billionaires list and it's a massive
massive undertaking it takes many dozen
reporters many many hours to track down
all the world's billionaires but if I
ask you what your net worth was you
probably wouldn't know and the only way
you would accurately be able to find out
is by accessing a lot of personal
financial information so how do the
reporters from Forbes Bloomberg and TMZ
work it out well it's time to learn how
money Works to find out how these lists
are made to expose the financial details
of people who would probably rather keep
it private this week's lesson was
sponsored by finimize finimize is an app
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former investment banker to you let me
tell you this understanding a company's
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the easy part but getting a holistic
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at large is a different story minimize
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you prefer listening to an article you
can do that too and after you finish you
can recap with their key insights I
recently came across a story about the
dollar milkshake Theory which what
sounds like a sweet treat but was
actually an important thing to consider
in regard to the economy I don't have
time to explain the whole Theory but the
general idea is that there aren't enough
US Dollars created to meet the global
demand leading to the rise in the price
of the dollar leading to defaults abroad
because Global debt is denominated in
the dollar leading to a global financial
crisis these stories aren't meant to be
direct Financial advice but rather
little pieces of the puzzle that all
work together to make you a smarter
investor the more stories like the one
on the dollar milkshake theory that you
know the more things you will keep in
the back of your mind when investing
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a quick refresher for those of you who
are unsure to work out someone's net
worth you take all of their assets and
subtract all of their liabilities
like most things in finance the math is
deceptively simple the hard part is
getting reliable data
I would pose a question as a challenge
like are you ready for this much data
ask someone on the street how much debt
they have and you would be lucky not to
get your ass beat now try to ask the
same thing to a billionaire a class of
people that are very protective of their
privacy good luck this gets even harder
for people like hedge fund managers Ray
dalio Jim Simons and David Shaw are all
American multi-billionaires that are
frequently in the top 100 of these lists
they are definitely rich men but on a
day-to-day basis they probably wouldn't
even know what the asset composition of
their firm is their trading strategies
rely on frequently trading in and out of
positions based on suggestions from
their Advanced algorithms if they don't
know what they own what chance does a
journalist Bloomberg most likely
publishes the most reliable list and
they also publish the methodology they
use to come up with their numbers
Bloomberg is first and foremost an
information company their primary
business is selling Market data to firms
operating in financial markets whenever
you see clips of trading floors with
dark screens full of charts and data you
are most likely looking at a Bloomberg
terminal Bloomberg News and the
billionaires list is just a marketing
tool that used to sell more of these
terminal subscriptions which by the way
start at twenty four thousand dollars a
year for a single user on a standard
license in my experience working as a
banker Bloomberg genuinely does have the
most reliable data and rigorous
methodologies for big Finance firms
handling billions of dollars this
subscription is a small price to pay for
all of their analysts because the data
that Bloomberg provides is the industry
standard if anybody is going to have an
accurate list of billionaire wealth it's
going to be Bloomberg the Bloomberg
billionaires index is updated every day
at the close of stock trading in New
York City literally a new billionaire
would create about every 26 hours that
is not normal that's actually quite
frightening and it's frightening on many
levels they do this because the wealth
of a lot of billionaires is very
strongly correlated with large publicly
traded companies some net worths are
very easy to calculate public company
Founders normally Source the majority of
their wealth from the value of the
shares they have in their companies Jeff
Bezos for example owned slightly less
than 10 percent of amazon.com Inc so if
you take the market capitalization of
Amazon divided by 10 add in some
well-documented asset purchases like his
Mansion private jets and space company
you can get an accurate picture of how
much she is worth
anybody that controls between five and
ten percent of a publicly traded company
must report themselves as a beneficial
owner and filoform 13d or form 13g any
greater than 10 percent and they must
follow form three the SEC requires this
filing because people at this level have
the power to influence share price with
their purchasing power and their
reputation the SEC wants to make sure
that the stock market is a Level Playing
Field for everybody I do not respect the
SEC I do not respect them so large
investors need to make these filings to
ensure that everybody is working off the
same information they also want to know
the intentions of the new shareholder if
they file off 13g they're a passive
investor along for the ride but a 13d
could mean they want to change how the
company is run a cool feature of a
Bloomberg terminal is that you can look
up these filings by individual and get a
full list of every company that they
have more than five percent stake in you
can also do it on the SEC website but
it's not as simple that's how Bloomberg
would work out the fortune of someone
like Bill Gates who is actually sold off
most of the shares in Microsoft and has
Diversified as investments into multiple
companies including his longtime friend
Warren Buffett's Berkshire Hathaway by
looking at the Holdings of cascade
Investments Gates private investment
firm which is dedicated to managing the
wealth of him alone Bloomberg can make a
list of the companies he owns how much
he owns of each and the market value of
those Investments at the end of the day
Bloomberg has also reported on Gates
alternative Investments outside of
financial markets like the 270 000 Acres
of Farmland he now owns in addition to
his home in Seattle a 50 million
manuscript written by Leonardo da Vinci
and a collection of other known assets
the number was made by adding all of
these up and then subtracting 20 billion
dollars which he had pledged to his
charitable Foundation but is not yet
paid to unlike a certain actress Gates
has a good reputation for following
through on his pledges to charity
American billionaires with publicly
disclosed Investments are easy with all
of the information that Bloomberg has
access to they could get a first-year
intern to Beta an accurate estimate for
these guys but if it got a lot harder
for billionaires that made their Fortune
through tightly held private companies a
non-publicly treated company does not
have the same reporting requirements as
public companies do there is less risk
that average investors will get involved
in these businesses because they are not
available to buy with the Robin Hood
account and some birthday money so
the basically we're betting if it's
going up or down okay yeah so if you're
buying options there's calls and puts a
call is betting on the price to go up a
put is betting on the price to go down
but how do you value something like
Kylie Cosmetics the Kardashian Jenner
family controversially claimed that
Kylie Jenner the face and or lips of the
Kylie Cosmetics company was the youngest
self-made billionaire thanks to her
majority ownership stake in the beauty
business self-made might be a bit of a
stretch but what about the net worth
figure Kylie's business is undeniably
very valuable but not very liquid
meaning it would be very difficult for
Kylie to convert that business Into Cash
immediately not only other shares in the
business not publicly traded the value
is also highly dependent on Jenner's
continued involvement in the company if
she is not posting on Instagram about
her pain on lips sales would likely
suffer reducing the value of the company
Jenner is no longer considered to be a
billionaire by most reputable
Publications covering net worth and even
if she was she would not be wealthy
enough to appear on the Bloomberg index
she would need to be a billionaire five
times over to make even the bottom spot
on that list her net worth has fallen
below a billion dollars in other words
Kylie Jenner is no longer a billionaire
Jenner's net worth however is Not
Unusual Bloomberg has a very particular
framework for measuring the value of
tightly held companies they compare the
company to publicly traded companies of
a similar size in a similar industry and
give a rough valuation based off that
Criterion Bloomberg then subtracts five
percent of the estimated value as a
liquidity adjustment because it can be
very hard to sell private businesses and
it often involves paying fees to an
investment bank for facilitating the
deal an additional 25 is subtracted if
their business has significant key man
risk where one individual most likely
the billionaire themselves has a
disproportionate influence over the
success or failure of the business a
good example of this would be former
president Trump love or more hate him
his personal brand is worth a lot of
money in certain markets in the event he
was removed from these businesses it's
unlikely that something like Mar-A-Lago
could continue to charge two hundred
thousand dollars a year in membership
fees hedge funds and other alternative
investment vehicles account for a large
share of the names index but pinning
down how much these funds and their
managers are worth can be tricky the way
the Bloomberg index does this is by
looking at the value of assets under
management in the fund they find this
through ADV forms Lodge within the SEC
an ADV form is a requirement for funds
with more than 25 million dollars which
lists the details of the funds like who
the key officers in The Firm are and
most crucially how much the assets The
Firm invested on behalf of their clients
are worth this isn't a perfect strategy
because the value of something like Jim
Simon's Renaissance Technologies would
be significantly higher than another
fund with 130 billion dollars in assets
under management because they charge
higher fees make higher returns and
spend less money on expenses Bloomberg
themselves admit that this isn't a
perfect science assigning value to a
business can be a very complex process
even if you do have access to all their
financials without those a rough guess
is as good as you're going to get that's
why the Bloomberg index includes a star
rating to indicate the confidence the
publisher has in the net worth figure on
their list one star indicates that their
4chan is in company companies and assets
that are impossible to accurately value
and 5 Stars means that the individual's
wealth is entirely in liquid publicly
traded companies with verifiable
up-to-date valuations which brings me on
nicely to the last challenge with
working out how much someone is worth a
lot of wealth is not kept on public
record and even if it is invested in
private companies it only gets
attributed to an individual if they own
more than five percent of a company a
well-diversified portfolio wouldn't need
that much invested into any one company
which makes it possible for
multi-billionaires to exist without
being detected by this index at all
which is probably just the way they like
it this also means that things like
celebrity net worth predictions are
completely unreliable none of these
techniques that Bloomberg uses would
work on a celebrity reliably and most
would get a one star rating on their
index celebrity net worth sites are not
going to be as rigorous with their data
as Bloomberg is these figures are
basically just guesses but there is also
one last very simple way that Bloomberg
compiles their index which can help with
trickier cases like this they ask every
billionaire on the list is contacted
directly through the representatives to
comment on the validity and accuracy of
Bloomberg's wealth estimates most choose
not to comment but some will try and
adjust the figure up or down I don't
believe any billionaires would do this
in the interest of journalistic accuracy
so any adjustment requests are likely
made to suit their Public Image as being
wealthier or not as wealthy as it would
look most likely the latter from people
who want to fall off the bottom of the
list to avoid the public attention there
are lots of people that should be on
this list that are not Michael Bloomberg
himself estimated by Forbes to be worth
77 billion dollars does not show up on
this list because Bloomberg has a policy
of not reporting on their own company
which includes their founder CEO and
namesake another group that doesn't
appear on this list but definitely
should is the Porsche piak family they
own 100 of the voting power and 50 of
the company that owns Volkswagen and
many of its subsidiaries
despite their enormous Fortune they have
managed to stay off that list with
clever corporate structuring if you want
to learn the story of how the Porsche
company went from making tanks to
cornering the automobile industry while
narrowly avoiding bankruptcy multiple
times over then go and watch my video
over on my new channel
thanks again to finimize an app that
helps you become a smarter investor in
10 minutes per day for making it
possible for everybody to keep on
learning how money works
laughs