How Good Of A Business Man Is Donald Trump? About Average.
Donald Trump has relentlessly built an image of a highly successful businessman and a consummate dealmaker. Judging by his Cabinet choices, it looks like President Trump equates business success with intelligence. The higher your net worth, the smarter you are.
The question is, just how good of a business man is Donald Trump? I’d say- about average.
One thing is unquestionably clear- Trump is world-class at self-promotion. His last name is his brand and he plasters it everywhere—on his own properties, on properties in which he simply licenses the name, on a myriad of luxury products, etc. etc. He has created a global image of success and wealth…and this takes real skill. Even his most strident opponents must concede this point.
Forbes estimates Donald Trump’s net worth at $4.5B which makes him the #121st richest American. If you were to believe the Donald, it is an amazing success story of a savvy kid who turned a $1M loan into a multi-billion empire. He would probably say, that what makes it even more remarkable is that he also had to overcome near financial ruin caused by the early 1990’s recession and his high leverage of the Taj Mahal casino.
Getting exact figures on Donald Trump’s finances is famously difficult as he refuses to release his tax returns. Fortunately, President Trump is also famously litigious, so many of his financial details have been revealed through business lawsuits and two divorces. There was also the incredible leak of his 1995 returns which showed a staggering $916M tax loss. (It would be interesting to hear from the IRS if any other American has ever claimed a greater one-year tax loss. Perhaps Mr. Trump is the biggest 1-year loser ever?)
In my analysis of Donald Trump’s business acumen, I recorded his family loans and computed what they would have been worth today if he simply invested them in the S&P 500 at the time of receipt. As for the $916M tax loss carry forward, I assumed that he claimed all of it against future income over a 20-year period. Since this is basically after tax-free money, I computed what he could have earned if he invested all of it year-by-year in the S&P 500. Furthermore, I took the conservative measure of not re-investing any of those S&P 500 stocks’ dividends; the analysis only looks at the would-be capital gains of the stock price.
The largest family-related loan Trump received was a $70M construction loan (equivalent to $378M in 2017 dollars) from Manufacturers Hannover to turn the Commodore Hotel at Grand Central Terminal into the Hyatt. Technically, it wasn’t a family loan, but without his father’s personal guarantee for $35M (and Hyatt Hotels guarantee for the other $35M), it is highly unlikely that the neophyte Trump would have ever been given access to such a massive loan without the elder Trump’s connection.
The $70M loan transpired in 1974. If Donald Trump would have used it to buy the S&P 500 stocks instead, it would be worth just under $2.3B today.
As you can see in the table below, the cumulative amount of the family loans and tax loss carry forward would total $4.45B.
Essentially, Donald Trump’s current net worth is equal to his family loans and the benefit from the tax code if he were to have simply gone on vacation for 40 years and invested in the S&P 500.
In researching this article, I came across an interesting 1984 quote from M.I.T. economist Lester Thurow who wrote, “At a trivial level, it is almost impossible not to be interested in Forbes magazine’s annual list of the 400 wealthiest individuals, minimum net worth $150 million, and 82 wealthiest families, minimum net worth $200 million. Subconsciously, we read their biographies hoping to find the elixir that will add us to the list. While the elixir — a rich father — is to be found (all of the 82 families and 241 of the 400 wealthiest individuals inherited all or a major part of their fortunes), it doesn’t help most of us to point this out to our fathers.”
Therefore, Donald Trump is far from alone when it comes to 2nd generation “success”. He has basically matched the S&P 500 and benefited greatly from the “heads I win, tails you lose” U.S. real estate tax code.
His children seem to adore him and there is mutual respect, so I would say that Donald Trump is a very successful father. It’s just that he isn’t an exceptional business man or husband.
If he does, indeed, get Mexico “to pay for the wall”, I might reassess everything as that would really be the deal of the century.