5 ms·

Yeah, most billionaires have no idea what they're talking about. All luck. Yup. /s

deleted 10y ago
[deleted]
jackweirdy 10y ago
Donald Trump would have more money now if he put his inheritance in an index fund. http://fortune.com/2015/08/20/donald-trump-index-funds/ http://fortune.com/2015/08/20/donald-trump-index-funds/
- tanderson92 10y ago
  I continue to be mystified by this take. The S&P 500 index is usually the benchmark cited here. But the S&P 500 is tremendously diversified over sectors, factors, you name it. Trump managed to create actual wealth in our economic system at a rate slightly less than the S&P 500. If anything the people who invest in index funds are freeloaders on the economic engine that Trump is part of (full disclosure: I use index funds without exception for my investments) Another thing bothers me: you're supposed to look at risk/return, not simply return, in evaluating investment strategy.
  - paulddraper 10y ago
    Investing in the S&P 500 delegates the "actual wealth creation" to others by providing them with the means. And they, on average, would have done a little better than Trump did.
    - tanderson92 10y ago
      No, it really does not. The S&P 500 inclusion criteria[1] states: > Treatment of IPOs. Initial public offerings should be seasoned for six to 12 months before being considered for addition to an index. So if the S&P 500 explicitly excludes equities to IPO into the index, then how is it that an investor in an S&P 500 index is delegating wealth creation? They're just trading the returns with other investors. And to be clear, this is totally great for the investor! But it shouldn't be confused with actual business. [1]: https://us.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf https://us.spindices.com/documents/methodologies/methodology...
      - icebraining 10y ago
        You can't ignore the indirect influence. The same way people care about resale value of their car or house, the investors that purchase at an IPO know that index funds will buy their shares and can therefore make more and bolder investments.
        tanderson92 10y ago
        Of course I can ignore the indirect influence; if the company had no actual value at IPO its share price would plummet. Also, by definition the S&P 500 only includes companies which have had 4 consecutive quarters of positive GAAP earnings, so the shares would have value on the public markets. Specifically, they'd have to have enough value to be among the 500-or-so largest positive-earnings companies by market capitalization. Hardly value that can be attributable to indirect influence of an index fund.
        icebraining 10y ago
        You're looking at it too statically, and ignoring the full ecosystem. If I'm an investor that buys at IPO time, how many companies am I willing and able to invest in if I have to wait for the profits to come in through yearly dividends? And so, if I'm a VC, how many companies am I willing and able to invest in if the IPO market is much smaller? And so, if I'm an entrepreneur, how many companies can I found and create value from if I have very little chance of selling them off? The index funds are the terrain that sustain the "wealth creators".
      - paulddraper 10y ago
        Are you simply pointing out that the wealth creation is delegated to mature companies? Because that doesn't change the point. They could delegate further if appropriate. But one way or another, those mature companies create wealth. (If they did not, the S&P 500 index would not rise.)
    - pg314 10y ago
      In running his businesses, he also delegated "actual wealth creation" to others. E.g. the waiter serving drinks is the one creating wealth as much or more so than the owner of the business...
  - icebraining 10y ago
    If anything the people who invest in index funds are freeloaders No. How much wealth could those individuals create if they couldn't sell the companies on the market and invest that money, and had instead to accumulate dividends? The relationship is symbiotic. Yes, Trump created wealth, but the point is that his peers would have created even more if he hadn't used that money himself. To make an analogy, I can swim a few laps, but you wouldn't want to have me replace Michael Phelps on your team.
    - tanderson92 10y ago
      I may have been a bit hyperbolic about freeloaders. The bigger point I want to make is that the standard deviation on returns of a single venture like Trump's is so large that you cannot meaningfully compare it to a highly-diversified basket of stocks. To use your analogy, it'd be like evaluating the effectiveness of a coach in a swimming event by picking a single one of their swimmers and comparing them to the average times of the U.S. Olympic team. Does this necessarily imply anything at all about the skill of the coach?
      - asdfasdfa11112 10y ago
        It does not, but it is a useful benchmark to evaluate the claims of a swimmer with below average times who insists they become team captain.
      - zaphods-towel 10y ago
        I feel like you're making an argument against your thesis instead of for it (?). With higher risk, you expect higher return... so isn't that another tick against Trump's "success"? His ventures were way riskier than an index fund (see bankruptcies and losses), yet they had a markedly lower return. That means they were not good investments.
        tanderson92 10y ago
        Well there are two possibilities: 1) Trump's businesses are lower risk and so the lower realized return is as expected 2) there is significant idiosyncratic risk in a single company which can diversified away with the S&P500 while maintaining the same expected return. I disbelieve (1) because of his multiple high-profile bankruptcies.
- cardine 10y ago
  Wouldn't that be true of ~50% of companies by definition? After all an index fund is basically just the average of all of the investments inside it.
- deleted 10y ago
  [deleted]
- iopq 10y ago
  That's assuming he spent nothing at all, which I find to be a ridiculous assumption.
saghm 10y ago
I don't think calling someone a liar is the same as saying they don't know what they're talking about
xenadu02 10y ago
Billionaires that received millions in loans from their daddy? Not so much. Great respect to all who went out and built something great. Trump is not one of them; he would be penniless if his dad hadn't rushed in and saved him on at least two separate occasions.

deleted 10y ago

[deleted]

Donald Trump would have more money now if he put his inheritance in an index fund. http://fortune.com/2015/08/20/donald-trump-index-funds/ http://fortune.com/2015/08/20/donald-trump-index-funds/

tanderson92 10y ago
I continue to be mystified by this take. The S&P 500 index is usually the benchmark cited here. But the S&P 500 is tremendously diversified over sectors, factors, you name it. Trump managed to create actual wealth in our economic system at a rate slightly less than the S&P 500. If anything the people who invest in index funds are freeloaders on the economic engine that Trump is part of (full disclosure: I use index funds without exception for my investments) Another thing bothers me: you're supposed to look at risk/return, not simply return, in evaluating investment strategy.
- paulddraper 10y ago
  Investing in the S&P 500 delegates the "actual wealth creation" to others by providing them with the means. And they, on average, would have done a little better than Trump did.
  - tanderson92 10y ago
    No, it really does not. The S&P 500 inclusion criteria[1] states: > Treatment of IPOs. Initial public offerings should be seasoned for six to 12 months before being considered for addition to an index. So if the S&P 500 explicitly excludes equities to IPO into the index, then how is it that an investor in an S&P 500 index is delegating wealth creation? They're just trading the returns with other investors. And to be clear, this is totally great for the investor! But it shouldn't be confused with actual business. [1]: https://us.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf https://us.spindices.com/documents/methodologies/methodology...
    - icebraining 10y ago
      You can't ignore the indirect influence. The same way people care about resale value of their car or house, the investors that purchase at an IPO know that index funds will buy their shares and can therefore make more and bolder investments.
      - tanderson92 10y ago
        Of course I can ignore the indirect influence; if the company had no actual value at IPO its share price would plummet. Also, by definition the S&P 500 only includes companies which have had 4 consecutive quarters of positive GAAP earnings, so the shares would have value on the public markets. Specifically, they'd have to have enough value to be among the 500-or-so largest positive-earnings companies by market capitalization. Hardly value that can be attributable to indirect influence of an index fund.
        icebraining 10y ago
        You're looking at it too statically, and ignoring the full ecosystem. If I'm an investor that buys at IPO time, how many companies am I willing and able to invest in if I have to wait for the profits to come in through yearly dividends? And so, if I'm a VC, how many companies am I willing and able to invest in if the IPO market is much smaller? And so, if I'm an entrepreneur, how many companies can I found and create value from if I have very little chance of selling them off? The index funds are the terrain that sustain the "wealth creators".
    - paulddraper 10y ago
      Are you simply pointing out that the wealth creation is delegated to mature companies? Because that doesn't change the point. They could delegate further if appropriate. But one way or another, those mature companies create wealth. (If they did not, the S&P 500 index would not rise.)
  - pg314 10y ago
    In running his businesses, he also delegated "actual wealth creation" to others. E.g. the waiter serving drinks is the one creating wealth as much or more so than the owner of the business...
- icebraining 10y ago
  If anything the people who invest in index funds are freeloaders No. How much wealth could those individuals create if they couldn't sell the companies on the market and invest that money, and had instead to accumulate dividends? The relationship is symbiotic. Yes, Trump created wealth, but the point is that his peers would have created even more if he hadn't used that money himself. To make an analogy, I can swim a few laps, but you wouldn't want to have me replace Michael Phelps on your team.
  - tanderson92 10y ago
    I may have been a bit hyperbolic about freeloaders. The bigger point I want to make is that the standard deviation on returns of a single venture like Trump's is so large that you cannot meaningfully compare it to a highly-diversified basket of stocks. To use your analogy, it'd be like evaluating the effectiveness of a coach in a swimming event by picking a single one of their swimmers and comparing them to the average times of the U.S. Olympic team. Does this necessarily imply anything at all about the skill of the coach?
    - asdfasdfa11112 10y ago
      It does not, but it is a useful benchmark to evaluate the claims of a swimmer with below average times who insists they become team captain.
    - zaphods-towel 10y ago
      I feel like you're making an argument against your thesis instead of for it (?). With higher risk, you expect higher return... so isn't that another tick against Trump's "success"? His ventures were way riskier than an index fund (see bankruptcies and losses), yet they had a markedly lower return. That means they were not good investments.
      - tanderson92 10y ago
        Well there are two possibilities: 1) Trump's businesses are lower risk and so the lower realized return is as expected 2) there is significant idiosyncratic risk in a single company which can diversified away with the S&P500 while maintaining the same expected return. I disbelieve (1) because of his multiple high-profile bankruptcies.
cardine 10y ago
Wouldn't that be true of ~50% of companies by definition? After all an index fund is basically just the average of all of the investments inside it.
deleted 10y ago
[deleted]
iopq 10y ago
That's assuming he spent nothing at all, which I find to be a ridiculous assumption.

saghm 10y ago

I don't think calling someone a liar is the same as saying they don't know what they're talking about

xenadu02 10y ago

Billionaires that received millions in loans from their daddy? Not so much. Great respect to all who went out and built something great. Trump is not one of them; he would be penniless if his dad hadn't rushed in and saved him on at least two separate occasions.