4 ms·

I wish discussions of networth at these scales were more nuanced. If the stock of your company goes up 50% or whatever, but you can't exactly sell more than x%

by emmp 6y ago

I wish discussions of networth at these scales were more nuanced. If the stock of your company goes up 50% or whatever, but you can't exactly sell more than x% without tanking it or losing control of the company, it's just so much more complex than you're 50% richer. This is not to discount that they're filthy rich, and certainly enough of it is liquid for them to buy in essence anything they want. So much discussion about billionaires in the press seems to discuss stock fluctuations as if they were cash injections directly into a bank account, which can't hold at those scales. How much could Bezos actually liquidate tomorrow without losing control or tanking Amazon? That would be an interesting number. I don't have a clue

jjeaff 6y ago
>How much could Bezos actually liquidate tomorrow without losing control or tanking Amazon? Unless he had a very believable reason to need the money that is fully isolated from Amazon the company (which is near impossible for a cult ceo/founder), Bezos selling any significant amount of stock right now would likely cause a heavy crash. The market is going to be particularly sensitive right now to the fact that someone like Bezos would only be selling if they know something big that we don't know. The same applies all the time, but particularly in uncertain, volatile time.
- notechback 6y ago
  Of course he'd be stupid to sell all in one go and there's no reason why he'd sell big chunks at once. But of course he can (and probably is) constantly sell small amounts and take cash out.
kennywinker 6y ago
I don't think it matters? Like if bezos wants cash he doesn't have to sell stock he can just borrow against his holdings. I don't know a lot about how the ultra-rich operate, but I have been lead to believe that this is the standard practice.
- valuearb 6y ago
  Borrowing a significant amount against public company stock is extremely risky.
  - CSSer 6y ago
    Isn’t the idea that the fed makes it basically free, and if you get in big trouble they’ll just step in and bail you out?
    - valuearb 6y ago
      Macro can’t always save micro. If Bezos borrows $70B against $100B in stock, then the market crashes 30% in a week, and the fed pours money in to save it, it’s too late for Bezos, all his shares are already in his brokers hands. The myth of the fed bailing out public stocks is pretty silly when we’ve just suffered through a 30% drop in a week, and a decade ago lost over 50% in under a year.
      - CSSer 6y ago
        I'm sorry, I'm still confused. Perhaps the best question to ask you is where does the risk come from him borrowing the money either way? He gets it for virtually free. The fed propping up the market devalues the currency, yes, but it just gives him more time to act and everyone else is in the same boat with him. The way I see it, even if his stock goes down, he still has $70B and a trivial amount of interest to pay. Also, we should probably use a lower number, because I struggle to think of a scenario where a single individual would actually need that much capital at once. If we need to use someone else for a different hypothetical I'm open to that too, because Amazon's stock has risen 46% since it hit its YTD low on March 16th, which is 10% higher than its previous all-time high.
        valuearb 6y ago
        First, it’s not free money, loans have to be paid back. Ok let’s use a smaller number. Bezos owns 55M shares of Amazon trading at $2,400 a share, worth $132B. He borrows $30B for his rocket company secured by those shares. His borrowing agreement will require the shares backing those loans maintain a minimum equity value, let’s say 50%. Amazon drops over 50% to $1000 per share, dropping his shares value to $55B, breaching that agreement. His broker will immediately sell a few million shares to maintain his agreed equity ratio. What happens to Amazons shares when a few million hit the market in a short period? Amazon plunges below $500, so broker is forced to sell a few million more to try to maintain that equity, driving Amazon into the low hundreds, leading to the sale of more shares, etc, etc. Eventually they dump the remainder of his shares for under $100/each just to try to recoup the last of the $30B. He started with full control of his company, and a $130B net worth, he leaves with no shares, no control, and $30B in cash. This scenario is a little tortured, but it is likely a big reason why Bezos sells shares to raise funds for BO. Borrowing risks giving a disinterested party the right to dump your shares at a fraction of their value due to an entirely short term event.

by emmp 6y ago

jjeaff 6y ago

>How much could Bezos actually liquidate tomorrow without losing control or tanking Amazon? Unless he had a very believable reason to need the money that is fully isolated from Amazon the company (which is near impossible for a cult ceo/founder), Bezos selling any significant amount of stock right now would likely cause a heavy crash. The market is going to be particularly sensitive right now to the fact that someone like Bezos would only be selling if they know something big that we don't know. The same applies all the time, but particularly in uncertain, volatile time.

notechback 6y ago
Of course he'd be stupid to sell all in one go and there's no reason why he'd sell big chunks at once. But of course he can (and probably is) constantly sell small amounts and take cash out.

kennywinker 6y ago

I don't think it matters? Like if bezos wants cash he doesn't have to sell stock he can just borrow against his holdings. I don't know a lot about how the ultra-rich operate, but I have been lead to believe that this is the standard practice.

valuearb 6y ago
Borrowing a significant amount against public company stock is extremely risky.
- CSSer 6y ago
  Isn’t the idea that the fed makes it basically free, and if you get in big trouble they’ll just step in and bail you out?
  - valuearb 6y ago
    Macro can’t always save micro. If Bezos borrows $70B against $100B in stock, then the market crashes 30% in a week, and the fed pours money in to save it, it’s too late for Bezos, all his shares are already in his brokers hands. The myth of the fed bailing out public stocks is pretty silly when we’ve just suffered through a 30% drop in a week, and a decade ago lost over 50% in under a year.
    - CSSer 6y ago
      I'm sorry, I'm still confused. Perhaps the best question to ask you is where does the risk come from him borrowing the money either way? He gets it for virtually free. The fed propping up the market devalues the currency, yes, but it just gives him more time to act and everyone else is in the same boat with him. The way I see it, even if his stock goes down, he still has $70B and a trivial amount of interest to pay. Also, we should probably use a lower number, because I struggle to think of a scenario where a single individual would actually need that much capital at once. If we need to use someone else for a different hypothetical I'm open to that too, because Amazon's stock has risen 46% since it hit its YTD low on March 16th, which is 10% higher than its previous all-time high.
      - valuearb 6y ago
        First, it’s not free money, loans have to be paid back. Ok let’s use a smaller number. Bezos owns 55M shares of Amazon trading at $2,400 a share, worth $132B. He borrows $30B for his rocket company secured by those shares. His borrowing agreement will require the shares backing those loans maintain a minimum equity value, let’s say 50%. Amazon drops over 50% to $1000 per share, dropping his shares value to $55B, breaching that agreement. His broker will immediately sell a few million shares to maintain his agreed equity ratio. What happens to Amazons shares when a few million hit the market in a short period? Amazon plunges below $500, so broker is forced to sell a few million more to try to maintain that equity, driving Amazon into the low hundreds, leading to the sale of more shares, etc, etc. Eventually they dump the remainder of his shares for under $100/each just to try to recoup the last of the $30B. He started with full control of his company, and a $130B net worth, he leaves with no shares, no control, and $30B in cash. This scenario is a little tortured, but it is likely a big reason why Bezos sells shares to raise funds for BO. Borrowing risks giving a disinterested party the right to dump your shares at a fraction of their value due to an entirely short term event.