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How Donald Trump lost Rs.64,000 crores in real estate?

Posted by Muthu on July 20, 2015

As you are all aware, Donald Trump is a billionaire real estate tycoon in USA and is currently running as one of the presidential candidates.

Donald Trump father was a multimillionaire New York real estate developer who left him a fortune which was estimated at $500 million in 1982.

Over last 4 decades, Trump has developed his father’s business to a grand level and has a current net worth of $10 billion.

He has grown his father’s real estate empire during the last 33 years at an annualised return of 9.5% or multiplying wealth by 20 times.

During the above period, to achieve this return, he took excessive risks and due to excess leverage, he has filed four corporate bankruptcies. In nut shell, he made this return by taking undue risk with great difficulty.

During the same period, S&P 500 (an index of 500 of America’s largest companies) has provided an annualised return of 11.86% or multiplied wealth by 40 times.

By simply investing $500 million in S&P 500 index in 1982 and doing nothing whatsoever for last 33 years, would have made Donald Trump’s net worth at $20 billion instead of the $10 billion he has today.

His opportunity loss of investing in real estate instead of equity is $10 billion or Rs.64,000 crores.

This is yet another example of how equity is a much better asset class than real estate in the long run.

Please note that the idea of writing this piece came from reading this article.

6 Responses to “How Donald Trump lost Rs.64,000 crores in real estate?”

  1. Anish said

    This article ignores an important thing– donald trump has not been living on streets and without any expenses in last 20 years.
    Investing 500 million in S&P and then withdrawing every year for his expenses would have meant his net worth much lesser than 10 billion today.
    There is scope for outperformance in real estate as well( may be luck, may be talent or may be just good connections).

    Just because we know equity is better than real estate(on average for a common investor, not always, not for everyone) lets not belittle everything and dont give credit where it is due.

  2. agrdin said

    Donald Trump is hardly a poster for investing, although he is famous for lot of other things.

  3. Kashi said

    @Anish – I agree. Can you imagine what his holdings (and his mental well-being) would have been during the Wall Street crashes? Maybe, he would have filed for a few more bankruptcies. Imagine asking him to hold onto his equities in those times.

    Hindsight is great and like past returns are no guarantee for the future. No point in dwelling on figures of the past. Was there anyone in 1982 who told Donald Trump that forget real estate, put your money in equities and wait until 2015 to see $20 billion? And, most importantly, would that have been credible advice in 1982? Again, I agree with @Anish – you would also have to tell him not to dip into this. He has also been in the news for a long time – that too takes money. Maybe, he likes this better than money.

    Now, can anyone guarantee x return in year 2025, 2030, or beyond? Of course, we will have someone say in 2050 that one should have held onto our investments and continued our SIPs. Or maybe, sing a different tune about gold.

    Don’t get me wrong – equities have a significant role to play. But there needs to be a healthy balance between gold/real estate/staid FDs and equities. It cannot be just equities.

  4. MRHDK2012 said

    Guess the other readers are missing a key point – not all active businesses generate higher returns than what the index can get give. Lot of entrepreneurs and business owners generate much lower inferior returns as compared to the basket of shares in an index.

    Donald Trump is an example of such businessmen.

  5. nicegem007 said

    Take it easy… Muthu just pointed out the possibility…neither of us will do the same , if we have 500m in our hands…..do we? Fund managers always had a biased agenda, I do not blame him for that.
    On the other hand, see what passive generation of income can produce . Like that of the 100 shares of Wipro bought in 1981, with Rs.10000/-, turning into Rs.580 Cr. today…..is it possible with all the stocks? May be or may not be….but the chance is there. Even if it becomes Rs.5.8 Croes, still it beats The secured instruments. Right? Please correct me, if I am wrong….that is the power of equity.

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