How Does a Man Lose $200, 000, 000, 000?
A month ago, while on a stroll, I lost a hundred-ringgit bill. I’m not sure where it went, but it was in my pocket and it must’ve fallen off at some point. I felt viscerally upset and was very much pissed at myself. How could I have lost such a large amount of my hard-earned money? At that point, I thought, “I may never forgive myself for losing such a substantial fortune”.
Then I checked my phone and saw the latest headlines. “Elon Musk Becomes First Ever Person to Lose $200 Billion”. It was like a smack to the face. For reference, that’s 8.75 billion times the amount that I’ve lost.
The man, of course, is still significantly rich. He possesses more wealth than any one of us mere mortals could ever conceive. Musk is still richer than both Jeff Bezos and Bill Gates, who, prior to Covid creating uber-rich specimens such as Bernard Arnault, (now the richest man in the world) have sat comfortably on the top two richest persons for decades. And the amount of wealth that he possesses can never be spent.
We, mere mortals, tend to misjudge the sheer volume of wealth that some of our richest featherless bipeds possess. It’s hard to visualise the wealth disparity between a millionaire and a deity like Elon Musk. But imagine this. Say your bank account lays claim to a magnanimous $1, 000, 000. Convert your wealth into centimeters, and walk that amount; walk ten kilometers. That could take about two hours.
If Elon did that same exercise he’d walk a whole 1.4 million kilometers. It would take him thirty-two years to walk that off.
But how DOES a man lose such an extravagant, eye-watering amount of money?
Elon can be considered what some would consider a “middle-class” billionaire. And yes, there are classes. Although the man is one of the richest men in the world, his wealth does not have much liquidity; his wealth cannot easily be converted to cash.
There can be considered four classes of billionaires. The oxymoronic “low” class billionaire (with Sam Bankman-Fried being the finest example of such), the middle-class Elon Musk, and the upper-class billionaire, secure in their lavish lifestyle.
If the failures of cryptocurrency have a face, it would be Sam Bankman-Fried. The 30-year-old entrepreneur Bankman-Fried is one of the many who rode the crypto wave in the early 20s, accumulating hoards of unforeseen wealth, crashing and burning when it became too good to be true. He would be a lower-class billionaire, as are many young tech entrepreneurs. Once the 60th richest American (it’s a really high bar), his net worth had amounted to $26.5 billion. In November 2022, it crashed, in a truly violent fashion, to the impecunious $991.5 million. That’s 96% of his wealth, just gone. And that’s including his shares in his bankrupt company, FTX. Just like that, Sam Bankman-Fried went from living large to living with his parents.
“The former CEO of failed cryptocurrency exchange FTX says he’s down to his last $100,000 — and that was just the last time he checked.” — Fortune.com
Bankman-Fried derived his entire net worth from his company, which was not publicly traded. When the faddish cryptocurrency business had run its course his company plunged into bankruptcy, his wealth did too.
Fortunately, Elon is the owner of various enterprises. If one of them, for example, if his aptly named Boring company (which drills holes underneath cities as a form of the faux subway for cars) went bankrupt, he’d still have Tesla and SpaceX. However, he’s not as secure as someone like Bill Gates.
Bill Gates, the founder of Microsoft, owns only 1% of Microsoft shares. He has diversified, investing his wealth into several firms such as Berkshire Hathaway, which he derives almost twenty billion dollars of his net worth from. He’d be what could be considered in the upper class of wealth.
The difference between Bill Gates’ wealth and Elon Musk’s wealth is that Elon’s wealth is tied to companies that all lay allegiance to him. That is, if Elon does anything controversial, his reputation is stained by any sort of unfortunate misendeavor… (ahem *Twitter* ahem). Shareholders lose confidence in their companies and rapidly sell their shares, causing those prices to fall.
Another problem that the multi-billionaire Elon Musk is so unfortunate to suffer is he can’t actually use the money which he is valued at. Although he may have billions of dollars worth of stocks, the only way he can convert those stocks to actual money is by selling them. And you can’t just sell large amounts of stocks without incurring panic.
Think back to the Twitter acquisition. Elon announced his plan to buy the social media platform on the 14th of April, for an eye-watering 44 billion dollars. On the same day, its stock price mysteriously floored. When the acquisition took place later in October, after Elon had sold 44 billion dollars worth of stocks, the same thing occurred once again.
Even though Elon had a valid reason, you don’t just sell 44 billion dollars worth of stocks without people arousing suspicion. “What if Elon knows his company is overvalued and wants to cash in before the inevitable crash” (Tesla is well known in financial circles to be overvalued)? For this reason, most billionaires actually find it quite hard to reap the rewards of their extravagant wealth without taking out loans to fulfill their billionaire lifestyle. This is called liquidity, which is how hard it is to turn any asset, whether it be a house or a stock, into cash. Hard knock life.
Gates, on the other hand, does not have the same problems which Elon has. He has, over the course of his lifetime, sold off virtually all his stocks and reinvested them in… more stocks, in other companies (such as Berkshire Hathaway). He can sell off those stocks without fear for any company’s fortunes. You can never have too much money.
And going back to Elon, to address the elephant in the room, as well as the primary reason why Elon lost so much money… his Tweets.
As a high-profile billionaire tech guru and investor, Elon has one job: keep his mouth shut and stay out of controversy. But, again and again, Elon would exercise the executive power anointed by himself (as Chief Twit), hop on his newly acquired website, and Tweet. And Tweet. And never stop Tweeting. And firing boatloads of Twitter employees.
This makes shareholders worried. Those who derive a large portion of their investment income on the fortune of some rambling lunatic on Twitter would not necessarily feel safe. The same people would opt to sell their shares, perhaps buy themselves a car with what they’ve earned in the two years they rode the Tesla wave.
A person purchasing $1, 000 worth of Tesla stock in 2019 could cash it in for $26, 000 if they sold it all by November 2022. This is called speculation, and people have gone insanely rich from this. However, speculation is what caused the Great Depression. Speculation is what caused the 2008 financial crisis which put people on the streets.
There are winners and losers; it’s a battleground in the world of finance.
By: Vittorio Wang
