Donald Trump Investments – How Good Is He?

Donald Trump Investments

But you say, wait, wait, wait. Isn’t he a huge business success? Doesn’t he know what he’s talking about? No, he isn’t. And no he doesn’t. Look, his bankruptcies have crushed small businesses and the men and women who work for them. He inherited his business, he didn’t create it.Mitt Romney, talking about Donald Trump in his attack speech last Thursday

There has been a lot of controversy surrounding Donald Trump’s success as a real estate developer, investor, and businessman.

Last week, Mitt Romney (the 2012 Republican presidential nominee) called Trump a “phony” and a “fraud”. Romney started Bain Capital, a well-known private equity firm, and is worth about $250 million.

Here are all the ideas presented at the 2020 Robin Hood Investors Conference

2020 Robin Hood Investors ConferenceAs usual, the Robin Hood Investors Conference has brought several new investment ideas from some of the top minds in the wealth management business. Investors heard from Sachem Head's Barnes Hauptfuhrer, One Tusk Investment Partners' Vivian Lau, Lone Pine's Mala Gaonkar, Lakewood Capital's Anthony Bozza, CAS Investment Partners' Clifford Sosin, Teca Capital's Fernando Vigil and Read More


But Trump, on the other hand, is a multi-billionaire.

So is Romney right? Is Trump a phony? Or can Trump’s investment record speak for itself?

[drizzle]

Let’s take a look.

Donald Trump Investments –  THE 3 ERAS OF TRUMP’S CAREER

According to The Economist, Trump’s career can be divided into three parts:

1. THE ERA OF DEBT-FUELLED EXPANSION (1975-90)

Mr Trump’s big break was the renovation of a site at Grand Central Station, which is now occupied by the Hyatt Hotel. He raised cash, found a tenant, secured permits and completed a complex building job, according to his biographer, Michael D’Antonio. Buoyed by success he went on a long spree, buying buildings in a depressed Manhattan (including the site of Trump Tower), expanding into casinos in Atlantic City and picking up a small airline. His investments over this period were worth perhaps $5 billion in today’s money, with four-fifths of that debt-financed.

2. THE ERA OF HUMILIATION (THE 1990’S)

This era came as his casino business faltered and two of his gambling entities defaulted (two other related casino enterprises defaulted in 2004 and 2009). This destabilised the whole of Mr Trump’s operation, which may have had as much as $6 billion of debt in today’s prices. Through asset sales, defaults and forbearance from his creditors, Mr Trump clung on and avoided personal bankruptcy. As property prices in Manhattan rose he recovered his poise, and by the early 2000s he was doing small deals again, for example buying the Hotel Delmonico on New York’s Upper East Side.

3. THE ERA OF CELEBRITY (2004 AND BEYOND)

The final stage, of celebrity, came with his starring role in the The Apprentice in 2004. The success of the TV show, which had 28 million viewers at its peak and ran until 2015, led Mr Trump to create a flurry of ventures to cash in on his enhanced fame. He is now involved with 487 companies, up from 136 in 2004. They span hotel licensing in Azerbaijan and energy drinks in Israel. At face value Mr Trump has turned his name into a global brand that prints cash.

Donald Trump Investments – THE UNCERTAINTY SURROUNDING HOW MUCH DONALD TRUMP IS WORTH

Because Trump doesn’t run a public company and hasn’t released his tax returns, no one’s really sure what his actual net worth actually is.

Trump claims that he’s worth almost $10 billion.

Forbes, The Economist, and Bloomberg on the other hand estimated that number to be more like $3-5 billion.

Donald Trump Investments
Donald Trump Investments

Some more facts about Trump’s wealth:

  • Of his wealth, only an estimated 7% is outside America and 66% is made in New York.
  • Only about 22% of his worth is derived from assets that he actively created after 2004, when he became a reality TV star.
  • Some 64% is from conventional property and a further 17% from resorts and golf clubs.
  • His biggest recent deal has been in real estate: buying the Doral hotel in 2012 out of bankruptcy.
  • Only 11 of the licensing and branding companies created since 2004 make more than $1m of income.
  • Mr Trump says there are 38 more deals in the pipeline but it is hard to know their worth.

Donald Trump Investments – TRUMP’S INVESTING PERFORMANCE

According to The Economist, Trump’s performance is tricky to gauge because early estimates of his wealth may have been overstated.

If we start at 1985, when Trump first appeared in the rankings without his father, he has greatly underperformed both the S&P 500 and the Manhattan commercial real estate index.

If we start in 1996, when he had just clawed his way back from the abyss (perhaps the most generous staring point), he has slightly overperformed.

And if we start a decade ago, Trump has slightly underperformed again.

Donald Trump Investments
Donald Trump Investments

According to Professor John Griffin, who teaches at the University of Texas at Austin:

“Using both independent and self-reported estimates of his net worth, Donald Trump has underperformed his real estate investor peers by 48% and 57%, despite taking more risk. Donald Trump is obviously a skillful presenter and a talented entertainer, but in terms of his investment skills, he is a clear underperformer.”

Trump’s ranking among American billionaires has fallen from a peak of 26 to 121. According to The Economist, “by the standards of the country’s oligarchy, he is small beer. His property empire is a seventh the size of America’s biggest real-estate firm.”

And even though Trump was sensible enough to get out of casinos in Atlantic City, he missed out on the industry boom in Macau that propelled rival Sheldon Adelson of Las Vegas Sands to a net worth of $26 billion.

Donald Trump Investments
Donald Trump Investments

We should also take into account outside investors in Trump’s projects – roughly $5 billion of equity and debt (at current prices) from outsiders sat in Trump vehicles that went bust.

Donald Trump Investments – WHAT IF TRUMP HAD INVESTED IN AN INDEX FUND?

So is Trump a bad investor?

I don’t think it’s really fair to say so. Whether his net worth is $3 billion or $10 billion, the fact of the matter remains that Trump is still a multi-billionaire. And even though he inherited his company from his father – and drove several properties into bankruptcy, Trump was able to build (and rebuild) his empire to what it is today.

But is Trump as good as he says he is?

Probably not.

Citing data from Forbes, The Associated Press estimates that Trump’s net worth quadrupled from $1 billion to $4 billion between 1988 and today. That’s an impressive gain, but it’s nothing compared to the wealth produced by investors such as Warren Buffett and Bill Gates. Gates’s wealth increased from about $1 billion to $80 billion over the same period. Buffett had about $2.5 billion in 1988, and has $68 billion today.

Even you or I could have made more money than Trump did if we started where he started in 1978:

Citing an independent evaluation, Business Week put Trump’s net worth at $100 million in 1978. Had Trump gotten out of real estate entirely, put his money in an index fund based on the S&P 500 (if index funds existed back then) and reinvested the dividends, he’d be worth $6 billion today – twice as much as the $2.9 billion Bloomberg estimates his net worth to be. Other sources estimate that he’d be worth $13 billion today!

Donald Trump Investments –  CONCLUSION

Of course, being good at investing and being a good businessman are not the same things. Warren Buffett has often said that he became a better investor because he was a good businessman, and he became a better businessman because he was a good investor.

Compared to other investors and other investment options – i.e. other real estate developers, competing casino companies, the S&P 500 index, and the Manhattan commercial real estate index – Trump has clearly underperformed over the long-run.

So it would appear that his success in building his net worth came from the head start given to him when he inherited his father’s company and his incredibly powerful personality.

In any case, what the United States needs now is not a good investor or a good businessman – it needs a good president.

Only time will tell if Trump – investment record and business success aside – will be able to fill that role.

[/drizzle]

Previous articleShake Shack Inc, Square Inc, Bojangles Inc, Dicks Sporting Goods Inc, Ulta Salon – Stocks To Watch
Next articleAnonymous: Twitter Shutting Our Accounts For Harassing ISIS
Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…