It doesn’t follow that because he did worse than the optimal strategy his strategy wasn’t equally as optimal. It could be that the strategy he followed is as optimal as the other one, but is subject to chance and he got unlucky.
You can’t say “strategy A produced a better result than strategy B, therefore strategy A is a better strategy” based on a single example of someone using strategy A.
The real point, for me, is not so much “Trump could have done better by investing in index funds”, it’s “Trump’s business underperformed the market”.
And, yes, underperforming the market over 30 years or so isn’t proof of anything much; he could just have been unlucky. But for the exact same reasons, the fact that Trump’s a billionaire isn’t proof of anything much; he could just have been lucky. (He was: he inherited a lot.)
The only point I’m making is this: the fact that Trump is rich is not very good evidence that he’s a great deal-maker. He’s rich mostly because he inherited a fortune; someone who had inherited the same fortune and just put it into the stock market would now be richer than he is; what (admittedly limited) evidence we have of his business skill is that he’s done worse than the market over the last few decades.
He might still be a great deal-maker. Or he might be a pretty terrible one. All I’m saying is that I don’t see evidence that he’s particularly good.
You can’t say “strategy A produced a better result than strategy B, therefore strategy A is a better strategy” based on a single example of someone using strategy A.
You have your example backwards.
We have a case of many many people using strategy A (index funds), and a single example of strategy B (Trump). And you can say that the strategy that worked lots of times is a better bet than the one that failed once. Strategy A is better in the limited sense that given our current information, it looks safer.
I am assuming that investment in index funds is scalable and was therefore including in my sample all long term investors in index funds. If this strategy is not scalable, I withdraw my analysis.
The issue isn’t whether investment in index funds is scalable but whether investing in index funds is scalable.
I can’t imagine someone who has 1 billion dollars to simply put it into an index fund and do nothing with it and live life as if he wouldn’t have any money.
If you look at lottery winners most of them as relatively soon broken and without any money.
If a lottery winner has the same amount of money ten years later that shows good financial skills relative to other lottery winners.
There aren’t many billionaires, full stop. (A little under 2000.) And if someone (say) inherited $500M or earned it by building and selling a very successful business, and then put the money into index funds and waited for it to grow to $1B … I don’t think we’d say they became billionaires through index funds, we’d say they became billionaires by inheritance or by growing a business.
Trump became a billionaire by inheriting a fortune. The fortune he inherited was less than $1B, and it happens that the path he took from <$1B to >$1B involved running a business, but he could have invested his money conventionally and done just as well.
I would expect that few billionaires have their wealth invested conventionally, though. To get really rich you generally either need to do something exceptionally lucrative or inherit from someone who did. In the first case, (1) the chances are that you have a drive to keep doing exceptionally lucrative things and (2) you’re likely to think—with some justification—that having done so well for yourself you can do better by carrying on than by just investing and relying on other people’s success.
In the second case, the chances are that a lot of that inheritance is in the business that made your family rich. Again, if it’s been so successful you’re likely to think it better to keep most of your wealth in that.
That’s the same question you asked 5 comments upthread from this one. Apparently you found my answer unsatisfactory since you just asked (what I now understand to be) the exact same question again, but unless you care to indicate what was unsatisfactory about it I’m not sure what to say that I haven’t already.
It doesn’t follow that because he did worse than the optimal strategy his strategy wasn’t equally as optimal. It could be that the strategy he followed is as optimal as the other one, but is subject to chance and he got unlucky.
You can’t say “strategy A produced a better result than strategy B, therefore strategy A is a better strategy” based on a single example of someone using strategy A.
The real point, for me, is not so much “Trump could have done better by investing in index funds”, it’s “Trump’s business underperformed the market”.
And, yes, underperforming the market over 30 years or so isn’t proof of anything much; he could just have been unlucky. But for the exact same reasons, the fact that Trump’s a billionaire isn’t proof of anything much; he could just have been lucky. (He was: he inherited a lot.)
The only point I’m making is this: the fact that Trump is rich is not very good evidence that he’s a great deal-maker. He’s rich mostly because he inherited a fortune; someone who had inherited the same fortune and just put it into the stock market would now be richer than he is; what (admittedly limited) evidence we have of his business skill is that he’s done worse than the market over the last few decades.
He might still be a great deal-maker. Or he might be a pretty terrible one. All I’m saying is that I don’t see evidence that he’s particularly good.
You have your example backwards.
We have a case of many many people using strategy A (index funds), and a single example of strategy B (Trump). And you can say that the strategy that worked lots of times is a better bet than the one that failed once. Strategy A is better in the limited sense that given our current information, it looks safer.
Is that true? Are there many billionaires who became billionaires through having most of their money in index funds?
I am assuming that investment in index funds is scalable and was therefore including in my sample all long term investors in index funds. If this strategy is not scalable, I withdraw my analysis.
The issue isn’t whether investment in index funds is scalable but whether investing in index funds is scalable.
I can’t imagine someone who has 1 billion dollars to simply put it into an index fund and do nothing with it and live life as if he wouldn’t have any money.
If you look at lottery winners most of them as relatively soon broken and without any money. If a lottery winner has the same amount of money ten years later that shows good financial skills relative to other lottery winners.
There aren’t many billionaires, full stop. (A little under 2000.) And if someone (say) inherited $500M or earned it by building and selling a very successful business, and then put the money into index funds and waited for it to grow to $1B … I don’t think we’d say they became billionaires through index funds, we’d say they became billionaires by inheritance or by growing a business.
Trump became a billionaire by inheriting a fortune. The fortune he inherited was less than $1B, and it happens that the path he took from <$1B to >$1B involved running a business, but he could have invested his money conventionally and done just as well.
I would expect that few billionaires have their wealth invested conventionally, though. To get really rich you generally either need to do something exceptionally lucrative or inherit from someone who did. In the first case, (1) the chances are that you have a drive to keep doing exceptionally lucrative things and (2) you’re likely to think—with some justification—that having done so well for yourself you can do better by carrying on than by just investing and relying on other people’s success.
In the second case, the chances are that a lot of that inheritance is in the business that made your family rich. Again, if it’s been so successful you’re likely to think it better to keep most of your wealth in that.
For how many billionaire’s does that happen to be true?
If that’s true for nobody than comparing Trump to nobody doesn’t make much sense.
For how many billionaires does what happen to be true?
Became billioniares through having most of their assets in index funds.
That’s the same question you asked 5 comments upthread from this one. Apparently you found my answer unsatisfactory since you just asked (what I now understand to be) the exact same question again, but unless you care to indicate what was unsatisfactory about it I’m not sure what to say that I haven’t already.