Earlier quoted context omitted.
These individuals can easily call up banks and get a loan on their worth. "Hey, Morgan Stanley I need 2 mil deposited in my account" - "ok" This is also how they avoid income tax. ;) They can take in millions and it's just a loan. Then they pay it back off with stock or other asset deals.
This. There is a large section of private banking that have creative ways to provide loans/financing to major shareholders. As long as your stock remains stable, you can finance anything up to your net worth.
Companies and Billionaires
61–70 of 107 posts
Re: Companies and Billionaires
#62Earlier quoted context omitted.
capital gains tax is lower, no?
Sure, but you still have to pay taxes, whereas if you get a loan you just pay interest (probably a very low rate) and defer the taxes.
I think major shareholders of Kodak, MCI WorldCom, Enron or Polaroid would point out the concentration risk one is incurring.
Re: Companies and Billionaires
#63Naïve question. The richest people in the world, who are billionaires from pretty much just stock. How do they convert that to real money to buy things? Do they just simply wait until the stock is at a high point, and sell a lot? Maybe move that money to other investments?
Three possible strategies:
1) Sell immediately and diversify.
2) Sell a smallish portion of holdings at a market price periodically.
3) Never sell anything, borrow against the portfolio to finance personal needs.
Strategy (1) is suitable for heirs and retired executives.
Markets really-really like it when active executives stick to (3), though. Because it's not the most rational financial decision and due to AMT tax bill incurred on new stock grants to such active executive, most people at that level stick to (2), which can be traced via tools such as Yahoo! Finance.
(2) also has a benefit of reasonable diversification and obfuscation in regards to internal signals, i.e. traders reading the insider filings for any signs of unusually high buy or sell orders.
Re: Companies and Billionaires
#64Earlier quoted context omitted.
There are a couple of ways (disclosure, I am not a billionaire :-)) First, nobody really needs a billion dollars in "cash" it just doesn't make sense as "cash" deposits pay a below inflation rate return in most places (meaning it loses its "value" over time) and even a negative interest rate in some places. Second, it isn't like there is a "fixed amount of money" in the world and if someone has all of it, everyone el…
Somewhat related, if you or someone else knows: is there any special process for transferring or handling large amounts of money? For example, if you're buying a $5m private jet, how would you pay for it? A regular check or bank transfer? Also, do the banks keep any security checks in place? e.g. If I had $10m and there was a request to transfer out $5m, I'd definitely like the bank to run it by me.
at the $millions level, although technically you could, you generally don't "send money" like you or i or even a typical rich person would do as individuals paying a regular bill. you talk to a person at the bank who calls up another person at another bank, and they wire the money from bank to bank or some kind of intermediary, like an underwriter or escrow co.
think of it like financing a new car purchase, on a grand scale. how many people were involved in a $30k car transaction? you, your SO, maybe your kids, the sales guy, the sales manager, the finance manager, the underwriter at the bank, the underwriter's manager at the bank, etc. sure you wrote the dealership a check for the down payment, but did you "send" anyone $30k? no, you were the centerpiece in a large, coordinated effort to get $30k sent from a bank to the car dealership, so you could drive off in a new car without much hassle or cash. scale up from there.
so, yes, there are all sorts of checks in place. on a $millions deal, possibly a dozen people or more will be involved either directly or tangentially. bankers, accountants, lawyers, sales people, etc. deals in the $millions range get complicated, and everyone wants extensive, exacting paperwork to ensure both that they get paid and they don't get accused of fraud.
rich people do not buy expensive things in cash. they tend to hold on to as much cash as possible, because cash is the only kind of money with direct control. avoiding 'debt' is a middle class phenomenon, i assure you. the poor and the rich are drawn to it like flies to shit because it helps them achieve their short term goals fabulously effectively, however different they may be, and however expensive (one can afford it, the other can't. guess who.)
yes, some genius solo entrepreneur could just do all of this himself but in reality it rarely happens that way. more money means more people.
Re: Companies and Billionaires
#65Pyramid scheme
Re: Companies and Billionaires
#66Earlier quoted context omitted.
Somewhat related, if you or someone else knows: is there any special process for transferring or handling large amounts of money? For example, if you're buying a $5m private jet, how would you pay for it? A regular check or bank transfer? Also, do the banks keep any security checks in place? e.g. If I had $10m and there was a request to transfer out $5m, I'd definitely like the bank to run it by me.
Short answer to your question is "Private Banking": https://en.wikipedia.org/wiki/Private_banking You have a specific account manager, who you know, and is in communication with you about that Jet purchase. Yes, it probably is a wire, but maybe to an escrow, depending.
You do not need to go the private banking way to have such level of service. I am living in Germany at the moment, I have an account in a Sparkasse (A savings bank).
As I needed to buy a car, I informed my account manager that I would buy one, gave her the bank account information of the car dealer and told her that if everything is in order, I would call and ask her to perform an "instant" money transfer.
Just went to the car dealer, looked at the car, call my account manager, 30 minutes later the money was available on the account of the car dealer and I was ready to go.
For the day-to-day stuff, we use a pure online bank, but I am happy to pay the higher fees of a Sparkasse for such cases where trust is needed.
Re: Companies and Billionaires
#67I think most people don't realize just how much money the richest people have. People generally think of normal(ish) distributions like height, where if you're 10% taller or shorter than average, you're a tall or short person, and 40% taller makes you the tallest person in the world. In comparison, wealth has a very, very long tail, making it hard to visualize. Here's what I've come up with to visualize wealth. Suppo…
Exponential cumulative distribution. Mostly because wealth of the few on the top I'd made by accumulation of wealth of the ones below. A mathematical description of exploitation.
Re: Companies and Billionaires
#68Earlier quoted context omitted.
Short answer to your question is "Private Banking": https://en.wikipedia.org/wiki/Private_banking You have a specific account manager, who you know, and is in communication with you about that Jet purchase. Yes, it probably is a wire, but maybe to an escrow, depending.
You do not need to go the private banking way to have such level of service. I am living in Germany at the moment, I have an account in a Sparkasse (A savings bank). As I needed to buy a car, I informed my account manager that I would buy one, gave her the bank account information of the car dealer and told her that if everything is in order, I would call and ask her to perform an "instant" money transfer. Just went…
I think there is a bit of a difference between buying a car and buying a jet.
I bought a car last year and just paid for it using my chip-and-pin debit card, my bank told me that they can identify accounts for car dealers and don't question large payments to them.
Re: Companies and Billionaires
#69Naïve question. The richest people in the world, who are billionaires from pretty much just stock. How do they convert that to real money to buy things? Do they just simply wait until the stock is at a high point, and sell a lot? Maybe move that money to other investments?
There are also less obvious ways to unlock cash, instead of just selling (you might not want to do that, because you believe your stock is undervalued or you want to retain control of your company, etc).
For example: let's say you own $500m worth of Google stock. Google stock compounds pretty well at the moment. Interest rates are low, around 1-2% per year.
You can borrow $200m quite easily by using your existing stock as collateral. That money could then be reinvested again in a low fee S&P fund and in some individual stocks, generating you a 10% yield per annum. 10% - 2% = 8% of annual gains, or $16m per year.
Re: Companies and Billionaires
#70#2, who owns Zara among other clothing brands, never completed high school, but Zara has brilliant ideas. No connections, I think he started as a messenger for the firm that he was to head. He's sounds like someone Malcolm Gladwell would write about.
Lets also not forget he pays Spanish/EU taxes.