The story is, back in 1974, Donald Trump inherited a business empire “worth an estimated $40 million to $200 million”. That came from this source. No idea if it’s accurate, but let’s assume that it is. And then there are all kinds of calculations out there trying to establish how well Donald did relative to the market. Consider this a fact check.

So here is an S&P 500 return calculator from this website. Between October 1974 and October 2015:

The math and stuff:

1. Firstly, note to self – re-invest the dividends. Because sherbet, over this particular 40 year period, it was the difference between increasing net worth by a factor of 29 and increasing it by a factor of almost 100.
2. Assuming that Donald invested his $40 million and spent his dividends, his net worth today would be around $1.2 billion.
3. But if he had re-invested his dividends, his net worth today would have been around $4 billion.
4. Unfortunately, that’s all pre-tax. So if you take off around 15% per year for dividend tax (the rate has fluctuated over time – but let’s just take 15% as a best case scenario), and you assume that there were all kinds of exemptions on the capital gains that brought the effective capital gains tax down to 5%, you end up with with numbers that are closer to:
   1. $1 billion (no dividend re-investment)
   2. $3.1 billion (if the dividends were re-invested)

How It Compares to Current Wealth Estimates

At this point, there is some confusion. Donald Trump has estimated his own net worth at $10 billion. Although, as the Donald says, “my net worth fluctuates, and it goes up and down with markets and with attitudes and with feelings—even my own feelings.” 

Then there is this highly entertaining Bloomberg column: “Dear Mr Trump: I’m Worth $10 billion, too.” An excerpt:

On a single day in August 2004, he told me his net worth was $4 billion to $5 billion, then revised that later the same day to $1.7 billion. Forbes said at the time he was worth $2.6 billion. A year later Donald told me he was worth $5 billion to $6 billion, but a brochure left on my nightstand at his Palm Beach resort said he was worth $9.5 billion. When I interviewed Donald’s chief financial officer in a Trump Organization conference room in 2005 to discuss the range of numbers, the figure shared with me was $5 billion, not $6 billion. “I’m going to go to my office and find that other billion,” the CFO advised.

My sources at the time – all of whom had worked closely with Donald and had direct knowledge of his finances – believed that his net worth was $150 million to $250 million. Donald attributed those figures to naysayers.

“You can go ahead and speak to guys who have four-hundred-pound wives at home who are jealous of me,” he told me, “but the guys who really know me know I’m a great builder.”

But here’s a graph from Bloomberg:

According to Forbes in 2015:

According to Forbes editor-in chief:

Well, I think the biggest difference is in terms of how he values his brand, We don’t use brand value in terms of our valuations because we figure if you have some brand value that you’re going to find a way to monetize, but until you do, we don’t count it.

So the Trump brand: valued at $5.5 billion. By Trump.

But putting that aside, in after-tax terms, if you accept the Forbes 400 number (which is probably more accurate than Bloomberg’s), then in pure return terms, Donald does seem to have outdone the market. In order to get there, his pre-tax annual return would need to have been around 13% per year, or 1% higher than the market return. Which ain’t exactly bad.

I’m almost embarrassed to be putting that calculation down on paper. But, you know, you can’t just look at these things and say “Well, ignoring tax…” – because taxes are real. And, I guess, you can’t make a brand for yourself without any substance to the name at all.

A Side Note

So I thought I’d just take a moment to talk about nominal vs real returns. Because these are all nominal numbers. In real terms (after taking inflation into account):

Again, assuming dividends were re-invested, that $40 million would be worth $800 million in 1974 dollars. That is, Donald Trump has effectively increased his general purchasing power by a factor of 20 over the forty year period.

For more on that, check out this earlier post: “How Teens Can Become Millionaires”.

Oh, and here’s an infographic:

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.