Donald Trump’s possibly market-lagging stewardship of the fortune he inherited illustrates in a bizarre way the attractions of active wealth management.
Property mogul, celebrity and presidential candidate, Trump by some accounts, not his own, appears to have failed to keep pace with market gains since he inherited $40 million in 1974.
While there is no definitive accounting of his net worth, the outputs from his decision to build up a development organization are clearly more than financial. What he’s definitely garnered instead: a role, fun, influence, and the illusion of control.
Those are four very important components in the active management offering, and help to explain why so many choose to plow money into a business or actively managed mutual or hedge fund even despite comprehensive data indicating, at least when it comes to investing, that they would probably be financially better off with cheap index products.
A look at Trump’s experience shows that fun often, wait for it, trumps boredom, and having an identity or purpose in life is a good with a value. That's as true for the guy betting on small-cap momentum stocks as it is for a rich man backing a macro hedge fund.
Here’s the thorny part: what Trump is actually worth. There have been numerous estimates, all of which are just that, given the private nature of his companies and holdings. Trump has a long track record of hotly disputing every one as being substantially too low.
The National Review in September did an analysis of his wealth versus the returns he might have earned in an S&P 500 index fund and found evidence Trump might have done better by sitting back and relaxing.
When his father, developer Fred Trump, died in 1974, the Donald’s share was worth an estimated $40 million.
Put that into index funds and you get $3 billion today. Put the $200 million in wealth Forbes estimated Trump had in 1982 into those same funds and you have $8 billion today.
Trump’s current wealth has been estimated at $4.1 billion by Forbes and $2.9 billion by Bloomberg. Trump himself in July said his wealth exceeds "TEN BILLION DOLLARS" (his capitalization).