Believe whom you like, but what is clear is that there is a substantial possibility that Trump would have been financially better off sipping cocktails at the beach as his money compounded in index funds. You can also argue that the gains from an index fund would have come with less volatility, given the four corporate bankruptcies associated with Trump organizations.
What Makes Donald Run?
While Trump surely maintains that his wealth has beaten the market, a look at some of the other benefits he’s enjoyed as a result of actively investing on his own behalf shows both the psychology and, perhaps, reality of steering one’s own ship.
Firstly, Trump has made himself famous, building himself a very public role in the process. No matter how much money you put into an index fund they are not going to put your name up on a building, nor is anyone likely to buy the book you write. For someone as given to self-aggrandizement as Trump this is important, but you don’t have to have an insatiable appetite for publicity for this to give a payoff.
Rich people pay over the odds for trophy assets like sports teams and even newspapers for very much the same reason. What is the point of being rich if you don’t get to enjoy it? It is fun, at least for Trump, to run for president, being an influential big shot, and this is a benefit he’d not have had if he had stayed home in Queens depositing dividends.
Most forms of agency investing, from active mutual funds up to the most clubby alternative investments, also play on this desire, working hard to make their investors feel like they are smart, insiders - people whose wealth is easy to explain given their discernment in choosing the Brazil Un-Hedged Leveraged Long/Short Credit Fund.
Some of this falls under the rubric of the illusion of control, our human tendency to overestimate the extent to which we can predict and control what happens. Few things can be more pleasurable, and self-reinforcing, than thinking that you, a person above the common run, have skillfully built a business, picked an asset class or hired a private equity manager.
To be sure, many people take capital and do fabulously by building businesses or hiring agents to manage it actively. And it would be silly to count as valueless the other benefits of having a purpose, being a big shot or thinking you are in control.
Whatever your ideas about the good life, there is more to it, as Trump demonstrates, than simply maximizing returns.