How wealthy the rich is?

in #money6 years ago

It is deceiving to count a rich person's wealth based on money they own in stocks. Billions in wealth in stocks is monopoly money and not real wealth. Money you own in an asset is not really wealth until you convert it to cash, and that is where things get tricky.

If it is a liquid asset that many people own shares in, you have to deal with supply and demand curves moving prices up and down. When people sell a stock, its supply increases relative to demand (assuming demand is not shifting) and the price falls. It is possible cheaper prices will increase demand and push them back up in the longer run. In the short term during closing of his positions it could be chaos, however.

The more there is of something the cheaper it is, because the less relative people that want it, and vice versa.

When a wealthy person like Bezos, Musk, Zuck, Gates, Buffet, sells all 100 or more billion of his wealth, he is increasing the supply of those shares available for sale. That means the price will fall. As the prices falls during his sale other people will see the value of their stocks falling and sell theirs too so they are not selling when price is even further down. The fast you sell the faster the price collapse and the more money you lose. If Bezos said I want to convert all of my amazon stocks to dollar within an hour from now, and he had over 100 billion in stocks, he might end up with wealth in the end in the lower end of billions. Nothing would surprise me. He could close out with only 20 billion in wealth, when moments before the world told him he was worth over 100 billion. So it is monopoly money.

Selling off a fraction of the total share of all the stocks in circulation causes a complete collapse of the price. This means that at final sale Jeff will only portion of that money out of stock in dollar.

It means then that his net worth, or anyone's net worth in stocks is monopoly money and not real.

The stock market doing good means you have more monopoly money: not real money. It is not real wealth until you sell it, and you will learn when you sell it that suddenly your gains are all lost, if everyone sold at once in a crash, or if someone like Bezos sold it prompting a crash as stop limits are hit triggering a mass sell of from risk management systems. If Bezos cannot sell it without collapsing prices from increased supply, then he does not really have that wealth, and never did. Thus it is monopoly money.

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