Illiquid

6 06 2016

Palo Alto, California

Bloomberg profiles the fall of Theranos and Elizabeth Holmes suddenly going from a multibillionaire to flat broke, at least on paper.

From there, you’ll read something I’ve told you here in this space through the years:  Much of the wealth of the extremely rich is illusory because of its liquidity and therefore its volatility.  Mark Zuckerberg only has $51 billion because he has x number of shares of Facebook multiplied by the current per-share market price of Facebook stock.  If people quit being that fond of FB stock, then Mark Zuckerberg isn’t worth $51 billion anymore.  This is why Zuck is so thrown in to the cheap labor immigration agenda, because he needs his labor expenses at FB to stay as low as possible in order to impress the investors and the mutual funds executives, to keep FB’s stock value high.

The problem with Elizabeth Holmes is just as you read in the link to Steve Sailer’s article about her and her company:  Too many important men drank the SJW “we need a uterus in SV” kool-aid, and that created a bubble around her which was bound to pop sooner or later.  And let’s not even talk about how Michael Bloomberg got to be worth $45 billion.

But then the article ends with more normal people, and ends like this:

There’s a lesson here for normal people. The one highly illiquid asset that many middle-class people pour a huge percent of their wealth into is their house. Houses are time-consuming and expensive to sell, and if you borrow against your house you’ll have to pay interest on the loan. So houses are illiquid. This implies that many middle-class homeowners are very under-diversified because they have so much of their personal wealth tied up in residential real estate.

In other words, your house is a little bit like Elizabeth Holmes’ stock in her own company. On paper it might be worth a lot, and much of that does reflect real value. But if your local housing market crashes, your net worth is in big trouble. I think more people should consider that before making the decision to buy instead of rent.

My bet is that the author of this article and perhaps a few sympathetic-to-“normal people” editors at Bloomberg are trying to dog whistle to “normal people” not to tie too much up in an owned house, because the Federal government is about to cram jam some AFFH apartment complexes full of black ghetto formerly urban Section 8/AFFH clients in your subdivision.

 


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3 responses

6 06 2016
John Jones

Yep you might want to cancel your lease and flee to the next ‘burb over if your police chief is one of these Ferguson Effect ‘stand downers’.

7 06 2016
Olorin

Things are worth what people will pay for them. The problem is, “valuation” can only estimate that, because outside of (((certain mental models))) not everything can constantly be in a state of being bought and sold.

My bet: very few billionaires exceed hundred-millionaires in real terms. Just in chutzpah about asserting the size of their fortune.

It’s like the old fishing ruler. On one side is a regular 12-inch ruler, one inch per inch. It says “Your fish.” On the other side is a 24-inch ruler, one-half inch per inch. It says, “My fish.”

7 06 2016
countenance

Fishing ruler? I thought the same concept applied to tape measures that measured the size of boats.




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