I am very clueless about finances/economics. I wanted to find out why the paper billionaire theory is false but I couldn’t understand much of the explanations as they all have a lot to do with liquidation of stocks and such.
In: Economics
Ok, owning stock in a company means you own a percentage of that company. (Though it could be a very small percent, like 0.0001%).
Stock exchange’s allow you to trade these portions of the company you own with someone else who wants to own them for money. Basically selling the percent you own to them.
The value of the percent you own will change depending on how the company does, if it does well, the value goes up, if the company does shitty, the value goes down.
Billionaires like Jeff bezos (amazon founder) own big chunks of massive companies (like Amazon). They can then sell off slivers of what they own for thousands, hundreds of thousands, or even millions of dollars whenever they need cash.
And the reason of a “paper billionaire” not being a real thing is because whole hypothetically it’s possible, no one actually has all their money in stocks. They’ll always have some cash on hand, and in an emergency could sell all their stock for tons of money.
Also “liquidation” just means selling something to have cash. Which is a “liquid” asset because it’s really easy to trade (buy stuff) with.
Taken from Forbes.com:
> Amazon stock is up nearly 80% since the beginning of the year, and Bezos’ net worth, which was roughly $115 billion on January 1, has skyrocketed in tandem. Bezos’ roughly 11% stake in Amazon makes up more than 90% of his fortune.
So Jeff Bezos is ‘worth’ $200 billion, mostly because of his Amazon stock, but if he wanted to spend all of that $200 billion, he’d need to sell all his stock. That means he’d need to find a bunch of people ready to spend a total of $200 billion.
If he is willing to wait, that could be very possible. If he sets up a plan to slowly sell of the stock over 10 years, then there will be likely people to buy it. But the stock will go up and down over those 10 years. So, how much will he get exactly – might be more, might be less. No way to know.
If he tries to sell it all on Monday (even though that would be illegal, he needs to give advance notice), there is nobody to buy that much stock, so the price will drop and he’ll get a lot less money. Also, who is going to be willing to buy when he is dumping all his stock, that’s a pretty good sign he doesn’t believe in the future of his company.
So, how much money does he actually have to spend if he wanted it all in cash? An insane amount. But can you actually say if it’s $20, $50, $100 or $200 billion. No, too many variables can change while he’s selling it.
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