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How to be a billionaire without any real cash?

Somebody really needs to call Forbes on this: how can two guys who are co-founders of a privately held company which at best had $900 million in sales last year be worth a billion each. You know the Google twins, Sergey and Larry. The magazine’s latest list puts the duo at #552 in the list.

First the fuzzy stuff, i.e. the what ifs: assume that tomorrow something goes wrong, another new cool search engine comes to the market and takes away traffic form Google, or for that matter someone discovers that Google is in patent infringement or something like that. (Well these are what ifs?) What if the stock market tanks, and the Google IPO does not happen? Are the toothsome twosome worth a billion each then? Will the venture capitalists who put money in the company take Sergey and Larry’s stock off their hands at those valuations? I fail to understand how does a script which does not trade anywhere on the stock markets, and is still a ill-liquid quantity be worth a couple of billion dollars. This is “froth” being valued against real hard assets of real billionaires.

This is not the way of the capitalist tool I know! This clearly in new kind of math. Anyone have a clue?

4 Responses to “How to be a billionaire without any real cash?”

  1. Perhaps Forbes is looking at the real-world “market power” these guys have. I mean, if they applied for Saks Fifth Avenue store credit cards with a very high credit limit (say, $10,000), do you think Saks would turn them down?

  2. I’ve likewise observed this is premature. However, it’s not because you own stock in a public company (like, say, Gates or Dell) that your stake is totally liquid. Let’s face it, they can’t just dump all their stock at once and expect the valuation not to crash, both because of the signal it would send, and because there wouldn’t be enough buyers to absorb the extra offer. It takes them years to diversify, so public company or not, their billions are not totally liquid either. They have “what ifs” in the way of translating their shares to cash too.

    In the end, everything is paper money (real estate or gold do swing in value too, so what are “real hard assets”?). Even cash is a fiction. Translated into Euros or Sterlings, all the USD billionaires lost a lot of money recently. Even if they keep their cash in dollars, they’re now able to import less stuff with it, so they did lose purchasing power.

    My point is that the reality of those billionaires’ wealth is spread over a spectrum of “truth” (or rather realism), it’s not binary. What matters is how many people think your assets are worth any given price and are able and willing to buy them if you put them on the market. With the number of private equity deals these days and M&A apparently back in fashion, you don’t necessarily need a public float to cash out.

    Every year the Forbes rankings is a fiction. There are people in the list who are able to have more people believe in that fiction than others, which is the necessary trick to make it real (i.e. tradable into other assets of their choice). Of course this shared belief is somewhat based on (perception of) reality (not sheer illusion) but still, we don’t have perfect information at hand, and worse, we don’t know anything about the future, so all forward-looking assessments of value are speculative in nature.