Guess Who Has A Below-Index Track Record

Chart-2linesA certain Presidential candidate has pointed to his business and investment credentials as some of his most important qualifications for office, and the fact that he’s a billionaire (Bloomberg estimate: $2.9 billion, give or take a few hundred million) seems to back that up. But if you go back and calculate The Donald’s rate of return on the $40 million he inherited from his father, it actually offers an interesting investment lesson.

There is no doubt that Donald Trump has been an active investor since he got his start in 1974. He’s experienced well-publicized bankruptcies, invested in ill-fated casinos and developed premier New York properties that he named after himself. He even owned the sports franchise that was Heisman Trophy winner Herschel Walker’s first place of employment. People wear Donald Trump ties, and get addicted to his TV show where, with each episode, somebody gets fired.

But when a National Journal reporter compared Trump’s business earnings against what he would have made had he had simply invested that $40 million in a stock index, he found something very interesting. If Trump had simply invested his inheritance in the Vanguard mutual fund that tracks the S&P 500 index, with dividends reinvested and all taxes paid, The Donald would have been worth $3.4 billion as of the end of August 2015. In other words, a strategy that you and I and the janitor of one of Trump’s buildings could have easily followed would have easily beaten 41 years of legendarily successful real estate investing.

But is that a fair comparison? Trump’s early years were undoubtedly not his best, and probably not representative of his business skills later in his career. The same analysis shows that Trump’s net worth had climbed to $200 million by 1982, after a brief recession. If that money had been invested in the same low-cost mutual fund, Trump would have been worth $6.3 billion today, after all taxes had been accounted for—more than twice his current estimated net worth.

The lesson? It’s not to say that Donald Trump hasn’t been a successful real estate investor, or that his business skills are not up to the political job he’s seeking. The real lesson here is that it’s very hard, even for professionals, to grow your money as efficiently, and rapidly, as the aggregate of America’s largest companies do on a routine basis. The competition is between one person making deals, and all the business leaders of all the major corporations plus all their employees making decisions and working to build value every day.

When an individual with a Vanguard 401(k) can boast an investment track record greater than The Donald, then perhaps we should recognize that America’s corporations have been doing something right for their shareholders—and that successful investing isn’t that hard after all.

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