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Exaggerated asset values and what people are worth
I have recently been reading a book about property and property development and I enjoyed the humour of the author, probably because he is a former attorney. The book, Making it in Real Estate by John McNellis, has much advice that is relevant to businesses other than just property, but I enjoyed what he said about what people are allegedly worth.
We read so often that this person is worth this amount and that person is worth that amount, but what we forget is that it is all based, in most cases, on either a business that they cannot sell or don’t want to sell or on shares that they own in a business. If, for example, your company is listed on the Stock Exchange and you are the CEO of that company, the R500 million worth of shares may not really be worth R500 million. Firstly, you probably have an agreement that says you are not allowed to sell them, or not allowed to sell them until you are no longer the CEO. The board of directors would also look down on you if you try to sell them all, because it would show no confidence in the company, so there is great pressure on you, even if it is not in your contract, not to sell your shares. The other thing is if you actually did go onto the market and try and sell that number of shares, particularly in a smaller company, the panic it would send out in the market would see the share price rocketing down, so you would never be able to sell your shares for the price that they are allegedly “valued” at by today’s market price.
The author says, “Soberly viewed, a financial statement is more daydream than fact. If someone claims he is worth a wildly crazy amount – say a Silicon Value fortune of $300 million – that is lovely reverie, but the chances of that guy actually coming up with $300 million in cash are slim. First, instead of the pipe-dream number he claims on a statement for the illiquid asset that constitutes the vast bulk of his empire, he has to mark that asset down to market, be it stock in a privately held company, timber, a coal mine, whatever. Then, he has to sell it, pay federal and state taxes …”.
This is not to say that the people you read about in the newspapers are not wealthy, but whenever it is business people, the newspapers and all the entities work it out according to the latest share price and that is just a fallacy – the person can never sell all of their shares at the current share price and that relates to all companies – would you be interested in buying Facebook shares if you discovered tomorrow that the seller, and he was selling all of his shares, was Mark Zuckerberg? That is not to say he is not wealthy beyond our wildest dreams – it just means that most of his wealth is tied up in shares that practically speaking he can never sell unless some major company, like Google, buys him out entirely. Generally, when they do a buy-out like that, they don’t necessarily even offer the person the same price that the share is listed for on the Stock Market, because everyone knows that that person cannot sell at that price. So, the next time you read so and so is worth R500 million, or the CEO of a company in South Africa is worth R2 billion, take it with a pinch of salt.
Posted by Michael de Broglio on Wednesday 29-Mar-17
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Comments
Sarah said:
on Wednesday 17-Jul-19 03:04 AM
I'm sorry about the last comment, because it didnt make sense. I like this blog article because it tells you that some peoples net worths aren't true. For example Bill Gates might not be the richest in the world because his money is estimated by other people that don't know for sure what his money is, but it is still a educated guess.
sarah de broglio said:
on Wednesday 17-Jul-19 02:58 AM
this was a very good blog article, I just thought that when you talked about Mar Zuckerberg most people will think you are upssed with him.
Jadine Richards said:
on Wednesday 19-Apr-17 04:38 PM
Yes, I am in agreement with the author. People’s net worth is always over-stated and not always based on actual cash liquidity value.
I believe that this estimation has always been interpreted this way for two main reasons: Firstly, keep the value of shares that the CEO ect holds looking good to keep outside investor interest high (you always want what looks good!).Secondly big business deals are done on paper and not the actual cash value (always based on the last financial year end reports). The business is therefore valued on its past and not it’s actual current value.
brumilde said:
on Wednesday 05-Apr-17 09:29 AM
mm makes me think about the movie 7 pounds. what is worth and how a life is determined. but in reality you are what you have or own... people are judges by the car you drive, the watch on your wrist or the amount in your bank. so who determines that wearning a R100000 watch makes you better then the lady who cleans your house who denotes her time to helping at the animal shelter. "you can never see your worth through the eyes of men"
tersia said:
on Monday 03-Apr-17 03:35 PM
This is very interesting. The first thing that popped into my mind when I read "what people are worth" I actually thought of how they would treat others and what they achieved and how they act - I was completely off track there lol. I should have know it would be about money, everyone is always chasing money and the best valuables. If I am wealthy one day it would not be to be on this list. According to me money is not everything and cannot buy you happiness or love, but apparently a lot of people disagree with me so maybe I should be rich first before deciding that.
Jessica M said:
on Monday 03-Apr-17 02:49 PM
And all this time checking people's NET WORTH and it is all just fake, that also makes me wonder if they even have the richest people in the world correct? Is Bill Gates really the richest of them all.....
Joyce said:
on Friday 31-Mar-17 05:30 PM
I think people who exaggerate their worth just need more attention and giving incorrect impression to other people
Bianca said:
on Friday 31-Mar-17 01:08 PM
I have often wondered how 'someone's worth' is calculated, interesting to read that it may actually not be what it say it is. People always try to seem better or wealthier across the bar and it is always like some sort of competition. Unfortunately when the time comes, none of it can be taken with you and really none of it matters. That's the honest truth and we all accumulate all of these "fancy" things which are really only possessions at the end of the day, just like money, it's all immaterial in the greater scheme of things.
Suzanne said:
on Friday 31-Mar-17 10:41 AM
This actually makes sense. I have always wondered how they calculate someone's "worth" - and I do understand it better now. Being worth a few millions sounds great, but in essence not really true.
Ashleigh said:
on Friday 31-Mar-17 10:35 AM
I'm not interested in being rich, I am more interested in being content and happy with my life. The more money you get, the more money you want and that's all your heart feels eventually. I don't know why people would perceive to be something they not because the upkeep of that is I'm sure is tiring.
Liz said:
on Friday 31-Mar-17 09:25 AM
This is a phenomenon seen throughout every social class and throughout the ages, Charles Dickens even said " Keep up appearances whatever you do", and I believe we are all guilty thereof, it has become very important to be perceived by others as bigger, better and wealthier than we actually are.
Mathilda said:
on Thursday 30-Mar-17 01:34 PM
The Goal is not to look rich but be rich
So easy to say that person is worth that amount of money but really they are not, people will always give themselves a Statues just to be better or to fit in with certain groups of people and that is sad
Tamaryn said:
on Thursday 30-Mar-17 10:00 AM
This is interesting for me as I have always wondered whether someone's "worth" is liquid or not. Would they be able to put up the total sum of their worth at a moment's notice, and the answer is obviously no. When buying property etc. a lot of buyers will put in offers on massively expensive properties and when it comes time for the deposit to be paid, they are unable to raise the liquid funds despite their net worth. My mom is an estate agent and they see this all the time unfortunately. It makes me think that those with large asset bases are often unaware that they are unable to quickly realise those assets upon demand.
Daniella said:
on Thursday 30-Mar-17 09:52 AM
The Best quote that I have read is by Dave Ramsey “We buy things we don't need with money we don't have to impress people we don't like.”
Alexis said:
on Thursday 30-Mar-17 08:03 AM
It is so true, what Anna said. People always want to be perceived in a certain light, always want to seem bigger than what they really are. But it is ood to know t take it with a pinch of salt.
Brenda van den Bergh said:
on Wednesday 29-Mar-17 05:50 PM
This is a very touchy subject and the comments below hit the nail right on the head. People are all about image, and very big mouth about what they are "worth". But like you said, you are only "worth" so much as long as the market is in your favour. I prefer humble people and I am not too phased by millionaires and what they are worth. When you die, there is no trailer hooked to the hearse with your belongings and riches to go with you.
Prishani said:
on Wednesday 29-Mar-17 05:47 PM
What people think/assume they are worth and what they are actually worth is often two completely different things. They believe that they are wealthy based on this sort of "fictional wealth", act like they can afford to do all sorts of things, when the reality is that they are actually not worth as much as maybe all their shares and property and companies. It is a sad reality that we are so often fooled by this type of situation.
Angelique Jurgens said:
on Wednesday 29-Mar-17 05:27 PM
I would think twice if Mark Zuckerberg especially at his age was selling all of his shares. Off topic but on topic of Mark Zuckerberg... he offered to buy snapchat - snapchat refused now Mark Zuckerberg has basically dismantled snapchat. Taking a few years to imitate Snapchat... He is a legend and I would not buy shares if he sold all his shares. I agree with Anna people buy things they can't afford to impress people they don't even like - and so its all an illusion, perception. So take it with a pinch of salt - we don't actually know what they are worth and perhaps their bank balance and statements would be a clear cut indication of what they are worth.
Nikita said:
on Wednesday 29-Mar-17 04:10 PM
This is so interesting. I never thought of it that way. This is definitely some good input to have when having these types of social conversations.
Angelique P said:
on Wednesday 29-Mar-17 03:55 PM
I love to read something that is full of humour.
I am happy with what I have. It always looks like people that have money is always in trouble or unhappy or extremely greedy. I will rather be middle class and happy than to worry about whom to impress everyday.
david said:
on Wednesday 29-Mar-17 11:11 AM
i agree wholeheartedly with what Anna says. Keeping up with the Joneses...
Jessica Apfel said:
on Wednesday 29-Mar-17 10:48 AM
It seems that the value attributed to an individual is in fact a 'hypothetic' or rather intangible amount? As indicated, if asked to come up with the assumed value it will be really hard to determine. That being said then, it is largely dependant on the value of the company more than anything? I do agree that often inflate their actual worth in order to keep up with the 'Jones' as they say or rather create unrealistic impressions of themselves. Should I read about a persons worth within a tabloid, I will be sure to take it with a pinch of salt as it is clearly an unrealistic perception of their ACTUAL nett worth.
Anna said:
on Wednesday 29-Mar-17 10:41 AM
This trickles down to every level in society...the middle class try to make out to their friends that they are actually upper middle class and the upper middle class like to make out that they fall in the upper class. Why you may ask? For the sake of appearance of course. So that you can look better or wealthier than you actually are. So that you can show off. So that you can spend money on things that you actually cannot afford so that people will like you more, want to spend more time with you or so that you can be invited to certain parties or functions or socialise in certain circles. I'm not easily fooled by appearances. Whether you are a wealthy businessman tooting your own horn or a middle class salesman, say it like it is....be honest about your worth and your company's worth because at the end of the day only a handlful of people really take notice and care.
Jadine Esterhuizen said:
on Wednesday 29-Mar-17 10:37 AM
Thanks for the insight. Never really knew as to how they calculate the value of a company or how they go about if wanting to sell their shares when you are in a senior position...
Johannesburg based attorney specializing in personal injury matters including Road Accident Fund claims and medical negligence matters. My interests include golf, reading and the internet and the way it is constantly developing. I have a passion for life and a desire for less stress!
