Love him or hate him, there are three things you just can’t argue when it comes to Donald Trump…
1) He’s really rich
2) He’s not afraid to speak his mind
3) His hair — real or fake — would look more natural dangling from the hindparts of a three-toed tree sloth
Plenty of ink has been spilled about Trump during his unlikely rise to the top of the Republican presidential race, so I’m not going to make any judgements on his campaigning, his attitude, or even his ability to be president.
Today we’re going to narrow the focus on just one aspect of him: the myth that he’s a brilliant investor and businessman.
Nothing could be further from the truth.
Despite the fact that he’s packaged himself as a self-made man and visionary investor, he’s hiding a dirty little secret: he’s blown upwards of $6 billion by violating some basic laws of good investing.
I’m going to show you how the Donald could have been worth billions more had he literally done nothing.
I’ll also show you how you can avoid the same mistakes in your own investing…
Let’s start with the basics…
First off, Trump isn’t a self-made man. In 1974, his father handed over control of his $200 million real estate business, and Donald inherited around $40 million of it. It’s a lot easier to become self-made when someone hands you the equivalent of the entire gross domestic product of Libya.
Essentially, Donald was already set for life.
But instead of making a couple solid investments and letting his money compound and make itself, he let his bravado and arrogance take over his finances. Here’s a quick look at some of his riskiest — and dumbest — investments…
Trump Airlines
In the late 80s, Trump bought Eastern Air Shuttle, an airline that ran flights between Boston, New York City, and Washington, D.C. For a cool $365 million, Trump got a fleet of Boeing 727s and landing facilities in all three cities.
In typical Trump fashion, he decked out the planes with shiny chrome seat belts, precious maple wood veneer, and — of course — painted his name on the planes.
The problem?
His airline started taking on massive losses and he defaulted on his loan a mere two years after buying it…
Trump Vodka
The Donald was so confident in his premium vodka brand that he boasted that the T&T (Trump and Tonic) would become the most popular drink in the country.
He couldn’t have been more wrong.
“Trump: The World’s Finest Super Premium Vodka” was released into the highballs of America in 2006. In typical Trump fashion, it came in a golden bottle emblazoned with big Ts on every side.
While it lasted longer than the failed airline venture, it stopped production in 2011.
So much for those T&Ts…
Trump Casinos
Trump casinos may be the most high-profile of his many risky business implosions.
Trump Entertainment Resorts was founded in the 1980s and ran three high-octane casinos in Atlantic City. They did manage to succeed in one area: pulling off the feat of declaring bankruptcy four times…
Talk about doubling down.
Trump Entertainment Resorts also had to go through countless rounds of debt restructuring, corporate reorganizations, and piecemeal selloffs. That’s a hell of a lot of work to lose so much money. There couldn’t be a better metaphor for Trump’s investing habits: instead of taking the easy money, he decided to gamble it away.
This is something that most investors end up doing: they try to do too much, they take on far too much risk and they invest in things they don’t really understand.
Now let’s take a look at how filthy rich Trump would have been if he just let his money do the work for him…
Like many of Trump’s claims, the accuracy of Trump’s net worth varies. He released a statement in July that his “’uggggge” fortune is “well over $10 billion”, yet Forbes has reported that he’s likely worth around $4.1 billion.
No matter who you believe, that is a huge amount of money. But a great article in the National Journal lays out exactly how much more money the Donald would have raked in if he didn’t spend time chasing around hare-brained investments and just sat on his hands:
Had the celebrity businessman and Republican presidential candidate invested his eventual share of his father’s real-estate company into a mutual fund of S&P 500 stocks in 1974, it would be worth nearly $3 billion today, thanks to the market’s performance over the past four decades. If he’d invested the $200 million that Forbes magazine determined he was worth in 1982 into that index fund, it would have grown to more than $8 billion today.
So essentially, all of that running around in circles cost Trump somewhere between $1 billion and $6 billion.
It goes to show that trying to do too much can hurt your overall returns, or at the very least all of that extra work (and extra trading fees) doesn’t add to your bottom line.
The fact is, one major trap investors get caught up in is trading too much. A major study of investment brokerages found that the annual return for overtraders was 11.4%, while the average market return was almost 18%. Another study out of the University of California found that 20% of investors who traded most actively earned an average net annual return 5.5% lower than those who kept their moves to a minimum.
Another super-rich guy — Warren Buffett — has already told his foundation what to do when he passes on. He’d do exactly what Trump should have done with his inheritance — put that money into a low-cost index fund like the Vanguard S&P 500 (NYSE: VOO) and let the market make the money for him.
But while I love index funds, I’d like to propose a strategy that is just as safe, but will provide much higher returns than the S&P 500 can deliver on its own…
There is one group of “royalty” stocks that is the cream of the crop: dividend aristocrats. These are stocks that have been able to raise their dividend each and every year for 25 years — through good times and bad. What’s more, they safely and easily beat the market. Just look at the difference between the S&P 500 and these dividend aristocrats:
That’s almost double what you would have gained with a simple index fund — and just as safe.
And again, unlike casino investments, it’s safe, easy, and stress free.
So if you want to spend all of your time swinging for the fences with highly speculative investments like the Donald, go right ahead.
But for me, I’d rather sit back and enjoy watching my money make itself.
