It’s been a wild year for the stock market, with the coronavirus pandemic punishing investors, and then seemingly rewarding them. In less than five weeks, the broad base S&P 500 shed 34% of its value. Then during the second quarter, the benchmark recovered most of what it had lost, with heavy technology Nasdaq compound galloping to record one close after another.
Mind you, all of this has happened with the US leading the world in COVID-19 infections, and an unemployment rate of 11.1%, a level not seen consistently since the 1930s. a year old head scratch that seems increasingly strange every day.
Tesla CEO Elon Musk spoke at the start of the Gigafactory in China. Image source: Tesla.
Elon Musk beats Warren Buffett in his net worth
For example, we witnessed something last Friday, July 10, that would have seemed ridiculous just six months earlier. I’m referring to Tesla (NASDAQ: TSLA) CEO Elon Musk beats legendary investor Warren Buffett, the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), in equity. For context, Buffett started 2020 with a net worth that was more than $ 60 billion higher than Musk’s.
Before last weekend, Buffett’s net worth was $ 69.2 billion, which is not unfortunate for a guy who had $ 10,000 in seed capital in the 1950s.
Meanwhile, Musk’s net worth contributed to $ 70.5 billion. Musk owns approximately 20.8% of Tesla’s outstanding shares, and has one of the most generous payout packages on the planet for a CEO, assuming he can guide Tesla toward certain market value and operational goals. This payment package, approved in 2018 by shareholders, allows Musk to receive 12 equal blocks of 1.7 million share options, it all depends on certain objectives that are achieved.
The first goal was for Tesla to maintain a six-month average market capitalization of more than $ 100 billion. Tesla achieved this goal in late May, resulting in Musk receiving $ 775 million in options. Today, the value of these options has increased by more than 150%, and Musk appears to be on the verge of achieving another payment milestone. Assuming that Tesla can average a market capitalization of $ 150 billion for six months, Musk can receive other payment options that will further inflate his net worth.
Berkshire Hathaway CEO Warren Buffett at his company’s annual shareholder meeting. Image source: The Motley Fool.
There is more to this story than meets the eye
Some people may view this as a proverbial torch step. But Musk’s massive earnings and Buffett’s rather bleak performance in 2020 (with a $ 20 billion reduction in net worth since Dec. 31, 2019) don’t tell the full story.
For example, Warren Buffett’s net worth would be significantly higher if he had not donated his shares in Berkshire Hathaway so generously to various charities (such as the Bill and Melinda Gates Foundation) in the past 14 years. Including a recent $ 2.9 billion charitable donation to five charities, Buffett has now gifted over $ 37 billion in Berkshire Hathaway stock since 2006. If the Omaha Oracle had simply collected these funds and not donated them, he would be the third. Richest person in the world today, with a net worth of more than $ 106 billion.
Yes, Musk has a higher net worth, but that’s only because Buffett has pledged to donate a significant portion of his fortune to various charities before and after his death.
Another key difference between Musk and Buffett is the transparency of their net worth. In Buffett’s case, everything is public. This means that its net worth is correlated with the performance of Berkshire Hathaway’s shares, and thus the performance of Berkshire Hathaway’s investment portfolio and approximately five dozen of its own companies.
This is not entirely the case with Elon Musk. While a significant portion of its net worth is tied to the underlying performance of Tesla’s shares, and thus its operating performance, approximately $ 15 billion of its net worth is derived from privately owned SpaceX. Valuations for private companies tend to be widespread, especially when talking about an unprecedented space transportation business. In other words, where net worth can be concretely defined in Buffett’s case, there is room for interpretation when evaluating Elon Musk’s net worth.
Image source: Getty Images.
Also, there is a big difference between Buffett and Musk when it comes to business maturity. Warren Buffett has been building Berkshire Hathaway for more than five decades, and has generated an average annual profit of 20.3% for Berkshire shares since 1965. The approximately five dozen Buffett companies from all sectors and industries offer a year of flow. of relatively predictable cash in and year out.
That is not the case with Tesla and SpaceX. These are young companies that are entirely based on innovation and disruption. Tesla has not yet produced an annual profit based on Generally Accepted Accounting Principles (GAAP), while SpaceX is privately owned and therefore not required to disclose its income statements.
To build on this point, every major investment in the past quarter century has taken time to mature. Although space transportation and electric vehicles (EVs) appear to be the future, they will not become the future overnight. The likelihood of the bubble bursting at electric vehicle manufacturers like Tesla has increased dramatically in recent weeks.
Musk may have the nominal equity edge for now, but the maturity and transparency of Buffett’s company, along with his charitable donations, make Buffett the clearly wealthiest individual, IMO.
