Elon Musk was never really the world’s richest man
The perverse maths of wealth meant the Tesla owner lost billions by selling shares that made up his net worth.
By Will Dunn
Photo by Maja Hitij/Getty Images
In February 2019 Elon Musk took out a mortgage. Actually, he took out five mortgages, and while he borrowed a decent chunk of money ($61m to buy five houses in California) it represented a fraction of a percentage point of his net worth, then put at more than $20bn (enough to buy 77,500 houses at the 2019 US median price). The conditions – reportedly a 3.5 per cent initial rate and a 30-year term – weren’t much different to the loans then available to the average homebuyer in the US or Europe.
It’s not unheard of for a billionaire to borrow money to buy their house. Mark Zuckerberg used one to finance his house in 2012, despite being worth $58bn at the time, presumably because his wealth manager saw that he could borrow well below the rate of inflation, which meant it was profitable for him to owe money. But Musk and Zuckerberg are rich in a very particular way: their wealth is concentrated in the tradeable securities of the companies they lead – Facebook and Tesla stock – and as such it depends on the confidence of others.
While people like Musk hold on to their wealth, it is a strong signal to investors (especially ordinary “retail” investors) to follow their lead. And why not? It’s not illogical to look at how wealth is distributed today and conclude that the best strategy is to copy what rich people do. This is the thinking that made the stock-trading app eToro hugely popular when it allowed users to copy the portfolios of professional investors (the app now has more than 24 million registered accounts). It was also the reason special purpose acquisition companies (or Spacs) became popular: as empty shell companies, they offered retail investors no reason to hand over their money other than the fact that they were associated with wealthy individuals and celebrities. The truth, however, is that the wealth of these individuals wasn’t anything like as real as it seemed.
