Have you ever wondered how a billion dollars looks or feels like? According to Forbes, there are 1,810 billionaires (in USD) in the world in 2016, with an aggregate net worth of around $6.5 trillion altogether. That’s a lot of wealthy people in the world.
While all of them are billionaires, would they actually be able to write someone a cheque for 1 Billion USD (in their personal capacity) immediately if they ever wanted to?
No. Some billionaires would find it hard to come up with 1 Billion USD in cash even if they wanted to and their lives depended on it, while others might take some time to mobilise that amount of cash.
What Makes Someone A Billionaire?
To understand why that is the case, one needs to first understand what makes someone a billionaire, and how they are deemed to be worth a billion dollars.
Most of the billionaires you will find in the Forbes list of billionaires are deemed billionaires because of the value of the stock holdings they own in the companies they founded or inherited. That is how it is possible for them to lose or gain hundreds of millions or sometimes even billions overnight.
That is because a 10-20% fluctuation in the stock price of their companies (usually publicly listed) would result in a 10-20% increase or decrease in their net worth.
Let’s say one of them owns 10% of a 100 Billion USD company they’ve founded, hence making their stake in the company worth 10 Billion USD. If their stock price suffers a drop of 10%, their stake would suffer a 10% drop in value as well, making them worth only 9 Billion USD. That’s how they would have lost 1 Billion USD in a day or a year.
Are They Really Worth More Than A Billion In Cash?
A billionaire is defined as someone who has a net worth north of a billion dollars. To calculate someone’s net worth, we have to take into account all the assets they own. This includes property, cash and stock holdings, minus all their liabilities such as loans and debts.
It is actually extremely rare for a billionaire to have a net worth that’s mostly made up of property holdings and cash. Even for the owners of billion dollar private companies such as Mars Inc that owns brands such as our favourite Mars Bars Chocolates and M&Ms, most of their net worth is attributed to their stake in Mars Inc, which is in turn valued based on an industry multiple of their annual financial performance.
That is also because it is pretty hard to find properties that are worth billions of dollars which you could own. Yes, when you are a billionaire, properties are actually relatively cheap. According to this recent article from Bloomberg, Donald Trump’s stake in Trump Tower is only worth $600 million even though he owns most of the tower. The cost of building mega-skyscrapers such as the Petronas Twin Towers and the Taipei 101 are also only in the low billions of dollars, usually less than 5.
Can They Turn Their Assets Into Cash?
Now that we know that most billionaires don’t have their assets in the form of cash, the question that follows is whether they would be able to turn their other assets such as stock holdings and properties into cash so they could write you a cheque for 1 billion USD if they wanted to.
How Long Would It Take For Them To Liquidate Their Assets?
Properties are relatively illiquid, meaning they would take some time to sell and be turned into cash. That is because you would need time to find a buyer, draft up sale and purchase agreements and so on to get a property off your hands. Typically, they can take up to 6 months at its quickest.
Regulatory Requirements For Selling Stocks For Directors
Stocks, on the other hand, are relatively liquid. Most of us could sell our shares and get cash in a couple of working days.
However, the story would be different if you were trying to sell anything more than a hundred million worth of stock from the same company all at once. If you are a director or a significant shareholder of the company, there are also regulatory requirements in place whenever they would like to sell a significant portion of their stock.
Usually, they would also have to put in a public notice to inform the public and all the other shareholders of the amount of stock they are planning to sell, from which they could only execute the transaction after a certain number of days, typically anywhere from 10 to 21 days, depending on the stock market their companies are listed on.
The Share Price Would Crash
If they are selling 1 Billion USD worth of stock at one go, their share price would likely have crashed by the time the notice period is over, by which time their stake might not be worth 1 Billion USD anymore due to the steep drop in stock price.
Proceeds Might Not Amount To 1 Billion Dollars
Just imagine if Mark Zuckerberg were to announce that he is going to sell all of his shares in Facebook, the market would panic and think that there is something wrong with the company and start selling all their shares in Facebook as soon as possible, driving the stock price down. Furthermore, anything more than 1 Billion USD is a lot of money and would create a huge downward selling pressure that would drive the stock price down even further.
Mark Zuckerberg is still owns close to 15% of Facebook today, which amounts to about 52.1 Billion USD at Facebook current market cap of 334 Billion USD. So, if he were to sell 1 Billion USD worth of it to write you a cheque, he might be able to pull it off due to the size of Facebook, but it would still take some time and his net worth might diminish considerably due to a drop in stock price caused by his mass selling of stock.
Even Banks Will Struggle To Cough Up 1 Billion USD In Cash
Even Maybank, the largest bank by market capitalisation in Malaysia, only has a market cap of 22.7 Billion USD. Most of their assets will also be invested and locked in long term investments or be in the form of mortgages which they own. Hence, even a bank like Maybank would need to undertake quite a significant effort to raise or mobilise 1 Billion USD in cash.
The Faster Solution Might Be To Take Up A Loan
If you really needed 1 Billion USD, the faster solution would probably be to take out a loan for a billion dollars from a group of banks while listing their shareholdings or assets as collateral at a discount (because the share value might drop). Essentially, that would be pulling together the available cash from a group of big investment banks such as Goldman Sachs and JP Morgan in the form of a loan.
Unless They Pay You Through Their Companies
The only exception is if they decide to pay you through their companies, such as the all-cash deal that Microsoft paid to acquire LinkedIn recently for 26 Billion USD. If their companies are huge companies that have billions of dollars in cash reserves like Microsoft or Apple, then they might be able to write you a cheque through their companies, but that would be a criminal offence if it doesn’t serve their company’s interests as it would amount to criminal breach of trust.
Even if it was a legitimate business transaction, they would also need to do sufficient due diligence and get their board’s approval before being able to do so.
Hence, it is safe to say that if they wanted to write you a cheque for a billion dollars in their personal capacity, they wouldn’t be able to do it through their companies.
They Can’t Really Write You A Billion Dollar Cheque Immediately
In conclusion, it is unlikely that they would be able to write someone a cash cheque for a billion USD on the spot even if they wanted to. The richer billionaires such as Mark Zuckerberg or Bill Gates might be able to do it by taking out a loan or slowly selling their shares, but that would still take some time.
They could give you their shares directly for you to sell whenever you need cash, but giving cash or a cheque directly on the spot would be a challenge, even for a multi-billionaire.
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DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.