Should you invest like Donald Trump or Warren Buffett?
Doubts have been raised in recent months about the business prowess of Donald Trump, with critics lining up to suggest he might not be the deal-maker he claims to be. But is that a fair assessment? Well, it's certainly true that he got off to a good start by inhering his father's real estate business, and he has left a few corporate bankruptcies in his wake.
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But even so, Associated Press has estimated that Trump's wealth has multiplied fourfold since 1988, from $1bn to $4bn. Trump himself claims far greater wealth, but he claimed similarly greater wealth back in the past too, and we'd still see around a four-bagger either way. Now that's pretty good going in 28 years, isn't it? Yes, but Trump could actually have done a lot better by a much simpler approach.
Beaten by a tracker
According to Moneychimp's calculator, the American S&P 500 stock market index returned an annualised growth rate of 10.3% from 1988 to the end of 2015, with dividends reinvested. So Trump's $1bn deposited in an index tracker would have left him with a cool $15.5bn, or 3.8 times the return he managed by his own devices.
But, he could have done even better than that had he trusted Warren Buffett with his cash instead. Buffett, the brains behind Berkshire Hathaway, has turned approximately $2.5bn into $68bn over the same period. At that rate, Trump's billion would now be worth more than $27bn -- Warren Buffett has been more than six times as successful as Donald Trump!
Of course, where the comparison becomes unfair is in not accounting for the lifestyles of the two men. I've no idea how much The Donald has spent on his flamboyant lifestyle, or on his kids, over the years, but I'd wager some of my own modest cash pile that it has been considerably more than The Sage's living expenses. And I expect Trump has had a lot of fun in what he's been doing too.
Another side of the argument is that if nobody took the risks associated with starting their own businesses and running their own companies, well, there'd be no S&P 500 to invest in anyway. And no FTSE 100, and no... well, you get the picture. And there'd be nowhere for Warren Buffett to invest your cash if you handed it over to him either. It's people like Donald Trump who make it possible for people like Warren Buffett to achieve what they have for their investors -- and some top investors have even done well by shorting Trump stock at times!
We can beat Trump
The big lesson for Foolish investors is that we can easily do better than Donald Trump.
Live relatively modestly, invest what you can afford in a simple index tracker and reinvest dividends, and keep that up for a few decades... and you'll almost certainly get a much better percentage return than Trump has managed.
But if you have the cash, the necessary drive, and the willingness to take the risks, and you want to go it alone to build up your own company and create wealth and employment? Well, I say go for it, because without people like you there'd be no investment possibilities for the rest of us.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
