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Would Trump be a Billionaire without his Inheritance?

Is this the elephant in the room? Trump's frequent allusions to his vast wealth and to how smart he is sounds awfully like the rich son who inherited it all but wants to convince everyone else – and himself – that really he did it all himself. So I thought I would do an analysis of this question.

I think I’m well qualified to do that. For the past 10 years I and my company have been conducting research on how the financial behavioral styles of executive’s impact profitability and valuation of the companies they work for.

I’ve published one book on this (The Three Financial Styles of Very Successful Leaders, McGraw-Hill 2005) plus numerous articles and white papers. My company conducts leadership development programs with companies, global in size to startups, to identify the behavioral capability of their executives to make and increase profits, using our proprietary psychometric assessments.

This is what is known in the trade as a “counter-factual”. In other words, we are imagining what could have been the case in another life of the Donald. So it’s just my view. But, as a reminder, financial metrics in his life are history and lagging indicators. Behavior is a leading indicator of performance. So as long as we rely on a behavioral analysis rather than just on his financial history we should be able to make a pretty good case for our counterfactual.

Our assessments are based on our own approach to behavioral finance, which takes the state of the art a giant step further. So what better than to test it out on a person of Donald J. Trump’s stature and reputation!

In order to conduct this analysis we usually use a psychometric assessment, but these are not strictly necessary if you know someone well enough. In the case of someone with the outsized persona of Trump that’s actually quite easy. It would be much more difficult with someone more, ahem, retiring or self-effacing. But we don’t have those particular problems here.

Our assessments identify the values of two factors; a person’s value-adding (VA) driver and their resource utilization (RU) driver. The VA driver is actually a measure of their innovativeness and the likelihood that they will themselves be the initiator of a product or service that is so disruptive that prices can be inordinately high and thus gross margins ultra-high. We’re talking Apple territory here.

The RU driver is a measure of how much they believe they can control facts on the ground by spending money. This driver is a proxy for how much they tend to spend relative to others. So it’s a disguised way of getting a handle on their expense levels.

Put these two together and you have a new way of identifying and measuring a person’s behavioral propensity to create (or consume) capital. We use a concept we developed called financial signatures®. There are 9. The top one (Marketmaker) is reserved for the tiny proportion of people who have very high VA and very low RU levels. Steve Jobs, Sergei Brin, Martha Stewart and so on. For your reference I’ve put the diagram at the top of the article showing the 9 financial signatures®.

The top financial signature® is the Marketmaker. These are only about 1% of the people we test. These are the Financial Alphas, you know as in Tarzan. I recently did a post on what Financial Alphas do for you.

So where does Trump come? Well on the VA side he doesn’t really figure. His MO is the same as most other real estate tycoons except that he now takes less risk than he did 35 years ago. So in his core area he’s not up there with anything that anyone else hasn’t done.

What about outside real estate? Well Miss Universe/Miss USA is a straight clone of any beauty contest. The Apprentice has more of a claim to fame except that is seems to be an outlier; there’s no other thing like it in his background that we know of any way. But there might be more significance to The Apprentice than appears at first sight, as I set out below.

I am struck by how, in reading accounts of his life, the concept of innovation never seems to come up. It’s possible that his entry into politics is a last ditch attempt to prove to others and himself that he can be innovative and so do something the old man indubitably never did. If that’s so, it could well be his best claim to innovator fame. But of course, he’s hardly there yet.

Whatever you think about The Apprentice, since he’s almost 70 and has never done anything particularly innovative we have to regard it as if the jury is in. It looks like the Donald inherited not only the Old Man’s money, but also his business model never changing it to something that was clearly of his own making. That of course is the typical way inheritors of great wealth operate; they go with what works unless they can’t stand being the same as the old man.  

Maybe Trump is striking out on the political front as a way of showing that he truly is wildly different from the Pater. So in that case the Presidential run could be viewed as a last ditch attempt at showing the world he really is his own man, money-wise.

So what level of VA would we assign him? Looks like medium to me. Not bad, certainly better than the general population but no way remotely near the greats such as Jobs or Gates.

What about RU? This is interesting. Trump learned no doubt at his father’s knee and his father was almost certainly frugal in business spending. But when he started out on the great game of life, Trump wasn’t. That’s why he almost imploded in the early 90s.

His evident love of things expensive is instructive in his personal approach to expenses. A luxuriously-appointed 757, various other flying accoutrements, Mar-a-Lago, and so on figure large in his lifestyle. So definitely not a Warren Buffet (you might remember it was big news when Buffett bought a new Cadillac in 2006 and he’s lived in the same, cheap, house since 1958). Now there’s a billionaire!

Trump is not innately a penny-pincher. Narcissists use high expenses as a way to project an image of success which is existentially vital for them. So big-spending is an intrinsic part of the Trump personality territory.

But here’s something interesting. It looks to me like his near-death experience of the early 90s taught him a lesson and since then he has changed his ways to become a tightwad i.e. low RU. In our model that’s good (at least for Donald J Trump and his shareholders and partners). So it looks like he is pretty agile mentally. Again good if you aren’t so agile you turn on a dime at any time. That might be great in business, less so in politics, but that’s another story.

So where does he come out? Medium VA, innately high RU but trending down in the latter. My guess is he started out in life as a Conglomerator, which usually loses money. But after the business emergency in his early career he made a sharp turn in behavioral strategy. He became a lot more frugal changing his business model from owning to selling naming rights, actually a pretty smart move.

So he started off life as a Conglomerator and ended up as an Arbitrageur. Arbitrageurs make money, but not much. They are never going to hit one out of the park but on the other hand you can rely on them not to lose money.

So nope, Trump is not a Financial Alpha. On the other hand he’s a lot better than most of our free-spending politicians and many a captain of industry. And you have to remember that our assessments of financial signature are highly selective, which I am sure the Donald would approve of, and the vast majority of people who are tested never test as a Financial Alpha.

Arbitrageurs don’t become billionaires. If they are a founder they lack the behavioral capability to envisage business models that are so disruptive that it changes the market for everyone. If they already have the money in hand they will be good prudent custodians of the wealth. Just don’t expect anything exciting.

So the answer to the question, would he have become a billionaire without his dad’s inheritance? Nope.

However that doesn’t mean he wouldn’t have been a successful CEO or entrepreneur. Trump has several strong personality traits that suggest he would come up trumps (pun intended) either as an entrepreneur or CEO of a large and successful company. These traits are: highly narcissistic, manipulative, forceful, canny, agile, vindictive, unscrupulous.

You might think I’m taking a shot at him. Not so. I have posted already on precisely this subject - “Are Narcissistic, Uncaring People the Most Successful Leaders?” My answer to this is, often.

Often such people can be more successful than other more scrupulous leaders, providing they can airbrush their image to the extent that most people believe that they are more scrupulous than they actually are – Hillary Clinton?

My gut is that Trump could well have been very successful in his own right as an entrepreneur or as a leader of a large company. He could even have made a lot of money. But I think you can safely say he would never been a billionaire or anything remotely like it.

Nor does any of the above mean that he wouldn’t be a good politician or President. I’m not going to comment on the political aspects of his desired role. Suffice it to say that narcissistic, manipulative, unscrupulous people are hardly rare in politics.

Back to The Apprentice. I think that it was genuinely innovative. Yet it seems to have been a flash in the pan viewed in isolation. But I think not. I think there’s (yet) another side to Trump that has been widely noted but not widely understood.

Trump is really a promotional genius. It was that which got him into trouble in the early 90s. It was also that which has spearheaded a brilliant promotional campaign for President. It was what led to the Apprentice.

Trump is really a Promotional Alpha. That’s really his Thing.

How do we square that with my conclusion that he’s not a Financial Alpha? Easy. Just because you’re a genius in something doesn’t mean that you’ll make money at it. Look at Einstein or Leonardo da Vinci. The Apprentice was a creative breakthrough in its own right but it has hardly made Trump rich, nor his TV sponsor, NBC. Fundamentally it’s been chump change. But Trump actually wanted trump change (get it?).

Trump is really a promotional genius whose innate financial behaviors prevent him from becoming a billionaire doing what he’s uniquely talented at, namely promoting, preferably himself. He’s innately a promoter who has managed to get the inherent business disadvantages of this style under control and in the process become a prudent financial manager.

Trump’s tragedy is that he really wants to be a Financial Alpha when he can only be a Promotional Alpha, which can’t make him the money and bring him the respect he so desperately craves.

I wonder if he reads Shakespeare?

 

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Wednesday, 20 September 2017

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