I& #39;m sure you have seen these headlines,

"Zuckerberg loses a $16bn in a day"
"Bill Gates is worth over $100bn"
"Kanye is now worth $3bn"

Net worth is a point in time measure. It fluctuates almost daily. Depending how liquid you are, it can fluctuate by A LOT.

[Quick Thread]
What& #39;s liquid?

Liquid isn& #39;t just a finely crafted single malt. It& #39;s how easily you& #39;re able to convert assets into cash.

You drive a Ferrari & own a Camps Bay villa. You& #39;re at the garage at 3AM buying a Red Bull

Can you pay using your house? No.

You need actual cash on hand!
Zuckerberg has 410m shares of Facebook. FB stock is now at $190.

That gives him a net worth of about $78bn.

If FB stock slides to $170, he& #39;s now worth $70bn.

Did he actually just "lose" $8bn?!

No, because he hasn& #39;t sold a single stock. Fancy finance term is "unrealized"
Hands down, Comeback Kanye is an incredible story. Bankruptcy to Billionaire.

If he& #39;s worth $3bn, how much cash do you think he has immediate access to at any given second? $1bn? $2bn? All of it?

He has $17mn in cash & $35mn in stocks.

The rest is tied up in non-liquid assets.
Kanye owns 100% of Yeezy. Adidas produces & distributes them.

He gets most of the profits right?

No. He gets royalties of 15% of the sales and it& #39;s closer to 10-11% after expenses.

Basically, Kanye makes 10c for every $1 in Yeezy sales.
Depending on the valuation multiple you apply on his stake, he& #39;s worth at least $1.4bn.

That& #39;s based on an EV/Sales multiple of 10x applied to $140m in top line (2019).

Naturally he believes he can double the business in 5 years & that& #39;s actually not a outlandish estimate.
Liquidity is a HUGE problem for companies exiting stakes. Executing deals on a M&A desk, you see it all the time.

There& #39;s usually a "liquidity discount" for highly specialized or hard to sell companies.

Sometimes it& #39;s up to a 30% haircut depending how desperate the seller is.
Cash is King.

In good times, you want cash to work for you & generate more cash through leverage, productive assets & disciplined cash management.

In bad times, you want to be overweight cash & risk exposed.

What& #39;s the point of being ultra-rich if you can& #39;t spend it?

[END]
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