One man. One Year. $100 billion.
“Not Pretty, Not Rich” is a newsletter about money, finance, and the economy written by me, Sam Becker. You can connect with me through my website, Twitter, LinkedIn, or send me an email at email@example.com. Also, if you enjoy this newsletter, I’d really appreciate it if you would share or forward it to others.
It’s Friday, December 4, 2020, and here’s this week’s rundown:
Fancy words and what they mean (new segment!)
Why the stock market is getting riskier
How one man made $100 billion this year
Numbers and links
What’s shaping the world this week
The pandemic and politics dominate the headlines, as they have for months.
Biden’s agenda takes shape. And it looks like we can expect a lot of executive actions and a focus on passing economic relief measures during the administration’s first 100 days.
And when it comes to further stimulus action, this pretty much says it all:
Biden’s also announcing cabinet picks. Learn some of these names if you don’t know them already — like Janet Yellen and Cecilia Rouse — as they’re going to play important roles in getting the economy back on track in coming years.
Fancy words and what they mean
This is a brand-new segment I’m testing out this week. I had someone reach out and ask to explain a term that they had encountered during their job hunt, so I figured I’d do a little explainer segment for everyone. Let me know if you have any requests, and if you think this is helpful or not.
After all, we’re all here to learn and have a good time, right?
Today’s word: “Equity”
Again, someone reached out to ask if I could do a short explainer on this. This person is weighing accepting a job offer, and the company offered them $X in “equity” as an incentive to accept the offer.
We hear the word “equity” a lot, maybe on TV shows like “Shark Tank,” or in association with loans and mortgages. But “equity” is really just another word for “ownership” in most contexts.
For example, when you’re building equity in your home, you’re increasing the share of the home you actually own, rather than how much money you owe to a bank for your mortgage. So, if you buy a home for $100,000, put $10,000 down, and borrow $90,000 from the bank (as a mortgage) to pay for the remainder, you’d have 10% equity in the home. And as you pay the mortgage down over time, your equity would slowly rise.
Another way to think of it: Your ownership stake, minus what you owe.
It gets a little more complicated when it comes to stocks or equity in a company. But if an employer is offering your equity, they’re essentially offering you a stake in the company’s ownership (maybe in the form of stocks, if the company’s publicly traded).
Why the stock market is getting riskier
What drove the market to record highs this year is ultimately what makes it riskier, too.
I recently came across an article from Finimize, (subscription required, sorry) which discusses how the stock market is becoming riskier for the typical investor. I thought it was interesting and worth sharing with all of you, as I think the piece makes an important point.
The gist is that capital is becoming more concentrated — at least on the market — leading to a handful of “large” stocks having an outsized influence on the market at large. For instance, take a look at this visualization of the S&P 500:
Ignore the colors and percentages for now, and instead, take note of the size of the blocks. If this entire rectangle is representative of the S&P 500, you’ll notice that a handful of companies — Microsoft, Apple, Google, Facebook, Amazon, Walmart, etc. — comprise a relatively huge percentage of the overall rectangle.
Now, these stocks have all performed phenomenally this year (as you can see above, Amazon is up more than 70% since January), despite the pandemic. And because these “huge” stocks have performed well, the rest of the market has likewise been caught in their gravitational pull, so to speak. If these five or six stocks had instead had a bad year, discussions about the market would not be as rosy.
The point is this: The market has effectively become less diversified due to the sheer “size” of a small batch of stocks, mostly in the tech sector. Losing that “diversification” could make an investment in, say, an ETF or fund that tracks the market at large, riskier.
If these large tech stocks were to suddenly take a beating — something that could be ushered in if the government decides to break up Facebook, or force Google to abide by stricter privacy standards, etc. — values would fall, and we could see the reverse of what we did this year.
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A $100 billion year for Elon Musk
For most people, 2020 has amounted to a financial disaster. But for Elon Musk, it’s been nothing but dollar signs.
The 49-year-old Elon Musk recently became the second-richest person on Earth, trailing only Jeff Bezos. As of the end of November, Bloomberg reports that Musk’s net worth tallies up to $127.9 billion.
But the most remarkable thing about Musk’s charge up the billionaire index is that he’s managed to increase his net worth by more than $100 billion JUST THIS YEAR.
Again: Elon Musk has made more than $100 billion during 2020. One man. $100 billion. One year.
How did it happen? This explains most of it:
Musk owns roughly 20% of Tesla, and as the company’s shares have blown up this year, so has Musk’s net worth. For context, A single Tesla share was valued at $86 on January 2, 2020. As of December 1, it was around $585.
Of course, Musk was already a very wealthy man before Tesla, having been a co-founder of PayPal and other companies. But still, to see someone’s wealth increase so fast and to such lofty heights is absolutely remarkable.
And of course, when thinking about that amount of wealth, I can’t help but think of this old Lewis Black bit from a ways back (just watch for 15 seconds or so):
In Musk’s case…yes.
Numbers, links, and things to think about
125%: The boost in chest set sales linked to the popularity of the Netflix series “The Queen’s Gambit.”
58%: The percentage of Americans who say they’re willing to get a COVID vaccine, per a recent Gallup poll.
50%: The increase in the size of Amazon’s global workforce over the past year.
7,700: The population of Cushing, Oklahoma, the small town at the center of the global oil market.
10%: The returns on consumer-backed bonds so far this year, one of the best investments. Essentially, these bonds were bets that households would continue to pay their bills — and it’s a bet that’s paid off thus far.
A look at how Julia Child became a world-renowned cook.
An interesting look at America’s young, absurdly wealthy socialists.
How Albany-based news anchor Anne McCloy has helped a lot of people get their unemployment benefits.
Have a nice week,