Net worth is the barometer by which the wealthy measure their financial success. They do not focus upon incomes, especially considering they have their compensation paid in ways other than straight salary.
Compare that with the average person who typically asks someone "how much money do you make"?
To the wealthy, this is not the priority. Since they have assets, it is the overall growth in their holdings that really matter. In other words, they are not dependent upon just on path of income.
That said, there are drawbacks to utilizing net worth as a barometer.
Of late, we hear about Elon Musk racing up the billionaires list. Tesla stock is on such a run that he passed Jeff Bezos as richest man in the world. Some are calling him the first "Trillion Dollar Man". Whether that is true, we will have to wait and see.
Here is the latest top 10 list of Richest People in the world as put up by Bloomberg.
As we can see, Elon jumped way a head of Bezos. Already this year, he "made" $39 billion, and it is only the 8th of January. That is a lot of dough for one person.
However, here is where it gets misleading.
What do you think would happen if Musk tried to claim his money? If Musk wasnt to sell, say 50% of his Tesla stock, do you think he would get near what it is worth right now?
The answer is obviously no. We all know that if Musk started to sell large quantities of Tesla, he would crash the stock price. It was crater before lunch as they say.
Jeff Bezos finds himself in a similar situation. While having a rough year so far, having lost almost $4 billion, Bezos has the majority of his wealth in Amazon. The rest of this list has some familiar names that are tied to companies such as Facebook, Microsoft, Google, and Oracle. Each individual has a significant holding on those companies.
Even Warren Buffett would crush Berkshire Hathaway's stock if he decided to sell a majority of his holding. Even thought he is listed as "diversified" his wealth is mostly in that one asset. Good thing he pledged to give most of it away.
This is something to be mindful of in the cryptocurrency world. With new projects starting, it is easy to amass a powerful position against the whole. However, if we do that, then we become like most of the men on this list, albeit with a much smaller net worth.
Having an overwhelming majority of the stake makes it very difficult to sell, especially if one is heavily involved in the project. Influencers can face a challenge when trying to get out of a position if they have too much ownership.
Certainly, for the world's top 10 billionaires, even at liquidation prices, they would be well off financially. Just their holdings in real estate alone would provide more resources than they could likely spend in a lifetime.
The same is not true for us. Being able to exit a position is often as important as the asset rising. After all, what good is the value if one cannot turn it into capital.
So, while on the screen Elon Musk has a net worth of $209 billion, it would be a significantly lower number if he tried to liquidate his position. Even doing it slowly would set off a wave of selling in Tesla.
I guess that is the price he has to pay for success.
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