First of all, I am not a supporter of Donald Trump. I don’t like him. The way he behaved and what he said were all disgusting. So many people are criticizing him, going against him. And I am aware of so many of his lies, nonsense, and funny statements. 

But there was one Business mogul in him. One not-so-successful Business person. Someone ready to take the risk. So what to understand and learn? And is there anything to learn from him?

First, there are different things such as personal finance, corporate finance, and Public finance. But some rules are essential. I am trying to talk about some of them. I am not a finance expert. Before making any financial decisions, Pls contact your financial advisor.

Donald Trump. the 45th President of the United States of America. Well known TV star. Son of one another businessman. Father of Ivanka Trump. Husband of Three ladies.

And Real estate business owner. Yes, there were six Bankruptcies. But even after Mr. Trump is in business. His statement in the US Presidential Debate received the attention that “Not paying Taxes make me Smart.” So even though there are many successful Business leaders like Jeff Bezos, Mark Zuckerberg, Warren Buffett, Bill Gets, and Steve Jobs, what is the thing which makes Mr. Trump so unique?

  1. Most of the other billionaires I mentioned above are related to the Internet business Boom. But Donald Trump is doing that old fashion Real estate business. None of them is a television star. Jeff is the owner of the Washington Post. Mark Zuckerberg owns Facebook. But they are not stars.
  2. Most of them are Entrepreneurs. Not Donald Trump. His father was also a businessman. So yes. The Father of Warren Buffett was also in the business of stock trading. But he is not in the trading business. To be specific, he is the Owner of an Insurance company—manager.

So what is that? Let’s check.

  • Donald Trump is a student at Wharton School of Finance. By taking professional Education, he learned many bits and parts of the business. Warren Buffett also knows from Some great teachers. Benjamin Graham.
  • At the age of 25, He entered the real estate business. You can ask me what is so special about it? It is that business where so many industries are involved. Banking, Human sources, Employment, Cement, Steel, even Municipal corporations and sometimes state governments. All because of it, this type of business has one of the most noticeable effects on any economy. But that is not all. Mr. Trump, at that time, was doing it during the Cold war. The 70s. It was that time when govt was reducing its influence on the economy. Taxes at that time are going low. The US is developing itself and showing its strength. Perfect time to establish such a business.
  • After joining his family business, Elizabeth Trump and sons, He convinced his father to be more Liberal by Taking a loan on Equity holding of trump apartments complex. What is that? Say One builder is constructing one building and Giving it to rent. He is still the owner. So theoretical, he holds more than 50% ownership in that building. That is his asset. As he has some investment, Bank can give him a loan against that asset. He can use that money to buy land or in any other way. But construction business is capital intensive in purchasing land, which is locked. It needs a big part of that business’s capital concerning additional costs. So it teaches us the use of Leverage—a susceptible factor. But if used wisely, it is good.
  • He was taking opportunities. In 1971, he changed his attention to Manhattan. Just check the Map, and you can understand why Manhattan was important. The red part in Manhattan. There was an increasing crime rate, Unemployment due to industrial restructuring. But at the same time Financials industry was booming—low cost of real estate, easy availability of Workforce. And you are working in one of the critical places. Very close to New York. The project was successful. What to learn? You don’t need too much success. Just keep your failure rate low. One simple hit Can help you. Sad that he forgets it.
  • The biggest lesson then was to keep your business as dumb as possible. Dumb here means do what you are doing. Mr. Trump changed his business. In some, he found success. In some, he fails. Warren Buffett and Peter Lynch Love the companies which are doing dumb business. Hardly any change.
  • Some events can potentially create history—the 2008 Crisis is one of them. If the business knows how to benefit from it, it can be a game-changer for the company. Today we called them Lehman moments. During Trump’s early days, it was Penn Central Bankruptcy. Though the reason for it is also subject to another post, in short, it was a company that died even after holding significant amounts of assets. Trump took advantage of it and was trying to build Houses, which proved impossible for some reason. Due to some other reason, the municipal corporation chooses to construct a City convention center on that land. He also bought the hotel Commodore, all due to its location. This teaches us one more thing. Always check Fundamentals.
  • Impossible to finish talking about Trump if you forget Grand Hyatt. Around 1974, the Hyatt Hotel group grew but didn’t have a large downtown hotel. Mr. Trump realized it was an opportunity and made a partnership agreement, which gave him the first Tax deduction. However, it looks like it is a tax loss, but the Hotel business is a perfect example of Corporate finance. Generally, it is said that when one books Room in a hotel, he is paying 1/1000 of a total hotel. Though it is looking like a loss, it is not. Building hotels in areas like Manhattan with the partnership of Hyatt group.
  • His failure or Bankruptcy also teaches us many things. His airline business was one out of six—no shocking. Even Warren Buffett also holds negative views on Airlines. The reason is the same. Like Real estate, Aviation is also a Capital intensive business. A big part of capital is locked in buying Planes and their fuel and Expenditure on the crew. Income is dependent upon restrictions, if any. Trump Tower, Trump Travel, Trump Casino, Trump mortgage, Vodka, Trump Entertainment Resorts. All bankruptcy. How can that affect one?

 

  • Here we learn opportunity cost in simple words. When you choose one option over another, you ignore and lose one opportunity if your choice went well. Well done. But not always. Some factors are out of your hand. You can’t handle everything. So how to decide whether it is successful or failed. Suppose you earn more return than something else. That something else is called benchmark. Benchmark can return it on Govt debt, treasury bills, or the Equity index. If you are earning more than a benchmark, you are successful. Trump here definitely loses big in business other than Real Estate. But if you reverse the effect of Tax, which he never paid,  he is looking bigger and looser.
  • Debt is like Alcohol. In a small amount, it will not harm you. But if you decide to live on alcohol,  then it looks complicated. In 1990. Even though Mr. Trump claims his net worth is $1.5 billion. As per some research conducted by Forbes Magazine, it is only $0.5 billion. The reason is debt. Why? When you are taking debt, you are receiving that for something. So when you have an obligation, say $100, and assets of $150, your Networth is not 150 but 50. If you paid that debt by selling assets, your net worth would remain with you. Simple. But whatever you are earning is at risk when you have an obligation. If you are a businessman, earnings can fluctuate. But the bank or your lender cannot listen. They can shut your business if you don’t pay them their interest and capital.
  • The biggest lesson from Mr. Trump is Even diversification can fail. Nothing is risk-free.