A $1 billion loss? All in a day’s work for the super rich

Picture this. It’s late in the afternoon in Mexico. You’ve been working hard all day, holding meetings, checking on new projects, examining potential deals, putting out the usual fires that happen in any business.

The sun is starting to sink lower over Mexico City and you’re in the middle of your last meeting of the day. Suddenly the door opens and one of your aides slips into the room, moves silently to your side and whispers in your ear.

“Sir, it’s been a rough day. You’ve lost $US888.8 million.”

You nod, but you couldn’t care less. After all, you are Carlos Slim Helu, the richest man in the world. When you’re worth $US67.5 million, losing even $1 billion in a day doesn’t matter too much.

I doubt Slim actually checks the size of his fortune every day, but the scenario described above is now possible thanks to Bloomberg’s release of a daily billionaires index, which tracks movements in the fortunes of the world’s 20 richest people on a daily basis.

The release of the Bloomberg index came in a big week for rich list watchers. A few days after the release of the Bloomberg effort, Forbes released its annual billionaires report, tracking more than 1000 individual fortunes, including 12 Australians. (Disclosure: I assisted Forbes with some Australian valuations.)

Both lists have the same top three – Carlos Slim, in front of Bill Gates and Warren Buffett.   But they used very different approaches.

Typically, rich lists are calculated on an annual basis, due in no small part to the fact that the amount of research involved to check in to the fortunes of those with private companies makes it too expensive to do it any other way.

But Bloomberg, under former Forbes rich list editor Matthew Miller, has taken a very different tack. By reducing the number of individual fortunes it tracks, it has come up with a way to track changes in billionaire fortunes on a daily basis.

For those whose empires are built around public companies, this is fairly easy – you are basically tracking share price movements.

But for those with private fortunes, it is much harder. To track the daily changes in the values of private companies, Bloomberg says it is using economic indicators, news reports and the performance of similar publicly-listed companies. To give an Australian example, this would be like adjusting the fortune of the Pratt family’s Visy Industries by using the daily movements of the share price of great rival Amcor.

As Bloomberg happily admits, it’s hardly a foolproof method of making company valuations. Indeed, the company has created a five-star rating system to indicate how much confidence it has in its valuations.

I am not sure whether tracking fortunes in this manner will create much interest outside hardened rich watchers like myself, although Forbes will match Bloomberg’s efforts by releasing a daily index tracking 50 billionaires later this month.

There are a few things that immediately jump out from watching the Bloomberg index over its first few days.

Firstly, the index is at its most interesting when a big event occurs on financial markets and we can see some real movement in fortunes.

Below is the top 10 from March 6, when US markets experienced their biggest single day fall in three months and European markets were down more than 2% on concerns that the Greek bailout would not proceed as smoothly as hoped.

A bad day on the markets can mean big losses (relatively speaking) for these entrepreneurs. European fashion entrepreneurs Bernard Arnault (the man behind luxury brand company Louis Vuitton Moet Hennesey) and Amancio Ortega Gaona (founder of Spanish-based fashion giant Zara) dropped a staggering $US1.2 billion in a single day.

Carlos Sim, Microsoft founder Bill Gates and Sweden’s IKEA founder Ingvar Kamprad all dropped more than $US800 million.

These movements must be taken in context of course. Slim’s $US900 million loss represents less than 2% of his total fortune and the following day, as markets rebounded, his fortune jumped up by close to $US1 billion.

The other lesson from the Bloomberg list is that the fortunes of the big boys are bouncing back.

As well as tracking daily share price movements, Bloomberg is tracking the percentage by which individual fortunes have moved in the previous 12 months.

The average increase is around 10%, although the performance of Brazilian resources billionaire Eike Fuhrken Batista is a real standout. The magnate, who says he will one day claim the title of the world’s richest person from Carlos Slim, has seen his fortune leap almost 30% in the last 12 months to just shy of $US30 billion.

Forbes recorded slower growth, with total wealth on its list increasing by 2% to $US4.6 billion and the number of billionaires increased by 1% to 1,226. But in a difficult year for the global economy, that’s still not a bad effort.

One of the most impressive increases on the Forbes list was Australia’s own Gina Rinehart, who saw her total wealth soar from $US9 billion to $US18 billion thanks to a deal with a Korean steel maker who has taken a stake in Rinehart’s yet to be developed iron ore mine.

But the biggest increase was posted by Mexican media and retail magnate Salinas Pliego, who boosted his net worth by $US9.2 billion to $US17.4 billion. Mexico may be a poor country in many ways, but its billionaires certainly know how to make money.

Next week we’ll take a look at the most interesting new arrivals on the Forbes rich list.