Ali’s blog

Mostly quant stuff with occasional digressions

Wealth and volatility

Posted by alifinmath on March 6, 2008

I like the title of my post: “Wealth and volatility”: sort of like a Jane Austen novel such as “Sense and Sensibility.” Before I get to the meat of the matter, let me first say I don’t know how a person’s fortune is calculated. In the case of a beggar like myself, it’s a straightforward exercise: a few books, a few clothes, a few dollars in the bank. But calculating the fortunes of the rich is like trying to hit a moving target. Even the rich don’t know how much they’re “worth,” if indeed this has any meaning at those stratospheric heights. As Getty once said, “If you can count your millions, you’re not a billionaire.” On top of the difficulties in hitting a moving target and assigning monetary values to assets of indeterminate worth, there’s the propensity of the media to exaggerate wealth. Thus the Queen used to be called the richest woman in the world — on the basis of assets such as the crown jewels, which are really state assets, and which she cannot dispose of as she pleases. Her real net worth is probably around 100m pounds — enough for a comfortable existence, but which wouldn’t even pay for Paul Allen’s yacht.

With these caveats in mind, we can examine an article on the changing fortunes of the seriously rich. The only thing that caught my attention was the discussion of volatility:

With all the rosy news of the past year and the overall gains, it is easy to lose sight of the volatility that has been wreaking havoc on these fortunes on a daily basis for months. For instance, Hong Kong’s richest person, Li Ka-shing, lost $5.45 billion of his net worth, all tied to publicly held stocks, in the 37 days between Jan. 4 and Feb. 11.

Meanwhile, mainland China’s richest person, 26-year-old Yang Huiyan, fell from $17.15 billion in September to $7.33 billion in the rankings. Google co-founder Sergey Brin’s fortune touched $25.27 billion in the past year but is now down to $18.53 billion. Others were hit much harder, falling off the list entirely, including Lehman Brothers chief Richard Fuld and Bear Stearns ex-chief James Cayne (he was sacked), both victims of the world’s credit crunch, and Pulte Homes’ William Pulte, whose stock collapsed along with the housing market.

I’m uncomfortable with this adulatory obsession with vast wealth since one of my convictions is there’s no vast wealth without vast misery. I quote from memory, but I think over 2bn people are living on less than $2 a day. These kind of disparities don’t bode well for our future as a species.

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