Today we’re taking it back, as Josh and Austin discuss a huge trend of 2021 –billionaires selling their company stock. Why did this happen? Who was involved? What are the impacts? All of these burning questions, and more, are answered in this week’s episode! Tune in now!
Main Talking Points
[0:45] – Billionaire Statistics
[2:27] – Mark Zuckerberg & Meta
[3:03] – Elon Musk & Tesla
[6:46] – Tax Considerations
[8:57] – What is the Goal of Investing?
[10:24] -How Does This Impact the Market?
[15:40] – Dad Joke of the Week
[16:21] – Should We Be Selling Because Billionaires Are Selling?
Links & Resources
Mark Zuckerberg Sells Stock Every Day As Billionaires Cash Out -Financial Advisor Magazine
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast. Simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey. Hey. Hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, we are going to be talking about a trend that’s been going on this year and that trend is, billionaires selling their company stock.
Josh Robb:
Wow. Talk about #firstworldproblems.
Austin Wilson:
I know. I know. It’s like, “Oh, yeah. I guess I need a little bit of cash. Give me a million dollars.”
Josh Robb:
We’re in a global healthcare crisis and I got to sell billions of stock.
[0:45] – Billionaire Statistics
Austin Wilson:
Yeah. That’s kind of how it goes. So you found an article which had some really eye-opening statistics. Do you want to walk through a couple things you found? And we’ll link the article in the show notes, so if you want to check that out, click on the link.
Josh Robb:
So Financial Advisors Magazine, which is something that I get-
Austin Wilson:
I bet you’d read that.
Josh Robb:
… because I’m a financial advisor, and it’s a magazine but they have online articles as well, so we’ll link it in the show notes. They were referencing this trend, this year. And it’s not unusual for billionaires to sell stock on occasion, but they noticed the trend this year is a little bit larger than they’ve seen in the past. So, in the article, again, they referenced that through the start of December- Wow. You just cracked your neck.
Austin Wilson:
If you guys heard that, that was my neck cracking.
Josh Robb:
That was intense. So through the start of December billionaires, and they’re using the Bloomberg Billionaires Index for this-
Austin Wilson:
First of all, zeros in a billionaire, is 9.
Josh Robb:
Nine zeros.
Austin Wilson:
Okay. That’s a lot.
Josh Robb:
A lot of commas. So they use the world’s richest 500 people for the Bloomberg Billionaire Index. So that’s what they’re using as a reference. They’ve unloaded, or sold, $42.9 billion worth of stock this year to date.
Austin Wilson:
That seems like a lot.
Josh Robb:
Yeah. So that’s really the first 11 months.
Austin Wilson:
In case you guys were wondering, we’re still in the growth phase of The Invested Dads Podcast. So at this point, Josh and I do not appear on the Bloomberg Billionaires Index.
Josh Robb:
We don’t make the top 500 yet, but we’re trying.
Austin Wilson:
Yeah, we’re trying.
Josh Robb:
In comparison, so 42.9. Last year in 2020, the same billionaire index, probably not the same people, they probably move around every once in a while, up and down-
Austin Wilson:
It’s like market cap, right?
Josh Robb:
… but $20.2 billion. So less than half of what they did this year. So there’s again, noticeable change in what’s happened.
Austin Wilson:
Yeah.
[2:27] – Mark Zuckerberg and Meta
Josh Robb:
One example, Mark Zuckerberg-
Austin Wilson:
Marky Z.
Josh Robb:
So, he owns that new company called meta, just straight meta-
Austin Wilson:
Meta platforms.
Josh Robb:
Meta platforms, which was Facebook.
Austin Wilson:
It was Facebook. It still is Facebook in everyone’s mind at this point.
[3:03] – Elon Musk and Tesla
Josh Robb:
Since May, he has been selling for a while, almost every day this year. He sold stock almost every trade day this year. We’ll talk about, volume and trading; why you can’t do it all in one day. The founders of Google have been doing that since May, two of the three Airbnb founders have diversified their stakes as well, which became publicly traded. So there’s been a lot of that. Elon Musk is probably the one that you’ve heard about in that he asked on Twitter, “Hey, should I sell 10% of my holding?” And Twitter said, “Sure.” Not Twitter the company, but people on Twitter said, “Yeah.”
Austin Wilson:
It was a poll.
Josh Robb:
Yeah. He did a poll, and they said, “Yeah.” So guess what he did. He started selling.
Austin Wilson:
Well, let’s take a tangent into Elon Musk world. He’s a very eccentric interesting gentleman who loves Twitter with a passion. I’m not even going to go into all the details but go read his interactions on Twitter with Elizabeth Warren and Bernie Sanders, because they will crack you up so much. Anyway, he put this poll out there. The funny thing is he had been planning to do this already, he just wanted to make a big spectacle out of it and publicize it. The way that Elon Musk is compensated is through stock, and stock options specifically. I think the way that his incentive plan is organized is, if the company stock hits certain levels, not necessarily company performance but if company stock hits certain levels, he is then given stock options to attain company stock at very low cost bases. So specifically what happened is this year I think a bunch of his options were going to expire so he had to exercise them. Here’s rough, real numbers. His stock option cost was $6 per share and the stock was trading at a thousand. Okay? Something like that for round numbers. So that means that-
Josh Robb:
Six is not really a round number but go for it.
Austin Wilson:
Well, it’s a real number. So he could buy the stock for $6 per share, and then all of the gap between six and the strike price of a thousand is profit for him. Which is really good news. So essentially, he’s buying stock, that’s worth a thousand dollars today, for six bucks a share. So it’s all profit and very little cost to do so, and then you obtain an obscene amount of stock. Well, he already has insane amounts of stock, he’s the largest shareholder of the company. The thing that people don’t understand about the situation is that he specifically does not take a cash salary.
Josh Robb:
Yeah. It’s like a dollar, right?
Austin Wilson:
Yeah. So if he needs to A, fund SpaceX, because that’s pretty much him or B, go out to Starbucks, which I don’t know if he’s a big coffee drinker. He’s a weird dude.
Josh Robb:
I had a joke about that. That he got really confused when he heard the adage buy low, sell high, and after his podcast with Joe Rogan he thought, “I need to sell because I’m high.” That’s what triggered this whole thing. But that’s a whole other thing.
Austin Wilson:
That’s so funny. So yeah. Because of exercising these options, he was going to make a crap ton of money, bazillions to put it in real world terms. How do you pay taxes when you don’t take a salary? You have to sell some stock.
Josh Robb:
You need cash.
Austin Wilson:
So Elon Musk this year is trimming down 10% of his Tesla stake. In doing so, he’s incurring all of these tax bills by profiting on his options. But the only way to pay his world record, biggest tax bill in history, as he pointed out to Bernie Sanders and Elizabeth Warren recently, the way he’s paying this is to sell stock, to get cash, to pay his big multi-billion dollar tax bill.
[6:46] – Tax Considerations
Josh Robb:
Right. And by the way, this is the first time he’s sold Tesla stock since 2016. So it’s not like he does this every year. It’s about $12.7 billion that he’s sold this year. So there’s a lot of reasons, you kind of hit on it. One of the main reasons we see that group of people liquidating some of their stock from the companies they either ran or started is tax considerations.
Austin Wilson:
Oh yeah.
Josh Robb:
So there’s other reasons around we’ll talk about, but the main reason is, so far this year there’s been talk about potentially adjusting the tax brackets and how taxes are counted and collected for high net worth people. And so the house passed their version of the Build Back Better plan, which has not gone through both, but the house version had a millionaires surtax of 5% on income. Now normally Elon Musk, his income is very little. He generates income only when he sells, and that’s capital gains. Their income calculations, or what they counted as income, was a little different so they were trying to grab more of that at a higher tax rate. And people that had over $10 million got an additional 3%. So an 8% additional tax on top of whatever tax they are already paying for above 25 million. So it moves up from 10 million at 5, another 3% for anything over 25 million, it’s there. And so, some of these billionaires are looking at saying, “Okay, I could save 8% if I do some stuff this year as opposed to waiting to potentially next year.” Now it’s not a guarantee but they’re looking at that and saying, “Well, if I was thinking of doing it soon, why not do it now? And maybe save 8%.” Because you say, “8%, 8%.”
Austin Wilson:
But 8% on billions-
Josh Robb:
8% on a billion dollars-
Austin Wilson:
… is a lot of money.
Josh Robb:
Again, there’s a lot of zeros floating there, and it matters. So that’s part of the reason they’re doing it, and we’re not here to get into the politics of whether that all make sense or whether those certain taxes are there. But what we thought about is this trend you see, and it’s showing up in the news now, is going to cause some effects and what are some of those consequences? So the first one is, how does this impact the market? And then second, how does this impact the everyday investor?
Austin Wilson:
Right.
Josh Robb:
So let’s start with the market.
[8:57] – What is the Goal of Investing?
Austin Wilson:
So first of all, I think it’s probably good to remind ourselves the goal of investing.
Josh Robb:
Yes.
Austin Wilson:
So what is the goal of investing? Where do you buy?
Josh Robb:
You buy it low.
Austin Wilson:
And what do you do?
Josh Robb:
You hold it until you need it.
Austin Wilson:
Yeah. But when would you ideally sell?
Josh Robb:
Sell when it’s up.
Austin Wilson:
So you buy low and sell high. And where are the markets right now?
Josh Robb:
The markets are up.
Austin Wilson:
The markets are up really big.
Josh Robb:
Close to all-time highs.
Austin Wilson:
Not exactly, but really close to all-time highs at the time of this recording. So if you think about the last handful of years we’ve had in the stock market, 2020 being shockingly good considering how rough it was at one point. But 2019 was a good year, 2018 was a down year. 2019 was a good year, 2020 was a good year, 2021 is a really good year so far. Okay. So, market’s up, up, up, up, up.
Josh Robb:
Yep.
[10:24] – How Does This Impact the Market?
Austin Wilson:
Markets have historically returned roughly 8% per year over the history of the S&P 500. We’ve gotten a decade, generally speaking with a couple exceptions, but generally more than a decade of well above trend stock market performance. So stock markets are at all-time highs. A lot of these billionaires are seeing that the stock market being at all-time highs is a better time to sell some of their positions than it would be if the markets were down. So taking tax into consideration, potential changes, and taking where the markets are into consideration at being really high; those are two tailwinds that are going to buoy these billionaires trying to de-concentrate themselves, as we’re going to talk about in a little bit. So in general, what does this do to the markets? Well, it depends. That’s the answer for everything.
Josh Robb:
That seems like a good answer.
Austin Wilson:
It depends on the position of the company. Take Zuckerberg for example. Right? He’s been consistently selling for a long time.
Josh Robb:
Him and his wife have a charity set up and they’ve stated they hope to give about 99% of their wealth away during their lifetime. When you sell stock, you create tax. When you gift or give to charity, you can offset some of that as well. So they’re also strategically giving and selling together to minimize their overall tax. So if there’s a year they’re giving a bunch of money to charity, that’s also a good year to realize some of those gains. So you’re seeing that, as well as there’s been some definite needs for charity. And some of their charities have been needing money to give out to everything going on, the tornadoes that happened a little while ago, everything with COVID, so their charities are being utilized. They’re saying, “Okay. Hey. I want to add some more to the charity. Why don’t I take advantage of this tax deduction and offset some gains I have?” So you’re also seeing them utilize that.
Austin Wilson:
If you think about some of these companies, a lot of the companies where these billionaires are selling stock are-
Josh Robb:
Large.
Austin Wilson:
They’re huge companies and these people have either been with the company from creation or got in really early and have been leaders in the company for a long time, so they have massive positions in these companies. So if you take someone like Zuckerberg, they have been bleeding off shares consistently for a long time because they have so much. And because if they were to do anything drastic, it would actually move the market.
Josh Robb:
If Elon didn’t say 10%, but he said 50%. That would’ve been a problem.
Austin Wilson:
Even if he did it all at once. It would be a problem.
Josh Robb:
So selling tomorrow 10% of my stake-
Austin Wilson:
Watch the tank. Watch the tank. So what is happening is that there are rules around market manipulation from the SCC and we’ve had issues in the past, I’m thinking of the twenties and thirties that have created the need for some of these rules. So some of these people have huge positions and it is illegal to move the markets and there are thresholds with which you can measure that. So they’re taking littler chunks here and there to spread out bigger chunks of dollars across a longer period of time, to sell and get the money that they need to do whatever they want to do with it. Whether that be pay taxes, do charitable things, have another business, or just live. So that is one thing, but a lot of these companies are so large that a leader, even Elon Musk selling 10% of his stake in Tesla, which is the largest of anyone in the company, it’s not enough to absolutely tank the stock. How stocks go up or how stocks go down is, are there more buyers than sellers? Well, if there are more buyers than sellers of a stock, the stock’s going to go up because every single transaction is incrementally more expensive-
Josh Robb:
There’s more demand.
Austin Wilson:
… until the demand tapers off and then it goes the other way. As there’s less and less demand, the stock price will go down. Well, as you’re selling the stock price is going down, well, even throughout all of his selling, the stock hasn’t really tanked. It’s down a little bit. It’s been volatile, but it was volatile anyway before that. So I think it’s something to keep in mind that these companies are generally huge. These companies are so big that these billionaires liquidating many millions, at least, dollars of shares isn’t moving the stock hardly at all.
Josh Robb:
And the other piece of it too is they’re not necessarily getting out of the market, they’re getting out of a concentrated position. So for a lot of them selling doesn’t mean that they’re holding cash or sitting on the sidelines. They’re not saying, “Oh, the whole stock market is overbought and it’s too expensive.” They’re saying, “I have a lot in this one company. I like the company, but man, I could probably do to get some out of there right now.” And that’s what they’re doing.
Austin Wilson:
And their position may have vastly grown, faster than their other investments that they’ve had over time. Which means that it could be, as a financial planner we would say, over concentrated. You know, you’ve got a lot of eggs in one basket. So if the one company where you’re taking all of your benefits and your actual living expenses and everything from anyway, if that falls apart, then your whole financial picture is in a different situation. So it’s a little bit of prudent thinking. What we’re saying, it’s not necessarily a warning sign that the market’s going to fall apart. This is billionaires taking opportunities in terms of taxes, and billionaires taking opportunities in terms of great markets to change what they’re doing with their capital a little bit. Take a little bit of risk off the table perhaps, give a little, those sorts of things. So that’s where I think it is. I don’t necessarily think it’s a red flag for the markets that these billionaires think the markets are going to tank. I think it’s, these billionaires are seeing some opportunity and they’re taking a little bit of risk off the table. I think it’s smart. I’m not in the position to be liquidating multi-million dollar positions in my thing, but I would probably-
Josh Robb:
If you were in their boat-
Austin Wilson:
… I would view it a little bit different or I would view it the same as they are.
Josh Robb:
Definitely.
[15:40] – Dad Joke of the Week
Austin Wilson:
So Josh, I got a dad joke of the week for you.
Josh Robb:
Let’s hear it. I need a good dad joke.
Austin Wilson:
So as we’re sitting here recording this on a brand new computer of mine-
Josh Robb:
It’s fancy.
Austin Wilson:
… I have a computer joke for you.
Josh Robb:
All right.
Austin Wilson:
Why did the computer crack a joke?
Josh Robb:
I do not know. Why would it do that?
Austin Wilson:
Because it saw its motherboard. Its mother was bored.
Josh Robb:
Its mother was bored and needed to tell a joke. I like it. I like it.
Austin Wilson:
So there you go, Josh, that is the dad joke of the week. Let’s bring this home. So does this mean that listener Bob, Sue, any of these listeners, these are random names that just came into my head-
Josh Robb:
We hopefully have a Bob or a Sue listener.
Austin Wilson:
Hopefully we do. If not share it with a Bob or a Sue.
Josh Robb:
So they can listen to them personally.
[16:21] – Should We Be Selling Because Billionaires Are Selling?
Austin Wilson:
To them personally. So should our listeners and us, be selling because billionaires are selling stock?
Josh Robb:
Is this a sign that we need to be following? Should we jump in with them? Well maybe, like you said, it depends.
Austin Wilson:
Oh, I love it.
Josh Robb:
And there’s three reasons why you may want to be selling along with the billionaires. One. Do you have a concentrated position? And we’re talking comparison. There are a lot of people who may have an over concentrated position for their net worth because they were really liking a company or they also had stock options, or grants, or something. But even something simply as Tesla, because we were talking about Elon Musk, that stock’s done pretty well. Your position may have grown if you held that to a point where you’re like, “That’s bigger than I really wanted it to be,” you’re over concentrated. So that might be a reason to sell. Do you need cash? That’s one of the best reasons to sell.
Austin Wilson:
That is one of the best reasons to sell.
Josh Robb:
The best reasons to sell is, “I need cash for something.” Or were you in a lockout period that you’re now out of and you say, “Okay, I need to diversify this that I’m now able to and I wasn’t before.”
Austin Wilson:
Dude likely had a company stock.
Josh Robb:
So a good example of some of the other people that were noted in here is the founders of Airbnb. They became publicly traded, they probably had a lockout period where they could not do anything and then once that was done, they started to divest some of their original stock ownership. So those are some reasons why you may want to diversify. The main one being, I just need cash. And that’s fine. That’s part of why investing is. At some point you’re growing this money to use the money, and if you have a need for the money, utilize it again. Hopefully it fits in your plan and you’ve talked through with a financial advisor and you’ve planned for this event, but that’s the best reason to sell.
Austin Wilson:
What we’re saying is that this is not a leading indicator that we believe things are going to fall apart because of billionaires unloading some company stock. It does not seem like that is the risk that we’re facing at this point. That would be if people are reading into it saying… That would be them trying to say, “Oh, this is some sort of market timing I can do. I’m like, get out at the top!” And what do we know about market timing?
Josh Robb:
Market timing does not work.
Austin Wilson:
It does not work people. Stop trying to do it. Do not try and time the market here. If you need cash because it’s part of your financial plan and you were going to do it anyway, this is probably a good time to sell, especially because the market’s up huge. If you don’t need cash and you weren’t planning on selling, don’t take this as some sort of crystal ball to try and get some extra alpha. Right?
Josh Robb:
Definitely.
Austin Wilson:
That is where we’re at. As always, check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment [inaudible 00:18:59] to keep you on track to meet your long term goals. And again, we’re focusing long term here, we are in this for the long haul and we are hopefully going to help you guys along the way. So check that out. It is free on our website. Josh, how can people help us grow this podcast?
Josh Robb:
Make sure you subscribe. Always get our newest episode every Thursday. Leave us a review on Apple podcast. Always good. If you have any ideas or thoughts or questions, shoot us an email at hello@theinvesteddads.com. We love hearing from you. And then if you know somebody who was asking about this or was talking about those billionaires, share this episode. Hopefully it will be informative.
Austin Wilson:
All right, well until next Thursday, have a great week.
Josh Robb:
All right. Talk to you later.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
