Wednesday, July 11, 2012

2012 Top 100 U.S. Retailers

Here's an interactive sortable table of the top 100 U.S. retailers, based on 2011 data.  Some of the results include:

1. As expected, Walmart was the No. 1 U.S. retailer for both U.S. and worldwide sales.  Based on its worldwide sales in 2011 of $454 billion, Walmart would rank as the 27th largest economy in the world, behind No. 26 Taiwan's GDP of $467 billion and ahead of No. 28 Argentina's GDP of $448 billion.  Somewhat less expected are the No. 2 retailers for U.S. sales (Kroger) and worldwide sales (Costco).

2. Based on the number of retail stores, Walmart barely makes it into the top 20, coming in at No. 18 with 4,423 stores.  It's no surprise that McDonald's is No. 3 with 14,087 stores and Starbucks is No. 4 with almost 11,000 outlets.  But you might be surprised by the U.S. retailer with the most stores (more than 25,000) and by the second-place retailer with more than 18,000 stores.  

3. Of the top 100 U.S. retailers, more than half (53) have 100% of their stores and sales in the U.S. and no foreign presence at all (e.g. Target, Kroger and most of the grocery chains, Kohls, RiteAid, most of the dollar stores, etc. ).   The retailers with the greatest percentage of foreign sales were IKEA (90.2%), 7-Eleven (80.9%) and Aldi (78.5%). 

4. For sales growth in 2011, Amazon was No. 1 at 42.5%, followed by Verizon Wireless at 37.1% and Apple at 36.9%. 

5. The retailer with the largest growth in the number of stores added in 2011 was 7-Eleven with a 16.3% increase, followed by Nordstrom at 10.3% growth and Best Buy with a 10% increase.

Here's a link to the article that accompanies the chart

68 Comments:

At 7/11/2012 1:13 PM, Blogger morganovich said...

actually, that subway result does not surprise me at all.

it's one of the cheapest franchises you can buy and requires very little up front investment.

you need an over for bread and a toaster.

the meat, cheese, veggies etc all come pre sliced and ready to go. you get dough for bread as well.

you can use a tiny footprint and few employees.

it's a great franchise model.

 
At 7/11/2012 1:48 PM, Blogger bart said...

I *heart* large corporations and the awesome corporitocracy, especially how Citizens United doesn't help their power. /sarc

 
At 7/11/2012 2:06 PM, Blogger sethstorm said...

Wal-Mart is no longer a company, but an organ of the People's Republic of China. Thus by function, you would have to count them out and re-rank accordingly.

A more accurate view of the company would be to group them with nominally private, government-backed entities like defense contractors and government-run-and-backed companies like Huawei. That would put their international presence in the proper context versus their out-of-context presence.

--

As for those that have no foreign presence, that is an asset. Unlike those that have international influence, the US-only retailers have no foreign distortions of demand that will make a retailer less in tune with the US. In addition, these retailers are less likely to do poorly by their employees or customers.

 
At 7/11/2012 2:38 PM, Blogger Jon Murphy said...

Morganovich-

Subway did catch me as a surprise, but when you explain it like that, it makes perfect sense. I guess I was laboring under the McDonalds stereotype.

 
At 7/11/2012 2:49 PM, Blogger morganovich said...

jon-

yeah. opening a subway takes somehting like 15% of the capital of opening a mcdonalds.

that is why they have spread like mushrooms.

 
At 7/11/2012 3:59 PM, Blogger Larry G said...

You'll find subway, KFC, and Pizza Hut in many places that don't have a McDonalds usually the smaller hamlets and towns.

Subway has another advantage. They do not have a standard store like McD.

Yum! is a consortium of brands including Taco Bell, KFC, and Pizza Hut.

If you break them into separate brands how do they rank?

 
At 7/11/2012 4:00 PM, Blogger Moe said...

Nordstrom's floored me - I thought the big dept stores days were numbered. I do know they have customer service standards that are second to none. I shop at Norsdstrom's Rack and love it.

 
At 7/11/2012 4:04 PM, Blogger Jon Murphy said...

Nordstrom's surprised me, too, especially since they are a "luxury" store.

 
At 7/11/2012 4:16 PM, Blogger Jet Beagle said...

morganovich: "opening a subway takes somehting like 15% of the capital of opening a mcdonalds."

That's right. McDonald's also requires the franchisee to have a minimum of $500K personal assets to invest in the business. The company prefers to deal with franchisees who can open or purchase multiple store franchises.

McDonald's selects and purchases the sites for new stores, and ensures that another McDonald's will not be located in the same marketing territory.

Subway does not grant exclusive territories to its franchisees. So a franchisee could see another Subway store open nearby.

 
At 7/11/2012 4:22 PM, Blogger bart said...

Nordstrom's surprised me, too, especially since they are a "luxury" store.

The high income folk virtually never see recessions, and Wal-Mart and similar aren't usually on their list of places to shop.

Nordstrom is #34, Macys is #16.

 
At 7/11/2012 4:33 PM, Blogger sethstorm said...


Nordstrom is #34, Macys is #16.

Consider that Macy's is a combination of various other stores, such as the formerly existing Rike's and Lazarus, which has brought it down a bit from a pure high-end market. With that, there might be some crossover from people that shop at a PRC government organ that looks like a retailer.

 
At 7/11/2012 4:54 PM, Blogger Jet Beagle said...

jon murphy: "Nordstrom's surprised me, too, especially since they are a "luxury" store."

Nordstrom only added 3 full line stores in 2011, and plans to add only 1 full line store in 2012. Their real growth is in their Nordstrom Rack clearance stores (18 in 2011 and 12 planned for 2012).

 
At 7/11/2012 4:55 PM, Blogger VangelV said...

Anyone who has driven through Quebec will not be surprised by the Subway results. My kids were shocked at how many Subway stores there were compared to other chains.

 
At 7/11/2012 4:58 PM, Blogger Jet Beagle said...

bart: "The high income folk virtually never see recessions"

bart, I don't think that is exactly correct. The wealthy suffered significant losses when stock prices crashed. But the stock market recovered much faster than employment.

 
At 7/11/2012 5:19 PM, Blogger bart said...

The wealthy suffered significant losses when stock prices crashed. But the stock market recovered much faster than employment.

I have as yet to see any multimillionaires that I know do any significant cutback on their lifestyles.

When one has 5+ million net worth, a $500k+ drop in your stock portfolio doesn't cause any lost sleep or drops in spending.

 
At 7/11/2012 5:52 PM, Blogger morganovich said...

bart-

i have seen lots of people who were wealthy get hurt.

my old girlfriend's family (who were VERY rich, like we took apart a castle in Italy and had it put back together brick by brick on 400 acres in connecticut and used it as a vacation home rich) went BK.

he was levered in real estate and that was that. even the wine collection went on the block.

lots of funds went bust.

lot's of tech guys i know lost millions in options value and toned down spending a great deal.

the high end car dealers in the valley really struggled for a couple years.

granted, not everyone got hit, but a lot of people did.

i'm very surprised to hear you say you know NO ONE who had money and would up needing to cut back.

granted, having $5 million drop to $2.5 million does not make you eat ramen noodles or anyhting or forgo the basics, but new home purchases, and expensive toys go by the wayside. perhaps we are things of somewhat different things when we say "see a recession".

fwiw, i am finding incredible deals on high end audio equipment right now (and have been for a couple years) there is just no market for it. someone must be cutting back.

 
At 7/11/2012 5:59 PM, Blogger bart said...

i'm very surprised to hear you say you know NO ONE who had money and would up needing to cut back.

Let me put it this way - the ones I know weren't stupid and can see handwriting on the wall, learned real history not at Ivy League and similar schools, and had excellent advice and guidance (far from just from me) etc. I hope that doesn't sound arrogant, but if so - so be it.

Many came out of the crisis in significantly better shape than they went in.

 
At 7/11/2012 6:17 PM, Blogger morganovich said...

bart-

oh, i hear you. this crisis has been fantastic for me. i have never made more money.

my point was not that lots of people did not do well through it, i was just surprised to hear you say that you had seen no multi-millionaires cut back. like you, i had a fair number of astute friends, but by no means was everyone ready for this.

many, many people who were good businesspeople turn out to be really lousy investors.

 
At 7/11/2012 7:01 PM, Blogger bart said...

morganovich:

Yes, same here on net worth increase since I started trading/investing full time.

There is one quite wealthy couple that I know who is still down about 15% and was down almost 50% at one point, but it didn't change their lifestyle or the amount of buying they did at Nordies or wherever - at all. For some, it even went up - when they had a bad week, they'd go spend $5k minimum on something. Another bought a new Ferrari in Jan 2009 since he said it was such a good deal.
There are many other examples - the truly wealthy just don't choose to experience recessions.

I really and honestly chalk it up to them broadly bringing a real understanding of history, fraud and liar types, most especially including the slime on Wall St., to the table. Over half the time, it was the "housewife" who originally expressed concern too.

I also think that the losses amongst the very wealthy are overstated for PR purposes.

But amen(!) on so many that are good in one area failing at investing. It's like they suddenly ignore their life experiences and lessons and choose investments like a teenager... or Pollyanna.
Housing always goes up... yeah, right! *sigh*

 
At 7/11/2012 7:13 PM, Blogger cahtmyle@gmail.com said...

7-11 is an interesting dichotomy. They were everywhere in the '80's, but got into financial problems, and sold out to a Japanese franchisee in 1991. Then almost all of the other locations and franchisees were sold or bailed during the '90's.

They went from being the majority of convenience stores in the US to being hard to find (still operating as a 7-11) within a few years. In the past couple of years they have begun a comeback and are once again popping up everywhere you look.

Through this stumbling 7-11 gave rise the the great upsurge of independent convenience stores, as well as the big boost that started several large operations such as QT, Stop&Go and others in the past two decades.

 
At 7/11/2012 9:15 PM, Blogger morganovich said...

"the truly wealthy just don't choose to experience recessions."

well, or they still have enough capital left to take advantage of the bargains.

i saw a lot of very wealth people ruined in 2000 in san francisco.

one day, they had millions in tech stock, then they were BK.

many got very bad tax advice that wiped them out.

they were told to exercise their options and start building up long term gains but were not told that such a deep in the money exercise would be a taxable event itself.

they had strikes at 20 and a stock at $200. then the stock dropped to $5 or even went to zero. they were left with more tax liability from the exercise than they had in stock value.

the new losses could not be used to offset it in many cases and they were literally ruined.

i wholeheartedly agree that recessions provide enormous investment opportunity, but not everyone winds up in a position to take advantage.

someone always goes over the falls.

 
At 7/11/2012 9:24 PM, Blogger bart said...

i wholeheartedly agree that recessions provide enormous investment opportunity, but not everyone winds up in a position to take advantage.

No question, and there certainly were a bunch of multimillionaires that got zapped by dot com especially and by the financial crisis - but I still maintain that most didn't.
In other words, there has not been a huge drop in the number of multimillionaires - at least that I'm aware of. I certainly don't know any who even vaguely went close to bust.

And to the original point, I still maintain that (most) high income folk virtually never see recessions.

 
At 7/11/2012 9:54 PM, Blogger Ken said...

bart,

I *heart* large corporations

I really don't understand why this is sarcasm. Look around your house and all your belongings. How many of them were made or sold by big corporations? I'm betting most if not all. In other words, since the reason you have most of your stuff is due to big corporations, why would you not love them?

 
At 7/11/2012 9:55 PM, Blogger Ken said...

bart,

The high income folk virtually never see recessions

And of course this is complete and utter bullshit.

 
At 7/11/2012 9:57 PM, Blogger bart said...

The "sarc" was mostly for the other part that you didn't quote - "the awesome corporitocracy, especially how Citizens United doesn't help their power."

There's nothing natively "bad" with large, although not being people means that they usually develop some negative social behaviors. The incentives are certainly there.

 
At 7/11/2012 9:59 PM, Blogger bart said...

And of course this is complete and utter bullshit.

Looking in a mirror again I see.

Such wonderful language and awesome post content with lots of facts and thought too.

 
At 7/11/2012 10:02 PM, Blogger bart said...

You lose... but feel free to spew more, and as much as you're compelled to.

Actually, I command it!

 
At 7/11/2012 11:05 PM, Blogger Buddy R Pacifico said...

Jet stated:

"Nordstrom only added 3 full line stores in 2011, and plans to add only 1 full line store in 2012. Their real growth is in their Nordstrom Rack clearance stores (18 in 2011 and 12 planned for 2012)."

Nope, their real growth has been on-line with major investment in tech and smaller fashion forward retailers.

 
At 7/12/2012 4:28 AM, Blogger Jet Beagle said...

buddy pacifico: "their real growth has been on-line with major investment in tech and smaller fashion forward retailers."

Well, Buddy, my comment - and I assume Jon Murphy's as well - was in response to this statement by Professor Perry:

"The retailer with the largest growth in the number of stores added in 2011 was 7-Eleven with a 16.3% increase, followed by Nordstrom at 10.3% growth"

I think all three of us were referring to the growth in number of stores.

But back to your assertion which followed the word "Nope". I assume you are meaning that the growth in Nordstrom's revenue was chiefly from it's online sales growth. Where did you obtain 2011 revenue figures for Nordstrom's online sales? I couldn't find them in their 10K. Did you?

 
At 7/12/2012 4:44 AM, Blogger Jet Beagle said...

buddy pacifico: "Nope, their real growth has been on-line"

Buddy, according to retailsales.com, e-commerce revenue growth only accounted for about 1/6 of Nordstrom's overall revenue growth in 2011:

Nordstrom's revenue ($000)

Total 2010 revenue: $9,310,000
Total 2011 revenue: $10,497,000
Increase: $1,187,000

2010 E-Commerce revenue: $705,000
2011 E-commerce revenue: $913,000
Increase: $208,000

Do you have other figures to show that the real growth at Nordstrom is in the online business and not the brick-and-mortar business?

 
At 7/12/2012 8:16 AM, Blogger VangelV said...

No question, and there certainly were a bunch of multimillionaires that got zapped by dot com especially and by the financial crisis - but I still maintain that most didn't.
In other words, there has not been a huge drop in the number of multimillionaires - at least that I'm aware of. I certainly don't know any who even vaguely went close to bust.


You may want to reconsider this part. While the number may not have dropped very much the composition is very different than it used to be. I know of people who were very well off but wound up losing almost everything because of a few bad bets AND the use of leverage.

 
At 7/12/2012 8:34 AM, Blogger Jet Beagle said...

bart: "there has not been a huge drop in the number of multimillionaires - at least that I'm aware of. I certainly don't know any who even vaguely went close to bust."

vangeIV: "You may want to reconsider this part. While the number may not have dropped very much the composition is very different than it used to be."

I'm curious. How would either of you know about the recent composition of multimillionaires in the U.S.? Where would you get data on this?

 
At 7/12/2012 8:39 AM, Blogger VangelV said...


I'm curious. How would either of you know about the recent composition of multimillionaires in the U.S.? Where would you get data on this


Mark has posted links to material that deals with mobility. Many of the interviews with researchers have indicated that the movement is fairly significant. If you go back through the blogs you should find a link to several of the studies.

 
At 7/12/2012 8:41 AM, Blogger bart said...

While the number may not have dropped very much the composition is very different than it used to be. I know of people who were very well off but wound up losing almost everything because of a few bad bets AND the use of leverage.

Yes, there were certainly more than just 1 or 2 that went bust but my take is that they were mostly only "paper" and "new" multimillionaires, and likely leveraged to boot as you noted.

And we agree that the composition has changed, although my experience has been that the ones that have gone bust get way more press and notoriety than the ones who stayed fairly stable or grew.

The very newly rich as of before the crisis are like the newly rich of all periods (or most big lotto winners) - they don't have the real understanding of money and finance and risk management.

Do you agree that (most) high income or HNW folk virtually never see recessions?

 
At 7/12/2012 8:44 AM, Blogger bart said...

Number of millionaires, quick Google:

http://blogs.wsj.com/wealth/2011/06/22/u-s-has-record-number-of-millionaires/

http://money.cnn.com/2011/05/05/pf/millionaire_rise/index.htm

 
At 7/12/2012 8:57 AM, Blogger morganovich said...

this seems like it might be a bit of semantic hair splitting.

even if you lost half you money, anyone with over $4 million would still be a mutli millionaire.

of course, millionaires ain't what they used to be.

you'd need somehting like $10 million today to have the buying power of a millionaire in 1970.

i've never seen any data on inflation adjusted millionaires, but i suspect it would be interesting.

 
At 7/12/2012 8:59 AM, Blogger Jet Beagle said...

vengeIV: "While the number may not have dropped very much the composition is very different than it used to be."

vangeIV: "Mark has posted links to material that deals with mobility. Many of the interviews with researchers have indicated that the movement is fairly significant."


Oh, I see. When you said "the composition is very different", you just meant that the names of the people who make up the group "multimillionaires" is not the same as "it used to be".

I had misunderstood, thinking that you meant something had changed about the characteristics of the persons.

Also, I thought we were referring to wealth, not income. The research I've seen on this blog on others about economic mobility has been about income moility.

I doubt that the names of persons who make up a list of wealth multimillionaires changes much over ten years.

 
At 7/12/2012 9:10 AM, Blogger Buddy R Pacifico said...

Jet,

On Nordstorm's real growth I was referring to investment in on-line retailing. I see now you were referring to recent growth in revenue, so my aplogies -- growth in investment vs. growth in revs.

From this Seattle Times 6-14-2012 article:

"The company says it expects to spend some $600 million over the next five years on potential expansion into Canada, as well as a long-anticipated Manhattan store.

But Nordstrom also plans to spend $140 million this year, and close to $1 billion over the next five years, on its online operations."

 
At 7/12/2012 9:11 AM, Blogger Jet Beagle said...

Well, now this discussion between bart and vangeIV gets more confusing to me.

Bart is definitely referring to changes in wealth. One of the links he provided refers to the financial assets of households. The other refers to the net worth of households.

But VangeIV referred to research Mark has provided about income mobility.

vangeIV, have you seen any research which indicates that the composition of those having multimillion financial asset holdings changes much over the past 15 years? I use 15 years, because it was the dot.com and real estate periods which bart referred to.

 
At 7/12/2012 11:08 AM, Blogger Ken said...

bart,

Such wonderful language and awesome post content with lots of facts and thought too.

Seriously? Tell me where all the "awesome post content with lots of facts and thought" are for the bullshit statement: "The high income folk virtually never see recessions"

You lose...

Wrong. You lose. You make a baseless claim with no evidence to back it up and I call bullshit. Then your very clever response is for me to prove my claim, when the burden of proof is clearly on you.

But, just to be a sport about things, here's something maybe you can understand:

For 2000-2 recession income growth:
Top 1%: -30.8%
Everyone else: -6.5%

For 2007-9 recession income growht:
Top 1%: -36.3%
Everyone else: -11.6%

Try not to hurt yourself trying to explain how a loss of a third of your income is "virtually never seen".

Idiot.

 
At 7/12/2012 11:26 AM, Blogger Ken said...

Additionally, how many of the people in the 1% before the 2000-2 recession were in the 1% just before the 2007-9 recession? In other words, how many of those people who saw a huge drop in income actually saw there income increase again? Or did this permanently knock them out of the 1% making the recession the number one reason their income tanked?

 
At 7/12/2012 12:57 PM, Blogger Jet Beagle said...

Ken: " Try not to hurt yourself trying to explain how a loss of a third of your income is "virtually never seen"

I can't find the data right now, but I've read that capital gains account for a large share of the income of the top 1% each year.

Realized capital gains plunged after the last two recession hit:

U.S. Capital Gains reported

1999 - $552 Bn
2000 - $644 Bn
2001 - $349 Bn
2002 - $268 Bn

2006 - $798 Bn
2007 - $924 Bn
2008 - $498 Bn

I think many wealth holders choose to defer realizing capital gains when the stock market is temporarily down during a recession. After stock prices and other assets recover, they resume realizing capital gains. If you view the temporary drop as paper losses, then equity owners do not really suffer the 30% income losses your data show. Rather, those equity holders simply choose to defer income until asset values are restored.

 
At 7/12/2012 1:02 PM, Blogger morganovich said...

jet-

in many cases it goes even further than that.

if the market is tanking, you take the losses, realize them, wait out the wash sale period, then jump back in if that is your goal.

realized gains are a really tricky metric to use for capital wealth.

they tend to overshoot.

 
At 7/12/2012 1:16 PM, Blogger Jet Beagle said...

morganovich, that makes a lot of sense.

Let me restate to be certain I understand:

1. Stock market tanks

2. Investor sells stock and realizes loss

3. Investor repurchases stock 30+ days later

4. Investor uses realized loss to offset other capital gains

5. Income tax return shows lower than normal income

For some wealthy persons, then, recessions could be an opportunity to reduce their normal level of income taxes.

 
At 7/12/2012 2:36 PM, Blogger morganovich said...

jet-

it can be even more pronounced in taxes as a whole.

if you take a short term loss, you can offset it at your full federal rate, but if you hold gains until they are LT, you can pay much less.

$1 of short term loss can cover $2.33 of long term gains so long as you have regular income to shield.

such losses and the way they can be carried forward are one of the reasons that taxes lag income in recoveries.

 
At 7/12/2012 8:23 PM, Blogger VangelV said...

Oh, I see. When you said "the composition is very different", you just meant that the names of the people who make up the group "multimillionaires" is not the same as "it used to be".

Correct. The argument was that the multimillionaires did not suffer all that much because of the recession. Frankly, I don't buy it because the downward mobility is very robust even in good times. I suspect that many who used to be very rich but were exposed to debt and used a lot of leverage got wiped out but that the numbers are masked by newcomers to the group.

I had misunderstood, thinking that you meant something had changed about the characteristics of the persons.

No. I believe that there is always a class of wealthy who are in the position that they are in because of the themes that they chose. When bubbles burst many get wiped out but a new class of investors that is riding the new favoured wave comes to the top to replace them. I suspect that this time around the agricultural, energy, and precious metals investors will take the place of the investors in real estate and general equities, not to mention the people who put millions in treasury paper that yields less than the inflation rate.

Also, I thought we were referring to wealth, not income. The research I've seen on this blog on others about economic mobility has been about income moility.

I am talking about both. Obviously the income data is much easier to get so you find more of it. But we also know that all those 'investors' in tech stocks in the late-1990s and real estate in the mid-2000s wound up losing much of their net worth.

I doubt that the names of persons who make up a list of wealth multimillionaires changes much over ten years.

Perhaps not but if you go from having $100 million to $2 you still remain a multimillionaire but certainly can't live the way you used to.

 
At 7/12/2012 9:07 PM, Blogger VangelV said...

Oh, I see. When you said "the composition is very different", you just meant that the names of the people who make up the group "multimillionaires" is not the same as "it used to be".

I had misunderstood, thinking that you meant something had changed about the characteristics of the persons.

Also, I thought we were referring to wealth, not income. The research I've seen on this blog on others about economic mobility has been about income moility.

I doubt that the names of persons who make up a list of wealth multimillionaires changes much over ten years.


There has been a bunch of studies on the subject and the results are what you would expect. Because so much of American wealth was tied to asset classes like real estate it was really hard for you to lose everything or move down substantially unless you used a lot of leverage and could not ride out market volatility. That meant that people who were born into the top quintile were likely to stay there. Only around 50-60% of the children born to the top quintile wound up in lower quintiles. The last time I saw such studied was about a year or so ago thanks to a discussion here.

I think that at that time Google was pretty good at providing a number of studies, most of which tended to agree. Of course, I doubt that those studies included data from the 2008 collapse, which was rather unusual since it took out so many of the new real estate 'rich'.

 
At 7/12/2012 9:11 PM, Blogger VangelV said...

Seriously? Tell me where all the "awesome post content with lots of facts and thought" are for the bullshit statement: "The high income folk virtually never see recessions"


I think that our friend did not make his point well. My understanding was that they make so much money that even if you cut it in half they are still very rich compared to the rest of us or even if they have to sit on the sidelines without income for a few years their wealth should be enough to have them ride out the volatility.

My problem with that statement has to do with the use of leverage by so many rich people who should have known better. Sadly, many used borrowed money at the peak of the various markets that they entered because they were confident of being able to handle the pain over time. The big problem with that thinking is that some times the contractions last much longer than expected and that the Fed's put is not capable of letting all of the borrowers survive.

 
At 7/12/2012 9:18 PM, Blogger VangelV said...

Additionally, how many of the people in the 1% before the 2000-2 recession were in the 1% just before the 2007-9 recession? In other words, how many of those people who saw a huge drop in income actually saw there income increase again? Or did this permanently knock them out of the 1% making the recession the number one reason their income tanked?

One of the commentaries that I saw made the point that the 'rich' in the mid 2000s tended to be different people than the 'rich' in the 1990s who rode the tech bubble higher. There is always a new class of investor that makes it to the top in any bubble. The trouble for that class is that it does not tend to stay at the top for very long while the old money, which is more diversified and uses less debt as a rule tends to ride out the storms.

I have no trouble accepting an argument that says that the leveraged new rich tend to get wiped out when the bubble that created it blows up because that is the argument that I have made for a long period of time. And if Bart thinks about it I do not think that he would disagree with that statement. Frankly, I don't think he sees such people and tends to only think of the old money people who tend to have a longer stay at the top because most of that wealth was earned by doing something well and collecting the profits over long periods of time. Some of the richest people that I know had only a few investments and got rich from collecting dividends and from the equity that was built up over time through retained earnings.

 
At 7/12/2012 9:40 PM, Blogger VangelV said...

For some wealthy persons, then, recessions could be an opportunity to reduce their normal level of income taxes.

Yes, but only if there are capital losses to offset capital gains.

I live in high tax Canada. I took a year off in 2001 after 15 years of working full time but somehow found it much easier to make more money by not working and having an earned income and have never gone back to work. (Although I miss some of the structure.) Most of my income came from capital gains, which is taxed at a much lower rate. I am also exempt from paying into the government pension scheme, employment insurance, and even health care if I can manage. If I can offset a sale of a stock that gives me a large gain with a large loss I can even qualify for public assistance and get lots of free goodies thrown my way if I took the time to fill the paperwork. In the US the tax regime is just as favourable except for in high tax cities and states but even there it is hard to tax income that does not exist.

If it is possible for someone who has only worked for 15 years to retire for ten years and still have a higher net worth than when he began while spending more money than before retirement imagine how someone who is a lot wealthier can structure his business activities to take advantage of the different tax regimes. And imagine just how much harm the progressives are doing to the poor when they advocate such high tax rates that it is very difficult for them to ever get to a point where they can take the same approach.

 
At 7/13/2012 7:48 AM, Blogger Jet Beagle said...

This comment has been removed by the author.

 
At 7/13/2012 7:51 AM, Blogger bart said...

The 80/20 rule applies. In other words, the core roughly 80% don't really see any recessions and there are virtually zero effects on their real lifestyles.

I don't much care for the term "old money", but it also applies. Of course their total net worth drops, but they not only just ride it out but they have a sound understanding of real economics and history, or their advisers and money managers do. Dropping from $10M to $8M TNW or whatever makes zero difference to their lifestyle, although Fido may not have super gourmet dog food for a bit so that they can talk about how tough things are.

I strongly suspect that very few to none here know any multimillionaires, and are just going by PR based MSM pieces that show that they got hit.

Some did of course, or even lost almost all of their wealth and/or income as the nouveau riche and very poorly educated frequently do, but the huge majority just cruise on through recessions with virtually zero effect on their lifestyles.

 
At 7/13/2012 8:00 AM, Blogger Jet Beagle said...

Jetbeagle: "I doubt that the names of persons who make up a list of wealth multimillionaires changes much over ten years.

vangeiv: "Perhaps not but if you go from having $100 million to $2 you still remain a multimillionaire but certainly can't live the way you used to."

That's a very weak argument, IMO. You have no evidence that a significant portion of multimillionaires lost anywhere close to 98% of their wealth.

Most serious investors, like me, had diversified portfolios. We were touched a little by tech stock declines and later by real estate declines. But we certainly did not have all our funds in either. Furthermore, many investors in real estate - investors, not speculators - have recovered most if not all of the real estate wealth they lost since 2007.

 
At 7/13/2012 8:05 AM, Blogger Jet Beagle said...

bart: "I strongly suspect that very few to none here know any multimillionaires"

Oh, that's not true at all - at least if you define multimillionaire as anyone who has at least a $2 million net worth.

I think at least three of the posters here deal with multimillionaires as part of their vocations. I've been working with corporate executive officers on and off for 25 years. I also have relatives who are multimillionaires. (Unfortunately, I have more relatives who qualify for food stamps.)

 
At 7/13/2012 8:07 AM, Blogger Jet Beagle said...

bart: " but the huge majority just cruise on through recessions with virtually zero effect on their lifestyles."

I wouldn't agree with zero effect. But I think you are essentially correct that the majority of wealthy people remain wealthy people through recessions. And most likely become wealthier during recoveries.

 
At 7/13/2012 8:22 AM, Blogger bart said...

I probably should have said "very few truly know any multimillionaires on a *personal* basis, and know their full picture".

Working with or for them is different. They are notoriously not forthcoming with their full picture (being one of my primary points).

 
At 7/13/2012 11:08 AM, Blogger VangelV said...

Here you were arguing that the group of people who were multimillionaires over the past 15 years had changed, and was very different. What's important is that were trying to refute Bart's argument without offerring a shred of evidence.

I think that Bart has written that many of the new rich became rich from speculating in tech and is housing. Do you think that it is unreasonable to point out that once the tech and housing bubbles burst those new rich would lose most of their net worth? Or do you think that we are supposed to imagine they all managed to get out before the top? But even if they did someone somewhere had to take the loss.

Now, you're hedging your argument and saying you were referring to tech investors and real estate investors.

Not at all. The composition always changes. But the biggest changes tend to come from those that gained their 'wealth' quickly by speculating in asset bubbles. I know many former Nortel millionaires who lost most of their net worth in a very short period of time. In fact, I could argue that some make it in and out of the category so quickly that they are not even captured by the data gatherers.

The problem, vangeIV, is that you have no evidence whatsoever to show that the total group of multimillionaires today is very different from the total group of multimillionaires in the late 1990s.

Of course I do. Look at Jim Cramer and all of the other paper 'multimillionaires/billionaires' who lost massive amounts during the tech bust.

Now I will admit that it is easier to find the data for income and check the persistence. But that does not mean that we can't look at the data and see what is going on. For example, we do know that household net worth fell by around 25% from 2007 to 2009, roughly the equivalent of one year of GDP. We also know from the data that one of the biggest sources of wealth in the US comes from home ownership. I will argue, that many of the new millionaires in the US during the mid 2000s became millionaires because of the increase in the value of their homes and other real estate holdings. I would also argue that when housing prices collapsed many of these people found themselves with homes that were worth less than the mortgages that were taken out on those homes. Since real estate prices have yet to recover it is very doubtful that the same group of speculators made up the 'new millionaires' that have appeared since the collapse.

Now you can close your eyes and reject the idea that when bubbles burst those that got rich of them will lose much of their wealth but I cannot see how you can support such claims.

 
At 7/13/2012 11:30 AM, Blogger VangelV said...

I strongly suspect that very few to none here know any multimillionaires, and are just going by PR based MSM pieces that show that they got hit.

That is not true. I know many former Nortel millionaires who got wiped out and plenty of people who took major losses on commodities during the 1970s (yes, the 1970s and the 1980s.) My former boss had a number of units in Arizona that were valued at more than several million before the bust. His widow walked away from them. One of my friend's kids purchased a flat in Spain from an English couple for less than €200 K just a year or so after they had purchased it for €850K. He pointed out that some of the losses in California were just as great. He has been providing me with commentaries that appear on the Dr. Housing Bubble Blog, some of which have been cited on this thread a few times before if memory serves me correctly. As has been shown on the site, the housing price correction was massive, which means that many of the people who became millionaires because of their home equity in the mid 2000s quickly reverted back to their previous levels and fell out of the category.

 
At 7/13/2012 11:55 AM, Blogger bart said...

As I said above, I probably should have said "very few truly know any multimillionaires on a *personal* basis, and know their full picture".



Also The 80/20 rule applies. In other words, the core roughly 80% don't really see any recessions and there are almost zero effects on their real lifestyles.

I don't much care for the term "old money", but it also applies. Of course their total net worth drops, but they not only just ride it out but they have a sound understanding of real economics and history, or their advisers and money managers do. Dropping from $10M to $8M TNW or whatever makes zero difference to their lifestyle, although Fido may not have super gourmet dog food for a bit so that they can talk about how tough things are.

...

Some did of course, or even lost almost all of their wealth and/or income as the nouveau riche and very poorly educated frequently do, but the huge majority just cruise on through recessions...

 
At 7/13/2012 12:27 PM, Blogger VangelV said...

Most serious investors, like me, had diversified portfolios. We were touched a little by tech stock declines and later by real estate declines. But we certainly did not have all our funds in either. Furthermore, many investors in real estate - investors, not speculators - have recovered most if not all of the real estate wealth they lost since 2007.

First, most of the millionaires added in the 1990s and 2000s were speculators in tech and housing. While the top 20% in any segment tend to own 80% of the assets the rest of the 20% is spread among the 80% who make up that class.

Second, many of the 'investors' that I am talking about were nothing of the kind. They kept most of their equity in the asset class that delivered them the most gains even as they leveraged up as they added more debt. The people that I am talking about had most of their wealth in tech or housing. And those people are very far from recovering their losses.

 
At 7/13/2012 12:42 PM, Blogger bart said...

... many investors in real estate - investors, not speculators - have recovered most if not all of the real estate wealth they lost since 2007.

The huge majority, especially in the "hot" markets are still down very substantially, given that we're currently only a few percent off the 2006-7 highs.

 
At 7/14/2012 12:32 AM, Blogger Jet Beagle said...

vangeiv: "First, most of the millionaires added in the 1990s and 2000s were speculators in tech and housing."

I don't believ you have any evidence to support that assertion.

Research by Thomas Stanley, Russ Alan Prince, Lewis Schiff, and others has shown that the most who achieved non-residential net worth of over $1 million did so by simply saving slowly over their adult lifetimes.

A huge number of us did so by the simple practice of dollar cost average investing. Through regular payroll deductions, we invested a fixed percentage of our salaries for many years. Simple dollar cost averaging allowed us to buy more shares (through mutual funds) when the market was down and fewer sahres when the market was high. Dollar cost averaging is how one's net worth hcould triple since 2000 despite a market which hasn't risen much.

Many of us achieved millionaire status by building simple businesses - auto body repair shops, restaurants, air conditioning repair services, ministorage units, and janitorial services for example.

High tech and real estate may have gotten all the glitter over the past 15 years. But it was the mundane success stories which account for the far larger number of millionaires.

 
At 7/14/2012 7:07 AM, Blogger VangelV said...

I don't believ you have any evidence to support that assertion.

Research by Thomas Stanley, Russ Alan Prince, Lewis Schiff, and others has shown that the most who achieved non-residential net worth of over $1 million did so by simply saving slowly over their adult lifetimes.


That is clearly true in general but not during bubbles. When you have bubbles most of the new millionaires are added because of participation in those bubbles. Nortel created thousands of millionaires in Canada when pensions exploded in value over a short period of time. They were all gone when the bubble burst. The same was true of the millionaires created during the housing bubble. You buy a home for $400 in 1997 with 25% down and by the time 2006 comes around you have around $1 million in capital gains alone just from your own home. The real estate bubble caused the number of NEW millionaires to explode in the US just as it did elsewhere.

A huge number of us did so by the simple practice of dollar cost average investing. Through regular payroll deductions, we invested a fixed percentage of our salaries for many years. Simple dollar cost averaging allowed us to buy more shares (through mutual funds) when the market was down and fewer sahres when the market was high. Dollar cost averaging is how one's net worth hcould triple since 2000 despite a market which hasn't risen much.

What you say makes sense to some extent. Over the long term the market provides wonderful returns. But someone who had $1 million in the market in 2000 is looking at a very large real loss on his holding from that time even though the markets have recovered somewhat in nominal terms. And if you look around, the markets are just as vulnerable to real losses today as they were in 2000.

Many of us achieved millionaire status by building simple businesses - auto body repair shops, restaurants, air conditioning repair services, ministorage units, and janitorial services for example.

I do not dispute this. But this way of saving and increasing wealth does not add a huge number of new people in a very short period of time. As I said above, "most of the millionaires added in the 1990s and 2000s were speculators in tech and housing." This does not mean that people who had small businesses nothing to do with housing or tech did not do very well and could not become millionaires. It means that the greatest increase in numbers came from the bubble itself.

High tech and real estate may have gotten all the glitter over the past 15 years. But it was the mundane success stories which account for the far larger number of millionaires.

I do not disagree with this. My entire augment was with the statement that millionaires did not feel the recession much. I am simply pointing out that the statement may be true for many of the people who earned their status as you stated but not for the new ones created by the bubbles. They were washed away and lost their fortune as quickly as they had made it.

But even for those who made their fortunes as you stated, when the other bubbles burst they were under stress because they found themselves with less access to financing, delinquent customers who could not pay, and price pressures that had to be incorporated in future business plans during the volatility. When the housing bubble burst millions of small business owners shut those businesses down. You make a simple error because of the survivorship bias. For every millionaire who opened up a small business and worked it for a long period of time there are hundreds who crashed and burned and are nowhere to be found in the statistics. I believe that Nassim Taleb had a great commentary on this. If I can find it I will provide a link.

 
At 7/14/2012 7:57 PM, Blogger Jet Beagle said...

vangeiv,

As I suspected, you have no evidence to support your assertion.

You did not argue that high tech and real estate were the source of most millionaires during very brief bubbles, You said that was the case during the 1990s and 2000s. You are dead wrong, and the evidence provided by the three researchers I referred to shows that you are.

 
At 7/14/2012 9:27 PM, Blogger bart said...

I have no trouble accepting an argument that says that the leveraged new rich tend to get wiped out when the bubble that created it blows up because that is the argument that I have made for a long period of time. And if Bart thinks about it I do not think that he would disagree with that statement.

In general, I do agree.

The Rockefellers basically stayed amongst their multimillionaire group in the 30s. The Kennedys joined them. Others jumped off buildings.

 
At 7/14/2012 9:52 PM, Blogger VangelV said...

As I suspected, you have no evidence to support your assertion.

You did not argue that high tech and real estate were the source of most millionaires during very brief bubbles, You said that was the case during the 1990s and 2000s. You are dead wrong, and the evidence provided by the three researchers I referred to shows that you are.


You cited a book that was written before the crash in 2008 that could not even look at the millionaires who disappeared with the tech bubble because they were no longer of interest to the authors. This is where Taleb's survivorship bias critique comes in. And don't you think that the 'millionaires' who were interviewed made their money in real estate? If you don't I suggest that you look at page 3 of the book. Why do you suppose that most of the millionaires were found in the east and west coasts where prices of real estate rose the most? I guess you missed the story of millionaire David Martin, a contractor who built housing, in Chapter 3. How do you think that Mr. Martin got rich in the first place? Don't you think that contractors, people who own carpet installation businesses, plumbing businesses, electrical installation businesses got rich during the housing bubbles. Those modest little businesses provided the great returns that they did because of the bubble. This is no different than owners of small IT related businesses becoming millionaires in the late 1990s.

The next time you cite a book I suggest that you take a look inside it. Thomas Stanley, Russ Alan Prince, Lewis Schiff do not disprove my assertion but support it. The problem with them is that they cannot look at people who became millionaires during the last bubble and lost their fortunes again, or all of the small businessmen who lost everything and had to start over again. As Taleb points out, you might want to look into survivorship bias when you read books such as these.

Keep in mind that we are all ignoring one class of millionaire. That is the parasite class who works for the government and takes home a huge salary and builds up massive equity in their union negotiated pension. I imagine that there are as many of these type of millionaires as there are small businessmen who made it.

 
At 7/14/2012 10:28 PM, Blogger jdt said...

wtf is a couche-tard?

 
At 7/15/2012 7:51 AM, Blogger VangelV said...

The Rockefellers basically stayed amongst their multimillionaire group in the 30s. The Kennedys joined them. Others jumped off buildings.

And the people who do studies don't ever consider those that jumped off buildings or became very poor. They only look at the survivors and draw false conclusions because of their simple error.

 

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