Two reports came out this week: Forbes' annual World's Billionaires list, and the Federal Reserve's Flow of Funds, which tracks average household net worths. Compare the two, and you get a nice snapshot of how billionaires fared in 2009 versus us mere mortals.
And to put it mildly, they gave us a pants-down spanking.
Big year for big money
The combined net worth of the world's billionaires rose to $3.6 trillion, up from $2.4 trillion the year before -- a 50% surge. Meanwhile, the Flow of Funds report shows total household net worth in the fourth quarter of 2009 rose to $54.2 trillion, up from $51.5 trillion the year before. That's a whopping gain of just 5.4%.
Now, this comparison isn't perfect. For one, there were more billionaires this year than last. So someone worth $950 million in 2009 and then $1 billion in 2010 wasn't counted in last year's Forbes report, but gets all $1 billion thrown into this year's calculation. Second, let's be fair: Scads of the world's billionaires are financiers that would have been shirtless bums had it not been for bailouts of the financial system. Money seems to buy these people a lot of luck.
Even so, most billionaires legitimately ran circles around us commoners. Why? Give a big thank you to global stock markets, which surged 60% or more since early 2009. Run down the list of billionaires, and you'll be hard-pressed to find one whose net worth isn't largely (if not entirely) tied up in a company's equity. From Bill Gates with Microsoft (NYSE: MSFT ) to Warren Buffett with Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) to Sergey Brin with Google (Nasdaq: GOOG ) , the wealth of most billionaires is married to the stock market in one way or another. The top 50 billionaires include those overwhelmingly linked to the performance of Wal-Mart (NYSE: WMT ) , Dell (Nasdaq: DELL ) , and Amazon (Nasdaq: AMZN ) stock, to name a few.
Most of these people rarely sell shares in meaningful amounts -- they're permanent owners. That's how they got rich in the first place. And since they were heavily invested last year, they got rich[er] real quick when stocks surged.
That was hardly the case with us average folks. Late 2008 and early 2009 was a time of dumping stocks and diving headlong into bonds and cash. When stocks went skydiving in 2008, $233.8 billion was yanked out of stock mutual funds. Then just as stocks began one of the biggest rebounds in history, $376.3 billion was plowed into bond mutual funds, some yielding close to nothing. So even as stocks surged last year, plenty of small investors didn't notice. They were long gone. Their timing couldn't have been worse.
I know it's not terribly enlightening to tell you that those who owned the best-performing asset class outperformed those who didn't. And you could also note that most of us have way more of our net worth tied up in housing than billionaires, and real estate stunk last year. Oh, and how about the fact that the stock-loving billionaires got slaughtered in 2008 when markets imploded? Can't argue there.
But there's a deeper point here. The billionaires who keep their emotions grounded and stick with great companies end up crushing those who faint when they hear Peter Schiff talk and manically jump into whatever investment feels best at the moment. I looked; there isn't a single billionaire whose fortune is attributed to "dumping stocks when everyone else was and buying bond funds yielding 0%." That's what they've avoided. But that's what so many of us have done.
And maybe that's why they're billionaires, and we aren't.
How did you fare in 2009? Let us know in the comments section below.