Q. How do you make a million dollars?
A. Start with two million.
That's an old joke, and it reflects a major loss -- of a million dollars. Most of us have lost some large sums one way or another, but few of us have lost that much. Still, there are actually a bunch of people who have lost billions -- and their stories are not only interesting, but sometimes instructive.
What's a billion?
First, though, let's take a moment to appreciate just how significant a billion dollars is. With just a single billion dollars (and many of the people we'll get to soon have made and lost many billions), here's what you could buy:
- 4,000 houses at $250,000 apiece
- 1,000 million-dollar homes
- 20,000 cars that cost $50,000 each
- 250 yachts that cost $4 million each
- 10,000 employees who cost $100,000 each for a year
- 82 CEOs at the recent average annual salary of $12.2 million for S&P 500 CEOs
- All of Sears Holdings at its recent market capitalization
- All of Barnes & Noble at its recent market capitalization
- All of Weight Watchers International at its recent market capitalization
- All of both Eastman Kodak Co. and The Container Store
- Four years of college for 6,250 students at $40,000 per year
- 167 around-the-world 25-day-long trips for 80 people on a private jet
- The Baltimore Orioles baseball team
Clearly, a single billion dollars is a lot of money. Here are 10 billionaires who lost all, or close to all, of their vast fortunes:
Bernie Madoff -- he made off with other people's money
Bernie Madoff entered the annals of financial history by swindling many wealthy people out of tens of billions of dollars in the largest Ponzi scheme in history. It's estimated that before he went to prison, sentenced to 150 years, he was worth about $17 billion. Not much remains. The biggest lesson this story offers us is to be very wary of hard-to-believe financial claims or promises.
Eike Batista -- the richest man in Brazil
Eike Batista fell a long way. At his financial height, he was the richest man in Brazil -- a nation with more than 200 million citizens. He made his money largely via Brazilian natural resource companies but also carried a lot of debt. When the businesses crashed, so did his net worth, falling from an estimated $35 billion to less than $300 million -- that's a drop of more than 99%, by the way. Interestingly, after a priest suggested to him that, "everything he had taken from the sea has to be returned in some way and this could be done by a ritualistic gesture showing gratitude," Batista tossed gold coins worth more than $150,000 into the ocean.
Elizabeth Holmes -- bad blood
Elizabeth Holmes was praised in the press for years, as the CEO of Theranos, an exciting start-up that promised to revolutionize medical testing with inexpensive blood tests. Her 50% stake in the company was worth an estimated $4.5 billion at one point -- but Forbes magazine recently listed her net worth at zero. Allegations of fraud brought down Theranos and Holmes, followed by lawsuits and sanctions.
Michael Pearson -- raising prices wasn't enough
If you're familiar with Valeant Pharmaceuticals, you probably know that its stock crashed more than 80% in 2016 amid investigations and criminal charges against at least one former executive. You may not know as much about its former CEO, Michael Pearson. He was a billionaire not so long ago, raking in $182 million in compensation in 2015 alone. But with Pearson at the helm, Valeant acquired dozens of companies, took on a lot of debt, and hiked prices of many drugs -- a formula that didn't lead to great success. Pearson, meanwhile, was a billionaire on paper, and made big donations to Duke University with borrowed money
Aubrey McClendon -- brought down by foul play
If the name Aubrey McClendon is familiar, it's because he used to head up the successful Chesapeake Energy company and its high-flying stock. That stock is down close to 90% from its peak, though, and with its massive debt load, bankruptcy isn't out of the question, despite a surprisingly profitable third quarter. (Chesapeake's debt soared from $1 billion to $13 billion between 2000 and 2010.) McClendon died in a fiery car crash in March of last year, setting off speculations of suicide because of his being indicted a day before the crash, charged with conspiring to rig bids. More recently, the death was deemed accidental; McClendon did have a history of driving fast and recklessly. In 2011, McClendon's wealth was estimated at $1.2 billion before Chesapeake's stock imploded. A lesson here is that taking big risks and running up massive debt can be crippling. Even in his personal investments, he used margin, investing with borrowed money, and faced margin calls.
Vijay Mallya -- the "King of Good Times"
VIjay Mallya isn't a household name in the United States, but he's quite well known in his native India, where he was the wealthiest liquor baron and owned the now-out-of-business Kingfisher Airlines, as well. He was reportedly worth around $1.5 billion at one point, but lost his fortune in large part due to massive debts and lavish spending. As authorities were getting close to charging him, he left the country. His passport has since been revoked, he's living in exile, and authorities are attempting to extradite him. Mallya's story reminds us that even when you have gobs of money, it's possible to overspend and that debt can ruin people at all levels.
Patricia Kluge -- sold to Donald Trump
Patricia Kluge made her fortune through marriage, reportedly collecting $1 billion and an annual $1 million after divorcing Metromedia founder John Werner Kluge, who had been the richest American at one point. That seems like enough money on which to live comfortably for the rest of one's life, but like many investors, Kluge made some bad investments -- and racked up many millions in debts, too. The key failed investment was a vineyard in Virginia that Donald Trump ended up buying for a small fraction of what she had spent on it. Kluge ended up declaring bankruptcy.
Alberto Vilar -- bad investments, and worse
Back before the internet bubble burst, Alberto Vilar and his Amerindo Investment Advisors company had made lots of money investing in young high-tech companies that would soon head south. He was, at one point, estimated to be worth more than $1 billion. By 2008, though, he had been convicted of multiple counts of fraud and, some time later, sentenced to nine years in prison. A lesson to steer clear of fraud is obvious, but just as important is the lesson to not follow crowds into high-flying stocks without taking the time to determine whether they're overvalued.
Masayoshi Son -- lost $70 billion and still a billionaire
SoftBank, Japan's largest telecom and internet company, was founded by Masayoshi Son, who once had a net worth close to $80 billion. When the internet bubble burst, it sent shares of Softbank down 98% and led to Son losing more than $70 billion -- estimated to be the most money that anyone has ever lost. He's not living in a van down by the river, though. The Forbes list of billionaires recently ranked him as the 82nd richest person, with a net worth near $21 billion. Softbank has a controlling interest in American telecom company Sprint, and is planning to separate its Japanese and international businesses into two companies.
Warren Buffett -- giving it all away
Warren Buffett, who has headed the Berkshire Hathaway conglomerate for more than 50 years, has been the world's richest man for a bunch of them. He's currently the third-richest person on earth, with a net worth topping $70 billion. So how did he lose his fortune? By giving just about all of it away. The billionaire pledged in 2006 to give away "more than 99%" of his fortune, with much of it going to the Gates Foundation. He has reportedly given away more than 30% of his fortune already and gives away several billion annually. Charitable giving is also a win-win move for those of us with smaller fortunes, as there are tax breaks available for us and the recipients can do wonderful things with the donations. Author J.K. Rowling, of the Harry Potter series, is another billionaire whose fortune shrank due to sizable charitable donations. (Significant tax hits in her native United Kingdom also played a part.)
There are valuable life lessons to be learned by paying attention to the successes and failings of people in the news.