How Do Bankers Become Billionaires?
The internet tells me that the likes of Jamie Dimon and Lloyd Blankfein make at most around 30 million in a good year as CEOs of prominent investment banks, and that's not even factoring in tax. The internet would also have me believe that both of those guys are billionaires. That math doesn't add up so what gives? Is the remainder of their income from appreciation of assets? If so then they must make more in capital gains every year than they do from actually doing their job.
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by starting a bank
Ah yes, Lloyd Blankfein and Jamie Dimon, the proud founders of Goldman Sachs and JP Morgan, respectively.
An industry that produces so many millionaires will necessarily produce billionaires as a few of those millionaires invest in the right ventures and see their assets rise exponentially. That's not how bankers become billionaires, that's how anyone becomes a billionaire. No one is paid a billion dollar bonus. Dimon got there by investing in the businesses he helped grew, even buying up shares. Now his wealth is those shares, and what he had to sell but is now reinvested all over the financial world. Roughly half of his wealth is just the stock in his bank.
The only people actually paid billions in cash are HF managers and athletes like LeBron or Mahomes
Lebron James and Patrick Mahomes aren't being paid billions in cash...
CEOs of mega public companies like that have stock options worth a lot more than the face value that shows up in their reported comp if they hit targets somewhere close. Add golden parachute like Rex Tillerson got or people getting bought out - you are in billions without having to gamble on next great start up.
Just to take the startup perspective from this: if you want to be a bank executive it's true that you're not gambling on making it big as an entrepreneur, but you are absolutely gambling in a low probability repeated tournament game. With a startup, you can legit just find a part of the market that everyone else has overlooked (Sara Blakely with Spanx comes to mind actually) and not have competition for a long time while everyone else thinks the idea is dumb or too early. Being a high tier investment banking CEO is something that a shitload of super smart, ambitious, and well-connected undergrads and MBAs would love to become someday and they join the market in the thousands every year - so to make it to that level, you have to hit a dice roll on basically every single sorting event (promotion, grad school, high tier interviews, bonus season) for your entire life starting at like age 18 to get there, definitely a low probability outcome with plenty of luck involved (in other words, a gamble).
Most of this is on wiki but pretty sure Lloyd was a partner when Goldman went public and he made 9 digits on that piece alone. Also his compensation from 06-07 was another 9 digits. Also he was COO for 3 years before becoming CEO. He's probably been making $5mil+ a year since he was head of commodities in 1994, and since he made COO in 2004 has been making $30 million a year for around 15 years. A lot of that is the value of his stock the day he is paid but the options overtime end up being worth more.
Jamie Dimon similarly has accumulated over a half a billion dollar position in JP Morgan over his time as CEO. He was CFO of Commercial Credit at age 30, that turned into Citigroup. Then he was COO of JPM in 2000 until he became CEO. He has probably been making $5mil+ for 30 years and over the last 20 years $20mil+.
You also have to remember that these guys have access to the best hedge funds, the best private equity firms, and have the skills and the network to place their money in a position to not only hedge against the rest of their wealth but grow at above average rates of return.
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Whilst you're absolutely right, picturing a prospect who's never worked an hour in his life lecturing others on wageslaving isn't a good look
No one gets rich off income - literally no one.
It's all stock options / warrants / RSUs / carried interest - it's all capital appreciation. In a capitalist system there are the people who own the capital and everyone else. Everyone else is an employee. The vast vast majority of all PE / hedge fund individuals who achieved billionaire status did so as the founders of their respective firms (so basically a start-up that achieved scale and success only in finance and not tech).
The only people that ever become billionaires are CEO’s and Founding partners of very successful businesses think companies with global footprints. Bankers that don’t go on to start the next Goldman Sachs will never be billionaires.
Even an MD at a major investment bank after 40+ years of work is worth 20-30MM and that’s if he/she repeatedly hits home run deals over the span of decades.
The same holds true for Lawyers, Venture Capitalists, Doctors/ Surgeons, Hedge Fund PM’s, etc. at the partner/head of division level at the biggest firms and practices.
The only way to make more than that is through god-tier investing and careful planning or to start something of immense value.
CEO’s of tech companies sometimes don’t even make that kind of money. Sundar Pichai the CEO of Google is barely a billionaire. However Larry Page and Sergey Brin are billionaires because they started the venture in the first place. So in most cases you can’t even be a billionaire unless you are the CEO and Founder/ own 20% of your venture. Famously talented senior staff at major tech companies aren’t billionaires take Angela Ahrendts (Ex-SVP of Apple) for example.
Honestly the difference in quality of life between someone worth 50MM and 1Bn is minuscule. The most expensive houses on the market are worth on average 20-25 MM. A fleet of the best cars is another 5M (500k - 3mn per car). A designer wardrobe is worth at most another $300k (anything beyond this level is ridiculous) a great suit is like 8-12k * 10 = 80k to 120k the rest are basically casual clothes can you actually spend more than 180k on casual clothes, shoes, deodorant, cologne, shaving cream for the rest of your life? Can you really spend an additional 19.7M on vacations, food, investments, medical bills? A top tier 12 course dinner for one is 500$ you can buy well over 39,000 meals. If you lived for 100 years and consumed a 500$ dinner from birth you would consume only 36,500 of those meals. This is akin to being married for 50 years and buying the dinner for two.
Why the fuck would anyone want to be a billionaire. That’s too much money. There’s so few billionaires that you would almost definitely be recognizable everywhere you go. Isn’t it better to be an anonymous person worth maybe 30MM than to be a billionaire? I’d trade privacy for bragging rights any day.
Therefore, in my opinion, the question should be “how do I become an MD?” rather than “how do I become a billionaire?”because so few people can accurately answer the question of “how do I (an engineer/ wannabe investment banker) become a billionaire?” none of whom are on WSO. Alternatively there are numerous MD’s on WSO.
This ends my rant.
As someone who has wealth management experience, you definitely are not recognizable on the street being in the 3 comma club. I've seen client's worth several hundred million dollars whom you would never recognize their name. You're definitely right in the fact that these people start very successful companies, but I wouldn't say you have to start a Google level company to amass that level of wealth. One of our larger client's currently keeps just around $1b at the firm +/- $100mm, is personal friends with Jamie Dimon whomst he sends money to JPM for personal investments regularly(most recently $140mm), but you would be lucky to find much more then a few paragraphs of information on him on the internet. The story of how he amassed his wealth is admirable and impressive, and he absolutely made serious sacrifices, but his quality of life is incredible and much different than that of someone worth 30-50mm. He's definitely the exception rather then the rule to making that level of wealth, but it's possible.
"Honestly the difference in quality of life between someone worth 50MM and 1Bn is minuscule"
That is a very big gap and the quality of life is very different. $50MM is a lot, but you don't have unequivocal financial freedom. I have worked with my fair share of clients and MDs who are worth ~$50MM and quite a few clients/founders that are worth $1bn+. the lifestyles are dramatically different.
The $50MM guys are living very comfortable lives no doubt - typically a nice primary home in NY/CT with great secondary homes in the Hamptons and/or Palm beach etc, nice cars, kids go to good schools, will often charter flights but will still fly commercial.
The billionaires are in a completely different league - multiple homes over multiple continents, ownership of private planes (emphasis on the plural), mega yachts, family office, the ability to pursue whatever philanthropic cause they want, access to selective/exclusive opportunities and investments, and the list goes on. Rich enough to not waste time
The difference between a multi-millionaire and a billionaire is political / societal influence.
When you have billion(s) of dollars (and all that is associated with that) - you realize that everything has a price, including national politics. You are in a position to - in a small way- shape how the world works either to suit your ego, or because you genuinely believe that you can make the world a better place (see - Trump, Bloomberg, Seyer, Corzine, Hank Pauslon - not sure the last two were actually Bn but you get the point).
You become a billionaire by owning an extremely successful company. That's pretty much it. I suppose if you are extremely successful investing, hit a generational home run, then maybe you get close too. But if you're a super-successful banker/trader/etc... lets say you pull down an average of $25mm a year for 20 years. That's completely unheard of, as far as I can tell, and you're still only halfway there. That's before taxes.
Without knowing or going through the individuals, I'd bet 99% of the world's billionaires, or even anyone within a couple hundred million, got there through either inheriting or building a non-finance related business. No one did it as an employee.
The entire point of having an employee is that they generate more value for your business than you pay them. So, if you are employed by someone else in any capacity, you are theoretically giving up compensation in return for taking less risk. The flipside is also the case, which is why billionaires own businesses - they're scraping some percentage of value off every person in their employ. Of course, they also take risk, and risk is the name of the game. The more you take the more you'll make.
Having a billion dollars is a different way of saying you have accumulated the fruits of the efforts of countless people over a very long period of time (capital) and the controlling say over where the efforts of countless more get directed in future (asset allocation). Thinking of wealth in terms of consumption is only one aspect. I find it better to think of money in terms of human time. There's a natural limit if you are only accumulating the fruits of your own time. The unit price of your time might be high (banking, doctor, lawyer) but you need to capture units from other people to build serious capital.