Episode 033 – Cash Poor
Rick: Welcome to Market Insights from Southwest Investments. Today we’re going to be talking about something that I know many of you would be interested in because quite a few people want to be rich, but what is rich? One of the things that I have found very difficult to explain, I have an accounting background in addition to finance, and there is a very distinct difference between being cash rich and paper rich.
What we’re going to be talking about today is Elon Musk. Elon recently in the news has been talking about selling off all of his physical possessions and what that’s going to do. We’re going to dig into what that actually means because there are many people that are stock rich that they own a lot of companies, but in the end, that really doesn’t mean anything unless they can turn that company into something and make a sale to someone.
I think we’ll talk about that in maybe a future webcast because, not to get into too many details, but basically sometimes those companies that are sold by the owner are purchased by, let’s just say some sort of a financing company. I don’t want to dig into and name anybody, but basically what happens sometimes is they take on a lot of debt.
We hear this in the news of companies being burdened with debt. It’s because of some sort of buyout of the existing ownership. Well, that’s what’s happening. That owner is moving from being stock rich to cash rich.
That’s the dream of every American that is in business, to be able to sell their company. Everyone wanted to be bought by Google at some point because Google had all the money to do things. We’re going to be talking about those things. Bart Schannep is going to join me to explain what this ‘cash poor’ means and why Elon Musk is in this predicament.
Bart: Thank you, Rick. It’s good to be on again and good to see you. Yes. Elon Musk is a unique fellow, but the situation he’s in is not unique, especially to entrepreneurs. It’s called being cash poor. What does that mean? Okay, Elon Musk owns Tesla, the car company, SpaceX and a number of other assets. His net worth is estimated to be around $39 billion with a B.
The problem is that’s what he owns. That’s what it’s worth, but he spends all the money he has, and he has no cash. It’s been in the news and confirmed by various media that he is selling all of his assets that he can. He is selling his houses. He has multiple houses. He’s selling all of his belongings, trying to raise cash so he can simply live.
He owns stock, absolutely, but much, if not all of it is restricted, meaning because he’s the owner or restricted meaning that because he’s the owner he can’t sell it, or the shares that he can sell, he’s afraid to let go because he may lose controlling interest of his companies. He is retaining ownership of his companies and is probably moving into a rental.
Unbelievably, a 39 billionaire is selling houses so that he can move into a rental that he can afford to live in. Now, we’ll see how long this lasts. As I say, he’s a unique fellow. He’s currently suing California, his city in California because of the COVID-19 stay-at-home orders that his factories can’t work if everyone’s required to not be at work. He’s suing the city that he’s in, Alameda, and he is seriously looking at moving out of California. Now, we’ll see how that goes.
I am surprised that Tesla that survives to a great extent to federal tax rebates on buying these battery cars has now established a factory in China, which means U.S. taxpayers are supporting his factory in China. Now as he looks to other states, California may be upset that they gave him a lot of tax breaks to be there in the first place, so a little trauma and drama. We’ll see where it goes.
Rick: Thanks a lot, Bart. Interesting perspective and evidently not an uncommon situation for entrepreneurs, like you had said and as I explained a little bit earlier in the broadcast here. I find it always very interesting explaining the difference on cashflow because that’s really what it is. For you accountants out there, that’s what we’re talking about, cashflow versus the income statement. Very, very different things and essentially very difficult to really conceptualize.
Thanks Bart for your insight on that. I appreciate you joining us this morning. Thank you for joining us as well. We appreciate you coming, watching the show, giving us your comments and interesting takes on what we have to say. Keep those comments coming. I appreciate it, and we’ll see you next week.