What’s the fastest way to end up with a million dollars? Starting with two million dollars.
It can take a lifetime to build a fortune but only a few bad decisions to lose it all. No matter how much money you have, it is possible to wind up with nothing; and recently a number of famous billionaires have done just that. Whether you have $100,000 or $100 million, you can make the same mistakes. Consider yourself warned.
Loss: Over $30 billion
Reason: Over-promised and under-delivered on business results
Just a few years ago, Brazilian entrepreneur Eike Batista was one of the 10 wealthiest people in the world with a fortune that surpassed $30 billion. Most of that money came through his equity holdings in publicly traded conglomerate EBX Group and related holdings in the oil, gas, logistics and mining sectors.
The value of this equity was largely due to Batista’s claims regarding the company’s energy reserves, revolutionary efficiency and operating prowess. But as his companies went public and were subject to greater scrutiny, a different reality started to emerge. His companies had vastly overstated the oil and gas reserves they earned; operating and profit targets were missed; Batista lost his credibility and the stock prices of his companies plummeted over 99 percent. His energy company OGX, the crown jewel of his empire, recently filed for bankruptcy.
Loss: $1 billion
Reason: Bad investments
Halsey Minor was one of the most prolific technology entrepreneurs of the past 20 years. He founded the technology publishing empire CNET in 1993, took it public in 1999 and sold it to CBS for $1.7 billion in 2008. He took the profit from the CNET sale and reinvested it in cutting-edge technology companies that achieved tremendous success, including Vignette Software, GrandCentral (sold to Google and became Google Voice) and Salesforce.com, which is publicly traded with a market capitalization in excess of $30 billion.
Despite all his financial success and uncanny ability to invest in technology superstars, his fortune couldn’t survive the bad investment decisions he made. He poured capital into non-technology businesses that he didn’t understand as well, and in just five years he lost his billion-dollar fortune, filing for Chapter 7 bankruptcy protection in May.
Loss: $1 Billion
Reason: Reckless spending
Patricia Kluge earned her billion the old-fashioned way: She married into it. The ex-wife of industrialist John Kluge, Patricia walked away with $1 billion from her divorce settlement. Thinking this money would last forever, she purchased a $100 million mansion and began living a lifestyle that cost in excess of $1 million per week for years on end. Thinking that she was untouchable, she invested what remained of her fortune in a winery business. But sadly, drinking expensive wine doesn’t prepare you for cultivating it, and the venture went bust. She is now broke. The $100 million mansion was sold to Donald Trump in 2011 for a relatively paltry $6.5 million. Ouch.
Larry and Kristina Dodge
Loss: $1 billion
Reason: No diversification
Former Marine Lawrence Dodge founded American Sterling Corp., an insurance company in the late 1970s. The company was successful and over time expanded into other services, culminating in the launch of American Sterling Bank. The bank became extremely successful, leading to the Dodges achieving a net worth of nearly $1 billion. But when the banking crisis of 2008 hit the country, the bank also suffered. The Dodges invested what money they had outside of the bank into the bank in an attempted to see it through the crisis. Then in April 2009, the Office of Thrift Supervision accused the Dodges of misrepresenting the financial condition of the bank and in one fell swoop took over the bank and sold it. The Dodges had all their money, even their $9 million mansion, in the company’s name. They were left with virtually nothing. The Dodges now have personal liabilities in excess of $20 million and are living on less than $4,000 per month in social security income.
You may not be a billionaire (yet), but whatever money you do have can vanish in an instant for the same reasons that led to the downfall of these billionaires. Once you make money, be sure to set aside a portion of it in low-risk investments so you don’t wind up with nothing at a point in your life when starting over is nearly impossible.
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