Can a Pyromaniac Burn a Billion Dollars Faster Than it can be Invested, on Average?
How burning away all your money can teach you about proportionality (don’t do this at home)
This is going to be fun.
Alright, let’s say I’m a pyromaniac, and to feed my love of fires, I use my money to burn in my fireplace instead of logs.
Now, I have a billion dollars, so let’s say I’m burning cash — literally — every single day.
I’m shoveling $50,000 into my fireplace. Everyday.
In a year, I will have burned $18,250,000.
In this scenario, I have no expenses in my life, or at least my expenses are relatively little since all I do is spend my time shoveling my cash into the fireplace.
After nearly 55 years, I’m an old man.
I also burn all my money away. Poof, it’s gone. Everyday, for almost 55 years is what it took!
Now, let’s reset the clock.
I’m back at 28 years old, with a billion dollars. I still love burning money.
But this time, I take a hundred million dollars, and put it to work on the stock market.
I look at Carl Icahn’s fund, IEP, and see that it pays nearly 12% in dividends.
Remember, I’m going to be shoveling $50,000 into that fireplace everyday, no matter what.
But, at the end of the year, my hundred million dollars will have generated approximately 12 million dollars before taxes.
Remember how I told you I would have burned exactly $18,250,000 each year?
Well, this time, I’m going to literally die before I finish shoveling all my money away into my fireplace.
No worries, I’ll have my kids understand the valuable lesson in burning away all this cash, and they carry on in my spirit. My grandkids also carry on in the same spirit, and after a few generations down the line, Carl Icahn and the casket he lays in cannot stop me from finally finishing the job — even if it takes hundreds of years.
Hold on, let’s turn back the clock again.
Don’t worry, suffering from the same pyromania.
But this time, I’m only going to leave the money that I absolutely need to satisfy my impulse to start fires.
I’m leaving just $18,250,000 in my house. I’m not going to burn it all at once, despite these impulses.
I’m going to leave $500,000,000 into IEP, generating 12% per year in dividends.
The remaining $481,750,000 I have in a fund that James Simons’ team is managing at Renaissance, which is generating a 70% annualized return.
This is where it gets insane.
At the end of the year, I completed my mission to burn all the cash in my home.
I go one step further, and I burn my million dollar house that I lived in too.
But, at the end of the year, Carl Icahn gave me a dividend in the amount of $60,000,000.
Also, before taxes and fees, James Simons’ earned me nearly $300,000,000 on my cash.
To clarify, that is $481,750,000 + $300,000,000 + $60,000,000 + $500,000,000.
To summarize what this amount will look like in 40 years, I’ll conservatively calculate a 30% return compounded annually over all those years.
I will have $60,000,000,000,000.
I’m not adding any zeros, that’s actually 60 trillion dollars.
I will have reached a point in my life where I actually don’t even have to think about allocating money away to shovel it into my fireplace.
I literally, physically, can’t shovel enough money into my fireplace to burn it all.
Hell, if I got my sister to devote her entire life into helping me burn my money, it still wouldn’t be possible.
Even my mom couldn’t help me.
I could throw millions of dollars into that fireplace every single day and I would still get swallowed in the returns the market would be giving me.
I could hire the world’s smartest engineers to help me funnel cash into that fireplace to burn it at the fastest, most efficient — or inefficient — way possible.
We will all fail at burning enough cash.
So, average can mean a lot of wildly different things. On one end, I can find a way to get rid of that money. It won’t be easy, but I’ll do it before I die.
On the other end, I literally can’t get rid of it. I can’t get it to not last, no matter how hard I try — or how many shovels I have.