So Forbes recently came out with their wealth rankings and it appears Charles and David Koch are the 4th and 5th richest people in America. Earlier this year their net worth was $40 billion each. Today it was announced that Forbes estimates Charles and David Koch are each worth $42 billion each (a 16% increase from 2013). It is interesting to note that the standard deviation of the return of the percentage annual change in net worth is roughly 44%. Usually the stock market (S&P 500 is roughly 13% over many years) while the standard deviation of the returns of Charles and David Koch is 44%!
Standard deviation is a measure of risk in terms of how much returns deviate from the mean or average return. The higher the standard deviation the more risk an investment is. So simply the Koch brothers have increased their wealth at an annual compound rate of 17%/year (greater than the long term return of the S&P 500 of about 10%) while taking on 3 times the risk! Koch Industries reinvests 90% of their earnings back into the business which explains the rapid growth rate. Charles Koch mentioned in a recent Discovery newsletter that the company is targeting a annual compound growth rate of 12%/year. If the growth rate of Koch Industries is only 15% per year (which is under their historical average) by 2020 they each should be worth around $100 billion each.
In an earlier blog post I covered the Koch family estate planning situation. In this recent article David Koch mentioned that Koch family stock will go to his children so Koch Industries can continue to prosper.
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