Elon Musk Has Become the World’s First Trillionaire - Here’s Why This Is a Game-Changer

Do I see that right? Elon Musk is now the first trillionaire ever! That's insane!! For decades we once watched billionaires competing for a position at the top on Forbes list but "the T word" has always seemed like an abstract idea—that applies to total country GDP's not an individual!

How did we get to this point? Simple! SPACE-X!!! The aerospace company has completed the largest initial public offering (IPO) in stock market history and Wall Street has gone completely insane over their future in A.I., satellite internet, and interplanetary travel! Consequently, Space X's value has now reached nearly 2 Trillion dollars!!! With a large portion of the company's total stock belonging to Elon Musk, his total net worth has literally taken off as rocket has done!!!

Before you imagine Elon diving into a vault filled with gold coins and swimming around like Scrooge McDuck, let's talk about the reality of extreme wealth. The reality is that you have one trillion dollars on paper, but the reality of having one trillion dollars in cash is a much different picture.

Contextualizing a Trillion Dollars

First we need to understand the massive amount of money that is a trillion dollars because the human brain just isn't really capable of grasping the immense magnitude of one billion anything.

If you earned $100,000 per day since the time Jesus was born, you would still be far from becoming a trillionaire. Here's how to contextualize Musk's success:

He has more wealth than the combined total of the next five wealthiest individuals on Earth. You could take all of the fortunes from legendary technology entrepreneurs to retail tycoons and investment gurus, add them all together, and Elon Musk would still surpass the sum total.

His net worth is greater than that of some developed countries given their total GDP. If Elon Musk were to become a country, his economy would rank within the top twenty countries in the world.

This is the most amazing and significant dollar milestone. This is also where it gets tricky and is also where many people get confused about how to explain the monetary wealth of billionaires (and now, trillionaires).

The Truth about "Paper Wealth"

When you see a headline that says "Elon Musk's net worth is $1 trillion." You likely assume he has a checking account with 1 followed by 12 zeros in it: Not so much.

Rather than sitting on a pile of cash, he gets his wealth from owning and controlling stock in companies, mostly SpaceX and Tesla. His net worth is calculated by determining how many shares he has multiplied by their current market price.

So, can he just cash out to buy a country or end world hunger tomorrow? No.

If Elon woke up and said "I want a trillion dollars" and attempted to cash out, he could almost guarantee that it wouldn't happen. This is because:

1. The crash effect: An immediate sale of all the stocks would create a stock market crash because there is more stock being sold than there are investors looking to buy.

2. The loss of control: Selling your shares means giving up your majority voting rights to control how your company's assets are used. The majority shareholder has the greatest ability to steer their company in the direction they want.

3. Taxes and regulations: There is no way to simply dump billions of shares all at once without making large regulatory filings, triggering large taxes, and causing fear among everyday investors.

In truth, to liquidate his entire net worth from selling his stock would result in destroying the Economic Value of Each Piece of Stock. Mr. Musk would not end up with a Trillion dollars in cash. Mr. Musk's wealth is based on the market's valuation of his companies and not on the balance in his checking account.

The Millionaire Factory: Wealth Doesn’t Exist in a Vacuum

While Musk has been getting much of the media attention recently, he isn’t the only one celebrating the success of a stock market IPO this week. As a result of the SpaceX IPO, a ripple effect of wealth creation has occurred for numerous other individuals and companies as well.

According to reports, the SpaceX IPO created approximately 5,000 new millionaires overnight. Many of these individuals are current employees, former employees, engineers who helped build the rockets, and early investors who took a chance investing in a start-up that was thought to be a “sure thing” to fail.

What is even more astounding is that nearly 400 of these individuals are now worth more than $100 million individually. For those individuals who actually built the rockets, wrote the software code, and spent countless hours in the factory making history happen, this wealth represents a dramatic turnaround in life for them. It reflects an important part of the current startup culture as well: when a company has great success, the employees who received stock options are able to also achieve a great deal of wealth.

Defying the Odds Over the Last Ten Years

When you look at SpaceX's current valuation of $2 trillion, it is easy to forget where they are as a company today versus when they started as a company.

A little more than 10 years ago, SpaceX was the punchline of the aerospace industry, with an underfunded and scrappy group of people trying to prove to legacy defense contractors that they could accomplish something they said could not be done. SpaceX also faced bankruptcy on multiple occasions and we can all remember the viral supercuts of early Falcon rockets exploding in a fireball and failing to land, over and over.

Now SpaceX has become the dominant player in the space exploration market. They launch and recover their reusable rockets regularly, as if it were a routine and mundane commute. They have taken a large share of the satellite Internet market through Starlink, incorporated Artificial Intelligence into much of what they do, and are truly creating a foundation for future colonization of Mars by humans.

The market is valuing SpaceX at $2 trillion today based on their current performance, and it is reasonably assumed by investors that they will also succeed in their future venture of building a lunar economy and creating a multi-planetary human existence, in the same way that they succeeded with their ability to land rockets backwards.