File this one under “you’ve got to be kidding me.”

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Some people are all excited that Dell Chairman Michael Dell, (who presumably knows his business better than anyone else), finally bought some shares recently.

Specifically, Dell bought $70 million worth of stock at $23.99.

Remarkably, this was Michael Dell’s first ever purchase of his namesake company’s stock, selling steadily every year since 1988 (according to Thomson Financial) — nearly 20 years! And with Dell’s chart down 43%, this was supposed to be a vote of confidence.

Like all too many things financial, the headline looks much better than the detailed reality beneath.

This much is true: Dell did make the aforementioned $70 million purchase: But lets put this buy into some actual context:

In the 2005 publication of the Forbes 400, Dell was listed as the 4th richest man in the United States and the 18th richest person in the world. He has net assets of $ 18.7 billion. Dell reportedly owns the 15th largest home in the world.

This “big buy” represented a purchase equivalent less than 0.37% of his wealth — a little more than 1/3 of 1%.

That’s right, this is not even a 1/2 a percent purchase!

To put this into context, consider an average investor — someone making $100k, owns their own million dollar home (and has a mortgage), has a tidy sum of stock in their retirement accounts.

Its the equivalent of this person making a purchase of 100 shares of Dell stock.

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Helluva purchase, Mike.

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UPDATE: July 21, 2006 11:45am

Since Dell he made his investment, it has lost almost $14 million dollars — about a 20% whack. Luckily, he can afford it. I doubt many readers could.

Regardless, it is a valuable reminder that billionaires can do things we cannot.  Think twice before following someone whose finances and risk profile is different from your own . . .

Category: Corporate Management, Psychology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Dell Makes A Purchase (Whoopee!)”

  1. Bynocerus says:

    I remember 25, maybe 30 years ago, Warrren Buffet flew out here to (failingly) personally convince a number of the original shareholders of BHK to sell their stock at a very hefty premium. It was that important.

    Mike Dell buys a pittance of his company stock to ward off the conception that Dell is now the Lowest Common Denominator purveyor of puters and this is news? Now, if Mr. Dell buys $7 B of his company stock…

    Great observation Barry.

  2. jcf says:

    As usual, Barry, the news is as compelling as the gorgeous blonde a few stools down at the bar. Your deeper perspective, however, (rare if ever in MSM) gives the next-morning view when the sun has come glaring through the blinds and the buzz has worn off.

  3. daytrader says:

    I think you have a typo. The purchase is 0.37% of his wealth, not .037%. You correctly pointed out it’s about 1/3 of 1% (which would be 0.3%).

    Also, I thought I read that MDell purchased some of his own stock at $16 or so back in 2001.

    BR Good catch! I fixed it

  4. whipsaw says:

    per jcf:

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    Splendid metphor! But you left out the part about your wallet and watch being gone. heheheh

  5. chris says:

    Is the fed going to raise 50bps ??

  6. Mike says:

    Your mean spirited attack on this man smacks of jealousy at his phenomenal self made wealth. You’d be fortunate if your wealth was 0.37% of his (in case you can’t do the math Barry, that is 1/3 of 1%).

  7. C’mon Mike — I didn’t “attack” Mr. Dell — I pointed out some mathematical facts ignored by those perma bulls who are now touting this purchase as if it were the 2nd coming.

    If I was going to be jealous of a PC firm CEO, it would Steve Jobs, not Mike Dell.

  8. DaveF says:

    Hey Mike, instead of trading insulta, get a group together, and we’ll see how many folks here would like to band together, and we’ll sell you as much DELL as we can. What size can you handle?

  9. njnyctrader says:

    I run my own technolgy consulting firm and from my observations at my last 3 Fortune 100 clients , Dell boxes are getting the boot and being replaced by HPs. The main reason? Quality.

  10. TexasHippie says:

    Mike, please try to understand why some of us find analyses like this valuable: it can be hard to determine what’s significant in local news, international news or financial news because the MSM always covers cases with high “headline value” such as this, which is just the equivalent of “young white female goes missing after spring break trip”.

    It’s important to be able to identify the sleazy financial headlines with no substance or significance, and I appreciate Barry’s help in knowing how to confidently distrust the screaming headlines. If only everyone were this thoughtful and deliberate we wouldn’t have so much herd-like behavior in the markets.

  11. DaveF says:

    Sorry if I got anyone excited, I guess we’re not shorting any DELL tonight. And it was first chance to try the “Sold To You” Theory.

  12. Ncohrnt says:

    i was hoping to be an extraordinary investor…but I’m well below the above-detailed average. :-(

  13. McSwiggen says:

    This is the one I like:
    17-Nov-04 10,000,000 DELL Planned Sale
    (Estimated proceeds of $402,000,000)
    The Stock was at $35 per share.

  14. toddZ says:

    remember the last time Dell bought repurchased shares in it’s own company???

    ——————————————————————-

    We all have scars. And Dell Computer (Nasdaq: DELL) just showed us a big one.

    As part of its stock repurchase program, the computer giant sold “put options.” A put is a stock option that gives the owner the right to sell the underlying stock to the put seller (Dell, in this case) at a set price within a set time. Long ago, the company sold put options that allowed the put buyers to sell their Dell stock (to Dell) at an average price of $50.44 per share. The stock is $27 today. So, the put purchasers exercised their options and sold all their shares to Dell.

    The company bought 9.3 million shares for a total of $467 million, paying nearly twice current market value, minus whatever premium, or payment, it received for selling the puts. (Any qualified investor can sell put options. Doing so, they receive a cash payment called a premium.)

    It also bought call options to purchase 6 million shares of its stock. A call option gives the owner the right to buy a stock at a specified price within a set time. Dell’s call options are worthless because the current share price is far below the strike price of the call options. In both cases, its bigwigs in finance were far too optimistic about the stock’s potential, and this has cost shareholders many millions.

  15. toddZ says:

    doh…. sorry for the typo!

  16. alan says:

    Michael Dell made a lot of money for himself and was one of the pioneers in creating the “global economy” and a huge trade deficit for the US. He didn’t manufacture anything in this country, but rather created jobs for salemen.

  17. John Navin says:

    Actually, 1/3rd of 1% of his wealth is a decent-sized position, from the standpoint of prudence and generally-accepted trading principles.

    Barry, you’re spoiling my bottom-picking fun with your clear-headed insights. Stop it.

  18. Jack says:

    Michael Dell holds around 216,000,000 shares according to the link. At $25/share thats almost 1/3 of his net assets invested in his own company’s stock. To invest 1/3 of your net assets in one stock impies a good deal of confidence, I think. Add to that he seems to have reversed his selling trend, and you get an interesting situation.

  19. Zapper says:

    Here! Here! Jack.

    On a side note, I think Barry’s use of the prefix Perma is getting stale. The only people I every here using that prefix are those people who have taken a stance on the opposite side of the fence.

    Call people bullish and call people bearish but there is enough information to justify any direction in the markets. The true merit in determining direction is the weight of each piece of data.

    Yes there are people that are bullish 99% of the time as there are those who are bearish 99% of the time. Ever consider that they may be looking at a longer time frame? Some people just want to fire some money at an S&P Index Fund and come back in 30 to 60 years to see what became of it.

    I personally have created retirement trusts for my children and unborn grandchildren because I do not trust the social security system. They will see those funds 60 to 90 years from now. Should I sell in May and go away? Should I buy in years ending in 5? Too much effort. I can do better growing my business.

  20. 2L says:

    http://seriot.ch/fichiers/images/mdh/zoom/dell_house_big.jpg

    It doesn’t seem that big. I don’t think any house in westlake can ever be considered int the top 1000 of house sizes.

  21. Lord says:

    To invest 1/3 of your net assets in one stock impies a good deal of confidence, I think.

    No, it just implies a captive owner, but one still with a lot of control.

  22. Bynocerus says:

    I think the real story is that Mr. Dell has but 1/3 of his wealth invested in the company stock. Every hedge fund manager I know has something approaching 99+% of his/her wealth invested in his/her fund, your’s truly included (not a hedge manager, but virtually everything I do my active clients do as well, given certain risk parameters). And for a long time, Bill Gates and Paul Allen had nearly all of their wealth invested in MSFT. Considering that Mr. Allen has been gone from Microsoft for 23 years, that’s even more impressive.

    Think Dell is cheap at this level? When you’re the 4th richest man in America and one of the 10 wealthiest on earth, might it make a little sense to make a bigger move? George Soros bought up 1.5 B worth of CSCO with significantly less net worth than Mr. Dell, yet with no dog in the fight, he got less play from the financial press than less than a 1/20 equivalent purchase by Dell’s company founder. Or, to use another example, you’re telling me that Berkshire buys 2.5B of Bud stock (via Mr. Buffet) and that’s less newsworthy?

    Dell may well be a good buy down at these levels. But that doesn’t change the fact that their computers are shit, their customer service is even worse, and a 70m purchase by the founder does nothing to change those facts.

  23. skh says:

    I’d like some info on how to set up a trust for a person who doesn’t exist, Zapper. That sounds very interesting. Could you point me to some links on that?