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Dell Makes A Purchase (Whoopee!)

Posted By Barry Ritholtz On June 22, 2006 @ 6:45 pm In Corporate Management,Psychology,Trading | Comments Disabled

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

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Some people [1] 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. [2]

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 [3], Dell was listed as the 4th richest man in the United States [4] 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 . . .


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/06/dell-makes-a-purchase-whoopee/

URLs in this post:

[1] Some people: http://articles.moneycentral.msn.com/Investing/CompanyFocus/5SafeStocksInsidersAreBuying.aspx

[2] Dell bought $70 million worth of stock at $23.99.: http://biz.yahoo.com/t/16/282.html

[3] Forbes 400: http://www.ritholtz.com/blog/wiki/Forbes_400

[4] United States: http://www.ritholtz.com/blog/wiki/United_States

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