Dell Makes A Purchase (Whoopee!)

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 . . .

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