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> Dell’s fortune is now $27 billion, according to the Bloomberg Billionaires Index, a ranking of the world’s 500 richest people, up from $15 billion in 2013. I
by whack 8y ago
> Dell’s fortune is now $27 billion, according to the Bloomberg Billionaires Index, a ranking of the world’s 500 richest people, up from $15 billion in 2013.
If he had simply parked his money in a s&p 500 index with dividends reinvested, his $15B would have grown to $26.6B. All without breaking a sweat or exposing himself to concentrated risk.
His investment and turnaround of Dell was successful to be sure, but not nearly as spectacular as the article seems to be implying.
- burtonator 8y agoThis needs to be reiterated every time someone claims they made some massive financial success. If you're worse off than an S&P index fund then you're not a genius - you're an idiot.
- loeg 8y agoTo nitpick the point a bit, there are valid and smart reasons for seeing below S&P returns. Bonds lower your returns; over the past decade, especially, foreign markets have under-performed the S&P500. You should have some idea why you're under-performing the S&P500 :-).
- malux85 8y agoThis is assuming the goal is just “make money”, that’s always the sole objective function relentlessly pursued. In the last year I have met 4 billionaires - and what I have observed was that above a certain level of extreme wealth it’s not about just making more money, it’s about forfilling autonomy, mastery and purpose, which might mean a non-optimal financial strategy, but is rewarding in other ways.
- rcMgD2BwE72F 8y ago>If you're worse off than an S&P index fund then you're not a genius - you're an idiot. You aren't an entrepreneur, are you?
- CPLX 8y agoWell to be fair, someone has to actually run those 500 companies in the index.
- aliswe 8y agoExactly! You can't really call Microsoft stupid for trying to run their business instead of taking all its money and putting it in an index fund. That argument is so strange
- fermienrico 8y ago“You’re an idiot” - wow, what a short sighted comment. One can invest, take risks, and fail. Doesn’t make you an idiot. Majority of startups fail. Doesn’t mean the founders are idiots.
- tryptophan 8y agoWow. No. Its only appropriate to compare returns against the sp500 if you are taking on exactly the same amount(and type) of risk as the sp500. By this bad logic, bonds are a terrible investment and nobody should ever buy them because the s500 is better. Same goes for owning private companies, although it is murkier to see.
- asdfasgasdgasdg 8y agoTo be fair, it seems like Dell took a larger risk than the typical S&P 500 investor. So I think it would be fair to say his performance is even worse than that naive comparison would suggest. I wouldn't necessarily characterize Dell as an idiot though. :)
- syrgian 8y agoThat's probably his point. Bonds have less return than shares because they have less risk. A single company is always going to be riskier and more volatile than the sp500.
- alasdair_ 8y agoThere are many single companies with a lower beta than the sp500.
- Godel_unicode 8y agoCould it be possible that his goals included more than just "make cash pile bigger"? I would argue he got significant value out of taking the reins of his company (which bears his name) and turning it around.
- solotronics 8y agoSome of it is probably because it's something productive to do. Say you are Michael Dell and already have tens of billions of dollars. What do you do with your time? Sit around and read? A huge part of the economy of Austin is Dell and I am sure he likes being part of the action and an engine for the local economy and his employees.
- knl 8y agoBut during this time company also invested money and paid salaries to their employees, so the figure is higher. That is certainly better than just parking the money somewhere, no?
- tryptophan 8y agoWhat he did is "parking his money somewhere". If he bought an index fund, that means someone would have sold 12B so that he could buy 12B. That one with he 12B in cash would then do something with it. My point is that there is no difference. This just how investment works in general.
- kayhi 8y agoThe risk is very different.
- parsnips 8y agoIf Michael Dell "parked" his money in stocks over the last 5 years, the prices would have been altered. Boards might have made different decisions, and his liquidity might have been compromised. There's no way to guarantee that it would have been a better result. edit: Also my long standing challenge, point out the index fund billionaire. We all want to meet that person who's winning so hard, by doing nothing.
- Cyph0n 8y agoI honestly don’t understand why people think they can apply conventional investment approaches to such vast amounts of money.
- widdershins 8y agoCare to prove them wrong? Or at least make an argument?
- wbl 8y agoBecause they can? Nevada's pension fund is run by one guy who parks it all in Vanguard.
- user5994461 8y agoThe whole point of a pension fund is that you can only add money and never take it back. It doesn't work out if many people try to cash out.
- dmoy 8y agoThanks. I wish articles in general would provide a lot more context for numbers.
- asaph 8y agoThe Dell story isn't over and comparison over a 5 year period probably isn't long enough to illuminate whether or not Michael Dell's investment beat the S&P-500. If Dell as a public company outperforms the S&P-500 going forward (which is not outside the realm of possibility), the 10 year return (or even the 6 year return!) could significantly outperform the market. You're calling it too soon.
- roversam 8y agoFalse This implies that he could have actually sold his stake for $15B (which is not true)
- TomK32 8y agoIt'd be a bit like "EIIR selling Scotish holdings" or "Pope selling Vatican"
- TomK32 8y agoSure, but it's all a bit different if you have the chance to revive a company that you founded and carries your name.
- usaphp 8y agoYou can’t simply park $15B is s&p without affecting prices. The reason s&p was able to grow so much is because of companies like dell who try to improve and grow instead of just parking money in s&p
- kolbe 8y agoDell went private at a low value, and public at a high one. This means they're doing the opposite of what you say: liquidating index shareholders at low prices, and then going public again at high ones, forcing index investors to sell low and buy high.
- usaphp 8y agoI am not talking about dell specifically, I am talking about this idea that people have, when they disregard someone if they don’t beat the return they would get just by investing in s&p
- jryan49 8y agoYeah during a historic bull market. Plus indexing will stop working eventually.
- aswanson 8y agoWhen? There is a glut of global capital and a 90 year+ history that shows the market grows at 7 percent annually. What contravening data do you have?
- nickles 8y ago> When? "3,453 days later, the US bull market becomes the longest on record" [0] > There is a glut of global capital "The ECB halts quantitative easing" [1] "Bank of Japan signals exit from quantitative easing, but …" [2] "Everyone Is Talking About Rate Hikes, But The Fed's Balance Sheet Might Be More Important" [3] Money Stock / Real Gross Domestic Product appears to be stabilizing [4]. Given the global tightening of monetary policy, this is consistent with reduced availability of capital in the future (per unit of real economic activity). > 90 year+ history that shows the market grows at 7 percent annually "Past performance is not necessarily an indication of how the Trust will perform in the future." [5] > What contravening data do you have? "The Nikkei Index is still 40% below its all-time high of 39,000, which was hit at the end of December 1989. It took nearly 20 years before the Japanese stock market hit bottom." [6] [0] https://www.cnbc.com/2018/08/22/longest-bull-market-since-world-war-ii-likely-to-go-on-because-us-is-best-game-in-town.html https://www.cnbc.com/2018/08/22/longest-bull-market-since-wo... [1] https://www.economist.com/finance-and-economics/2018/12/13/the-ecb-halts-quantitative-easing https://www.economist.com/finance-and-economics/2018/12/13/t... [2] http://www.atimes.com/article/bank-of-japan-signals-exit-from-quantitative-easing-but/ http://www.atimes.com/article/bank-of-japan-signals-exit-fro... [3] https://www.forbes.com/sites/petertchir/2018/12/19/everyone-is-talking-about-rate-hikes-but-the-feds-balance-sheet-might-be-more-important/#53c233d83fe1 https://www.forbes.com/sites/petertchir/2018/12/19/everyone-... [4] https://imgur.com/a/RA62s4e https://imgur.com/a/RA62s4e [5] https://us.spdrs.com/library-content/public/SPDR_500%20TRUST_PROSPECTUS.pdf https://us.spdrs.com/library-content/public/SPDR_500%20TRUST... [6] https://www.stockinvestor.com/32465/japan-nikkei-high/ https://www.stockinvestor.com/32465/japan-nikkei-high/
- halcyondaze 8y agoYou're assuming he's optimizing his life for $
- antt 8y agoThe stock market has phenomenal returns until you try realizing them. Then you quickly find out that the 'price' quoted daily means about as much as your horoscope, the more so the large sums of money you try and move.
- wiggler00m 8y ago"Hindsight bias, also known as the knew-it-all-along effect or creeping determinism, is the inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it."
- polskibus 8y agoI think the economy would be much better if it rewarded risk taking (in a sense that a person has a plan to conquer the status quo and executes it) more in contrast to rewarding the behavior that makes the big ones even bigger. Index investing does not necessarily trickle down, because it channels the capital not to cover companies investments but to buy them from existing shareholders.
- skookumchuck 8y ago> buy them from existing shareholders Who sell the stocks in order to raise funds to do other things. Of course it trickles down.
- SilasX 8y agoIn fairness, he’d be a lot poorer if he had never started Dell and instead invested those seed funds in the S&P.
- oh_sigh 8y agoOr he could have just put it AMZN and he would have $45 billion now. What a fool!
- skookumchuck 8y agoI've made similar calculations on all sorts of investments, like collectibles, gold, real estate, etc. Index funds beat them. And besides, index funds are very liquid, and transaction costs are low.
- _cs2017_ 8y agoIt's meaningless to compare realized returns; it's only interesting to compare expected returns. Like if you say you're better than me at poker, it's pointless to play one round and compare our winnings, since randomness of a single round of poker far exceeds any difference in our skills. Going with the poker example, your skill is higher than mine if your expected return per round is greater than mine. One way to get a decent estimate is to repeat the experiment many times, while keeping external factors roughly similar. With poker, it's relatively easy: let's go to the same casino, spend a whole night playing at different tables (to avoid the luck of playing versus all noobs or versus all pros at a given table). Then compare our winnings. Better yet, repeat it over a few days, to get even more data points. But in the case of a single large decision, such as Dell's investment, it's incredibly hard to estimate the expected returns. Maybe Dell's investment was an amazing decision, and he was all but certain to make $50B from it - and only due to an unusually unlucky random events, he only made ~$12B. Or maybe his investment was really bad, and he was likely to lose all his money, except through sheer dumb luck things actually worked out to a $12B profit. If Dell went into the turnaround business, like Buffett, we could at least average out his performance over a dozen companies he tried it on. It would be still a very very rough estimate (e.g., due to survivor bias: Dell wouldn't turn around a dozen companies if he was losing a few billion per attempt: he would stop after 1 or 2). But at least it would be something. As things stand, I doubt anyone can make a convincing case about whether Dell's investment was a good or bad idea. By the way, even for S&P 500, it's not easy to estimate expected returns. But perhaps, over the 5 year period, they are around 30-60% -- depending on your opinion about various economic and financial models and assumptions. So I guess they were a bit better than expected over the period in question.
- grkvlt 8y agoSurely this is pretty obviously true for any (US) business person? The S&P 500 represents the top 500 market listed companies, so if you run a company that (within an order of magnitude or two) has the same capitalisation as one of the index companies, then you should expect (on average) to have the same returns as the index. Maybe some people earn a bit more, some less, but they are all operating in the same economy with the same risks and so forth.