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Is it worth the trouble to sell rather than borrow against it? Anyone have any idea on the economics of borrowing against such a large amount of equity in such

by staunch 14y ago

Is it worth the trouble to sell rather than borrow against it? Anyone have any idea on the economics of borrowing against such a large amount of equity in such a stable company?

ChuckMcM 14y ago
Absolutely. Eric lived through the Dot Com explosion where he had multiple millions of dollars in Sun stock that had he borrowed against he would have no collateral today. The first mistake made by young people who are suddenly 'rich' on paper because the one stock they own is worth a lot of money, is borrow against it as if it was money. Only to have the stock value vanish and they end up destroying what savings they did have repaying those loans. There were a number of stories in the Mercury News about people who built dream homes starting pre-bust, only to sell them for pennies on the dollar post-bust because they couldn't afford them any more.
- staunch 14y ago
  I understand that for a new company or a private company, but Google's stock is hardly comparable. I'm just curious how much it'd cost to lock in the value of his shares and then borrow against it.
  - Scorponok 14y ago
    Even if google itself isn't going anywhere, if the stock market falls over again it could cut a big chunk out of the value of everything, including "safe" companies like google.
    - staunch 14y ago
      And of course I'm sure that's not hard to account for with some simple financial instruments.
  - tedunangst 14y ago
    Enron was stable until it wasn't.
    - staunch 14y ago
      Yes, that's a totally reasonable comparison :-)
- orangethirty 14y ago
  Agreed. Borrowing against stocks is akin to playing russian roulette with your financials.
- marssaxman 14y ago
  People do that? Maybe it's just that I lived through the dot com explosion too, but that seems astonishingly foolish - it might as well be gambling. If you want to acquire some asset, like a house, sure, sell your stock and buy the asset - but you don't get to have it both ways! You can't have the security of a slow-appreciation asset like a house and the upside of a risky, high-appreciation asset like tech company stock. Use one to back the other and you just amplify your risk.
  - wmf 14y ago
    CNet founder Halsey Minor bought a ton of real estate against his paper fortune and then lost it all in the financial crisis: http://www.washingtonpost.com/lifestyle/magazine/the-sorry-fate-of-a-tech-pioneer-halsey-minor-and-historic-virginia-estate-carters-grove/2012/05/30/gJQAwdJG4U_print.html http://www.washingtonpost.com/lifestyle/magazine/the-sorry-f... Larry Ellison has been living off credit for the last decade or so; he's put up ~$4B worth of Oracle stock as collateral. http://www.sfgate.com/news/article/Inside-look-at-a-billionaire-s-budget-Larry-2542603.php http://www.sfgate.com/news/article/Inside-look-at-a-billiona... http://www.forbes.com/sites/calebmelby/2012/09/25/larry-ellison-americas-third-richest-man-down-1-billion-on-drop-in-oracle/ http://www.forbes.com/sites/calebmelby/2012/09/25/larry-elli...
  - spc476 14y ago
    Yes. I knew someone who got bought out about a year prior to the tech stock crash of 2000. He had a chance to cash out all his stocks about a month before the crash, but didn't. It did not end well for him (divorce, no $2.3M home, no car, no money, etc.).

by staunch 14y ago

Is it worth the trouble to sell rather than borrow against it? Anyone have any idea on the economics of borrowing against such a large amount of equity in such a stable company?

ChuckMcM 14y ago

Absolutely. Eric lived through the Dot Com explosion where he had multiple millions of dollars in Sun stock that had he borrowed against he would have no collateral today. The first mistake made by young people who are suddenly 'rich' on paper because the one stock they own is worth a lot of money, is borrow against it as if it was money. Only to have the stock value vanish and they end up destroying what savings they did have repaying those loans. There were a number of stories in the Mercury News about people who built dream homes starting pre-bust, only to sell them for pennies on the dollar post-bust because they couldn't afford them any more.

staunch 14y ago
I understand that for a new company or a private company, but Google's stock is hardly comparable. I'm just curious how much it'd cost to lock in the value of his shares and then borrow against it.
- Scorponok 14y ago
  Even if google itself isn't going anywhere, if the stock market falls over again it could cut a big chunk out of the value of everything, including "safe" companies like google.
  - staunch 14y ago
    And of course I'm sure that's not hard to account for with some simple financial instruments.
- tedunangst 14y ago
  Enron was stable until it wasn't.
  - staunch 14y ago
    Yes, that's a totally reasonable comparison :-)
orangethirty 14y ago
Agreed. Borrowing against stocks is akin to playing russian roulette with your financials.
marssaxman 14y ago
People do that? Maybe it's just that I lived through the dot com explosion too, but that seems astonishingly foolish - it might as well be gambling. If you want to acquire some asset, like a house, sure, sell your stock and buy the asset - but you don't get to have it both ways! You can't have the security of a slow-appreciation asset like a house and the upside of a risky, high-appreciation asset like tech company stock. Use one to back the other and you just amplify your risk.
- wmf 14y ago
  CNet founder Halsey Minor bought a ton of real estate against his paper fortune and then lost it all in the financial crisis: http://www.washingtonpost.com/lifestyle/magazine/the-sorry-fate-of-a-tech-pioneer-halsey-minor-and-historic-virginia-estate-carters-grove/2012/05/30/gJQAwdJG4U_print.html http://www.washingtonpost.com/lifestyle/magazine/the-sorry-f... Larry Ellison has been living off credit for the last decade or so; he's put up ~$4B worth of Oracle stock as collateral. http://www.sfgate.com/news/article/Inside-look-at-a-billionaire-s-budget-Larry-2542603.php http://www.sfgate.com/news/article/Inside-look-at-a-billiona... http://www.forbes.com/sites/calebmelby/2012/09/25/larry-ellison-americas-third-richest-man-down-1-billion-on-drop-in-oracle/ http://www.forbes.com/sites/calebmelby/2012/09/25/larry-elli...
- spc476 14y ago
  Yes. I knew someone who got bought out about a year prior to the tech stock crash of 2000. He had a chance to cash out all his stocks about a month before the crash, but didn't. It did not end well for him (divorce, no $2.3M home, no car, no money, etc.).