Larry Ellison and Billionaire Spending

As someone in the financial industry personal finance is something that is always interesting. If you are really interested in how even the rich can go poor I suggested Robert Frank’s “High Beta Rich” which has great stories of how even the top .01% can become the bottom 99% or even in some cases bankrupt. When I saw this story about Larry Ellison increasing his line of credit to $4.5 billion I began to wonder why he even has a line of credit.  Basically Ellison was using Oracle stock (company he founded) as collateral in order to pay for things he shouldn’t be buying (an island for example). According to Bloomberg Billionaires Index Ellison is worth around $38 billion. Larry Ellison is one of the highest paid CEO’s. For the past fiscal year Ellison made $96 million ($90.7 was due to stock option awards which few people actually know take years to get since they are actually restricted stock where an executive may have to wait 3 to 7 years even before they can cash out the options). Essentially 95% of the stock price is tied not the short term performance of Oracle but the long-term (3-7 year period) after the shares are awarded that matter. People forget the options Oracle gave Ellison could be worth less than the $90.7 quoted in the future if Oracle were to tank or not create shareholder wealth. According to this WSJ article Ellison between 2001 and 2010 made roughly $1.84 billion being the CEO of Oracle. If I do a performance chart of ORCL (Oracle) over the same period of time the stock was down close to 16%. Is Mr. Ellison overpaid?

It seems though that even though Larry Ellison is raking in the dough he is also spending a lot of it as well.  Usually people never change (even if they say they have). I found this great article published in 2006 from the SF Gate detailing Ellison’s ridicioulous spending  (even by billionaire standards). Phillip Simon who was Ellison’s accountant in 2002 told Ellison “I’m worried, Larry…I think it’s imperative that we start to budget and plan”. Apparently Ellison was living the really good life. He was spending $20 million on his “lifestyle”, $75 million on interest, $25 million on a villa in Japan, $194 million on a new yacht, $80 million on the American Cup and a random $12 million on UAD (which no one seems to know what it is).  He did build an insane $200 million Japanese style house. He is also charitable and wanted to increase the funding from $35 million to $100 million per year. This is all of course excluding the money he spent on Gulfstream and Cessna jets, cars (McLaren F1 car), Armani suits, and financing all these purchases by borrowing against his Oracle stock. I just hope Larry doesn’t one day face a margin call. Keep in mind at the time Ellison was worth closer to $17 billion. Not only was Ellison spending a lot but breaking one of the first rules of personal finance which is diversification. No one should have their net worth tied to one stock no matter how high quality it is since you never know what can happen in the future. Larry’s financial advisor was trying to diversify him out of Oracle stock however Ellison was increasing his ownership interest. 

Ellison started his company with only a dozen employees and had software that was being used by credit card companies, hotels, and airlines to process transactions. Now Oracle’s s software is used by over 70,000 government and commercial customers and has 115,000 employees.  Ellison was no whiz kid in school either. He left the University of Illinois during finals and ended up not taking them. He in fact remembers one exam where he just sat for an hour because he knew he had to spend 3 hours answering the questions. Larry did end up taking some physics classes at the University of Chicago which seem to interest him and lead him to actually lead him to computer programming. More of Larry’s story is told in the book “Softwar”.

Ellison basically came from nothing to build a business that earns billions of dollars per year. I admire this since he wasn’t given a business or just an inheritance to build it. Although, Ellison has built a successful business there are still laws of financial planning he has to follow like diversifying his stock, trying not to use Oracle stock as collateral, and not spend so much. I just hope that Ellison doesn’t end like other CEOs who financed themselves so much that they lost everything. 

The 47% Getting Government Benefits

This chart shows how the percentage of households in the United States has been increasing since the 1980's. What is interesting is that the percentage dropped in the late 1990's only to then increase. The problem with this statistic is that benefits like Social Security are included which people can't opt out of (I wish they could). When people get something from the government why wouldn't they vote for a party that promises to give them even more of those same benefits?

Food Stamps Increases as Labor Force Decreases

Interesting chart here showing how as the food stamps have been increasing the labor participating labor force rate has been decreasing. The unemployment percentage is somewhat bogus since people keep leaving the work force to collect benefits which means they are not counted. The labor participation labor force rate is a better measure because it looks at how many people are actually working. Seems from this chart that incentives do actually matter. 

H/T- Fidelity

Julie Hayek and David Koch Dating

Since I started following Charles, David, and William Koch in different posts I found this one interesting talking about Julie Hayek (Miss USA 1983). This is interesting because his wife’s name is Julia and when I saw Hayek I thought they were referring ton the free market economist Frederick Hayek (economist). Julie Hayek now plans to write a tell-all book about her life dating high profile men. She apparently has a lot of information on David Koch from her diary.  She was apparently with Koch for a few years in the 1990’s before David got married to his current wife. However, Julie gave up on David because he couldn’t commit to one woman (David Koch at times had 3 dates in one day).  She apparently has dated some other high profile men like Larry Ellison, Richard Cohen, Mitch Kupchak, and Monaco’s Prince Albert II.  Whether or not any of this is true is pure speculation. It would make sense to come out with a tell-all book now since more people know who David Koch is then who knew who he was in the 1990's. 

However, there may be some truth to David’s bachelor attitude. David has an interesting dating history as in this article Cindy Farkas Glanzrock said she had dated David Koch in the 1980’s and claims David always enjoyed having a lot of woman around. What is interesting is that Cindy claims that David wants to raise the bar at everything he does. From this Bloomberg Game Changers episode that profiled David and Charles Koch it is clear what may attract woman to David. John Damgard who was a high school classmate of David Koch claims that David “could afford to pick up the check even in those days he was 6’5, wore pretty good looking suits, and was interesting”.  

David Koch is an extremely generous person donating money to wonderful hospitals, ballets, and other philanthropic endeavors. What people forget is that he is human. Humans do date other humans. However, with billions of dollars it seems as if more people are interested in who he used to date. If Charles came up with Market Based Management (MBM) then David came up with Market Based Dating. 

New York Times Organs Being Discarded = Fewer Transplants = More People Waiting or Dying

I saw this story from the New York Times which made me want to cringe in terms of how inefficient organ donation is. Many people are on waiting lists for organ donation. However, the problem is since there are more people wanting organs than those that donate there is a shortage which results in long wait times.  The reason there is a shortage is because people are not allowed to be compensated for voluntarily selling their organs. I noted in this post how more than 93,400 people are waiting for just a kidney. The chances of getting a kidney have decreased from 50% in 1992 to roughly 20% these days.

The NY Times story talks about how more than 2,600 kidneys are discarded (never transplanted). As a result 5,000 people will die just waiting. I almost fell out of my chair when I read this. This represents 18% of all kidneys (this figure has grown 76% over the past 10 years).  The pancreas has the highest percent chance of being discarded at close to 27% (14% overall for all organs). Part of the problem is the people in charge of the registry for transplants (Scientific Registry of Transplant Recipients) uses outdated technology. They claim that if they only redesign their computer system the “could” add 10,000 years of life. The way they match kidneys doesn’t even make any sense. For instance, when matching kidneys the system doesn’t look at how the expected life of the person getting the kidney or how urgent the kidney really is. You would think you would want to transplant kidneys to younger patients (hence longer expected life span) than someone who is old and only has a few years left.

The underground market prices kidneys at $150,000-$200,000. Medical ethicist whackos worry about people murdering each other for body parts. If that were true more murders would occur now as the price if much higher than if it was legalized.  Nobel Laureate Gary Becker estimates at a price of $15,200 there would be enough kidneys to go around.  This would be actual cash people could use to pay down debt, send a kid to college, or buy something they always wanted.  I can’t believe the government can tell individuals what they can and can’t do with their body.  People sell hair, sperm, and even their minds to make money. As more transplants are done surgeons would not only get better at it but find better matches between donors and the recipient.  The current risk of dying from a kidney transplant is 0.1% which obviously would decrease if people were able to be compensated for their organs. Also a positive externality would be people would take better care of themselves. If the market rewards me for having pristine organs the way I can get the most for them is by preserving them in order to make sure I can get the highest price.

Politicians and bureaucrats pay no price for making people wait or die for organs transplants. To these “do-gooders” they are more concerned about making sure things are “fair”. Yet if these same people had a family member or loved one who was in need of an organ what do you think they would do? 

David Koch New York Ballet and Federal Spending

                                                              Source: Bloomberg

David Koch has support the New York Ballet for years (he even gave them $100 million). Last night he was spotted with his wife Julia and Bloomberg in this story caught up with him. I didn’t know that he has been going to the ballet since the 1960’s and seems to really enjoy it. Koch mainly talked about his support for Republican presidential hopeful Mitt Romney. As you can see in the picture from above Koch was wearing a burgundy colored velvet jacket made by the House of Maurizio (he in some ways looks like a movie usher with $31 billion). I didn't know this but Mr. Koch also likes to drink vodka and tonic and really isn't a champagne drinker. He enjoys very fine wines including red burgundy, red Bordeaux, and white Burgundy.

When talking about political issues David Koch who is really has more libertarian leanings supports Mitt Romney believes Romney has to do well in the debates to have a good shot at winning this election. Currently Intrade has Obama’s chances of winning the election at 72% which has constantly been increasing (especially after Romney made his comment about the 47%). Koch also pointed out that “We know with mathematical certainty that without mass reduction in federal spending we’ll go the way of Greece”. David Koch is absolutely right considering the over $15 trillion in debt the United States currently has and the annual trillion dollar deficits we keep running. Heck even if the government just spent what they brought in we would be much better off. This leads me to a scene in the 1985 movie “Real Genius” with Val Vilmer where Vilmer figures out that using ice is needed to solve a solution. Vilmer proclaims “ice is nice!” We could apply the same analogy to the federal budget and just freeze spending.  At a baseline we should be getting rid of programs that overlap each other. Currently 126 programs are used to fight poverty. Why not reduce this to 1 or 2? The government should have a consulting company like McKinsey or Accenture come in and explain how they can cut costs and improve efficiency. If only the government thought more like business owners we would all be better off. 

Forbes 400 Charles and David Koch Net Worth and Historical Net Worth 1984-Present

Today Forbes released their annual 400 list. Charles and David Koch of course were on that coming in at 4th with $31 billion each (was $25 billion in March). Brother William Koch stood at the same $4 billion level. This graph shows how much they are worth individually. In my original post I pointed out that the Koch brothers have taken on more risk which has explains why they have gotten wealthy so quickly. David and Charles Koch are the type of guys that work seven days a week and I am guessing run on little sleep. When Charles Koch started at Koch Industries he was working 7 days per week and David most likely is working at least 12 hours in the mid 1990's in this post.  Instead of people criticizing Charles and David Koch they should thank them for not only creating jobs, donating hundreds of millions to charity, and helping others understand how prosperity is created. Somehow I have a feeling market-based management at Koch Industries is working (which I talked about here) and increasing the standard of living for all Koch employees.

Retail Clinics Grow

Interesting chart showing how more and more people are using retail clinics. No doubt we need more of these doctors with a future shortage of doctors and with more people to take care of. Don't people realize retail clinics are actually a free-market solution?

H/T-John Goodman

20,000 Visits! My Journey As A Blogger

I would like to thank everyone who has visited my blog. This blog started on October 30, 2009 and has been going on ever since. What interested me in creating my own blog was actually self-interest. Many people write autobiographies and talk about the changes in thinking that took place over time. I wanted to accomplished somewhat of the same thing in the sense of looking back 10 years from now and seeing what I was thinking. I honestly didn't expect to be blogging for so long but it seems I just got in a habit of writing. Usually I will see something on T.V., hear something on the radio, or read about a news article that will catch my interest.

What has been the most surprising thing is how many international people read my blog. According to the stats around 11,000 people have come from the United States, 1,000 from Russia, about 800 from the U.K., over 700 from India, and 700 from Canada. I am glad I can be spreading my thoughts and ideas around the world. It gives real meaning to the term "World Wide Web".

I am proud of all my work. However, there are some articles that stick out and I am really proud of. About two weekends ago I spent a couple of hours reading articles about the Koch brothers which lead to a three part series . Another article I am proud of and did take some pain-stacking research to obtain was the Koch brothers net worth from 1984-2012. Another article that took some time to work on was this post that looked at the acceptance rate for TCU since 1979.  What is really interesting to me is that my post about natural orifice surgery is my most popular post with close to 2,000 hits. My second most popular post is about Sam Walton. The third most popular post is Myriad owning genes.

I hope to continue thinking and writing to spread the knowledge. In general my blog posts are longer than most because often I go in depth into certain subjects and really want to make sure I cover my bases as opposed to just spending a paragraph talking and giving the reader a link to follow. Hopefully, more people will continue to read my blog and I can continue to repeal the frontiers of ignorance!

Charles Koch: Lessons From My Father

Great video of Charles Koch talking about lessons he learned from his father. No doubt hard work and having an attitude towards work makes people not only better off but can make them successful as well (maybe even billionaire!).