Investing Advice: If you are NOT a billionaire . . .

Sunday, March 25, 2007 | 07:13 AM

On lazy Sunday mornings, we like to keep things laid back, slipping in a little education with our snark und drang.

Today is no different. However, as part of our educational process, we also are breaking a minor news flash. Based upon an informal email survey, it turns out that nearly all of the readership of TBP are NOT BILLIONAIRES. Yes, the demographics of our readership is quite impressive -- college educated (many graduate degrees) high earners, media savvy readers though the crowd may be, it turns out that less than a dozen of you are actually full blown billionaires.

Shocking though this development may be, it should cause you to reflect upon how and why you invest your hard-earned, rapidly-depreciating dollars.

You see, Billionaires are different from you and me. To begin with, they have more money. But its more than that -- they invest differently, because they have very different goals and objectives. And (shocker thought it may be) they can afford different things than you.

Yet that doesn't seem to stop people from wanting to "tag along."

Consider Kerkorian's now abandoned bid for GM. Rather discuss the absurd idea of a a guy who is about to turn 90 taking on the 2nd most dysfunctional big cap company in the S&P (CA being the first), let's expand our survey. Given' GM's half-century long tradition of bad decision making, poor financial judgement, and incompetent management, one wonder's if Kerkorian really thought he could effect a turnaround in his lifetime. Instead, I suspect he was merely agitating for change, however incremental it may be. 

Let's be honest: He shouldn't even be buying green bananas. But rather than delve into GM's problems, I'd prefer to look at the bigger picture: Why do investors think its to their advantage to invest along side billionaires?

I'll bet that most investors who did so with piggy backed Kerkorian's GM bid lost money on it.

Consider a few recent purchases:

• When Michael Dell buys $70 million worth of his own stock, might he have an agenda besides the capital appreciation of what amounts to a pittance to him? Dell is the 4th richest man in the United States, with net assets of ~$20 billion. His namesake company is under assault -- from HP, the financial press, the investment analyst community.

Might he have a different agenda than you or I?

• The aforementioned Kerkorian purchase of GM: He ha s a long and storied history as a corporate raider, greenmailer, etc. When one gets closer tot he long dirt nap, one thinks of their legacy. For all we know, this GM bid was an attempt to improve his reputation.

How does investing alongside him benefit you and your 5 figure IRA?

• Warren Buffett has made numerous advantageous deals, getting all sorts of preferences in the negotiatied  takeover terms that you don't get.

If you like Buffett, by Berkshire Hathaway -- but don't attempt to piggy back his trades, cause you get very different terms than he does.

There's many other examples of this, yet surprisingly, investors keep going back to that same well.

The bottom line is this:  Why do billionaires make certain bids afor companies and other specific investments? Is it to save for a house, put together a college fund for their kids, try to outpace inflation, make sure they have a financially secure retirement?

Or, might they have a different agenda entirely, involving propping up a weakened company, creating a personal legacy or, (Dare I even say it?) stroke their own egos a bit?

Unless you can invest on the same terms, for the same reasons, and achieve the same objectives, its foolhardy to try to parallel what the Billionaires do . . .

Sunday, March 25, 2007 | 07:13 AM | Permalink | Comments (10) | TrackBack (1)
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» Don't Follow Wealthy Investors, Part 96 from The Big Picture
We have time and again counseled readers not to follow in the footsteps of various Billionaires, like Warren Buffett, Michale Dell, Wilbur Ross, or Bill Gates. Their motivations and goals when investing may not be simply straight up, return maximizatio... [Read More]

Tracked on Feb 17, 2008 7:01:41 AM

Comments

Dirt nap... That's cute.
--
I enjoyed your perspective on the billionaires, and you're right. They have very individualistic motivations that the rest of us generally ignore, except you, Barringo. I suppose you do your best thinking on Sunday mornings.

...And me, (Eclectic), I look at the other end of the spectrum -- and I don't mean abject poverty here, because the poor are also very individualistic, just about survival -- no, I'm speaking about the contentedly successful, the ones all hooked together with rings in their noses and chained to each other like slaves. Nothing indivudualistic about them.

They're chained to each other with the peer pressure that is the diametrically opposite force imparted to billionaires. They sink or swim together, just like these handful of cows outside my window march to the step of a bell cow.

Just like that bell cow rouses her herd, they'll also rouse themselves from a cool, peaceful and shady cud-chewing session, and rise to the peer pressure that's written in their souls, and march in line-step through blazing sun, just so as not to be thought of as too independent.

Whatever the herd does, good or bad, they'll all do it together.

Posted by: Eclectic | Mar 25, 2007 8:37:01 AM

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