Even Billionaires are Pestered By Their Accountants
BY Mike Hofman
If you hit it big--really big--how would you spend your money? We've known for years that the answer for Oracle's Larry Ellison is "Lavishly." But new court documents reveal just how much the billionaire (whose company appeared in its early days on the Inc. 500) spends. As the San Francisco Chronicle reports in today's issue Ellison carried one billion in debt at one point in the early 2000s--and his basic household spending is roughly $20 million a year!
Part of the problem, the Chronicle reports, is that Ellison is loathe to sell shares of his company to reduce his personal debt level. So instead, he borrows against his stake in the company. This can be a risky strategy if the share price drops suddenly. Read this section from the article:
"As risky as it can be, Santa Clara University finance Professor Meir Statman said it is not uncommon for senior executives to borrow against their stock to avoid parting with it.
Statman studies behavioral finance, which examines how people often make financial moves based on emotional perceptions instead of rationally following the path that maximizes income.
'It is really a sense of, 'I know this company better than others do,' and, second, 'The entire world is not appreciating my company as it should be appreciated,' ' Statman said."
The article also notes that Oracle's stock dropped quite low at one point in 1990. Ellison sold shares in another company, Cadence Systems, to cover the shortfall--rather than selling Oracle shares for cheap. I wouldn't dismiss the experts altogether but one can't help but acknowledge that Larry made the right choice holding onto that Oracle stock.
Last updated: Jan 31, 2006
MIKE HOFMAN was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City. @mikehofman