Here’s something that might provide a bit of solace amid the plunging values in your retirement accounts: Warren Buffett is losing lots of money, too. So are Kirk Kerkorian and Carl Icahn.
They are still rich, butA their losses — some on paper and others actually realized — illustrate how few have been spared in today’s punishing market when even big-name investors, corporate executives and hedge-fund titans are all watching their wealth evaporate.
The portfolio damage for some of these high-flyers has soared to billions of dollars in recent months. And they can’t just blame the market’s downdraft — some did themselves in with badly timed stock purchases or margin calls on shares bought with loans.
PHOTO: AP
“It’s always hard to beat the market no matter who you are,” said Robert Hansen, senior associate dean at Dartmouth’s Tuck School of Business. “But when the ocean waters get that rough, it is hard for any boat to avoid getting swamped.”
As stocks have plunged, so have the value of chief executive officers’ (CEO) equity stakes in their own companies. The average year-to-date decline is 49 percent for the corporate stock holdings of CEOs at 175 large US companies, new research by compensation consulting firm Steven Hall & Partners showed.
Topping that list is Buffett, who has seen the value of equity in his company, Berkshire Hathaway, fall by about US$13.6 billion, or 22 percent, so far this year, to leave his holdings valued at US$48.1 billion.
Those results included the value of the CEOs’ stock, exercisable and non-exercisable stock options and shares that haven’t yet vested. They were drawn from each company’s most recent proxy statement, which means they might not include subsequent stock purchases or sales.
“Everyone wants to see executives have skin in the game, and this shows they certainly do,” said Steven Hall, a founder and managing director of the compensation consulting firm. “But in the end, we have to remember they still have billions to fall back on.”
But there have been recent instances where executives’ large equity positions have blown up — not only damaging a particular CEO’s portfolio but the company’s shareholders, too.
A growing number of executives at companies including Boston Scientific, XTO Energy Corp and Williams Sonoma Inc have been forced to sell stakes in their companies to cover stock loans to banks and brokers. The company stock was used as collateral for those loans. The falling prices triggered what is known as a “margin call.”
“A decrease in insider ownership is bad for corporate governance,” said Ben Silverman, director of research at the research firm InsiderScore.com. “Then executives’ interests are less aligned with their shareholders.”
Investors in Chesapeake Energy Corp were recently faced with the surprising news that company CEO Aubrey McClendon was forced to sell almost 95 percent of his holdings — representing more than a 5 percent stake in the natural gas giant — to meet a margin call. His firesale of more than 31 million shares, valued at nearly US$570 million, put downward pressure on Chesapeake’s stock in the days surrounding the transaction in the middle of last month.
McClendon has called this a personal matter and said he would rebuild the ownership position, according to Chesapeake spokesman Tom Price.
Certainly some of the biggest investors aren’t happy with recent market events.
Earlier this year, billionaire Kerkorian’s firm Tracinda Corp paid about US$1 billion, at an average share price of near US$7.10, for about 141 million shares in Ford Motor Corp. That represented a 6.49 percent stake in Ford.
Those shares have tumbled, driving Tracinda to disclose twice in recent weeks that it was selling some of its Ford stock — one batch of 7.3 million shares sold at an average price of US$2.43 each, and the other for 26.4 million shares at an average sale price of US$2.01 each.
That means for about a quarter of his total Ford holdings, he got US$71 million.
Activist investor Icahn faces an equally ugly situation with his investment in Yahoo Inc earlier this year, when he bought about 69 million shares for a nearly 5 percent ownership stake. As of June 30, those shares were valued at about US$20.60 each.
His Yahoo holdings are off sharply, with the company’s shares trading around US$13 each. That means he’s down more than US$500 million since late June.
As Tuck’s Hansen notes, the current market conditions are serving up a reality check — not just for individual investors but for the biggest names around.
“Fishing isn’t called catching, and investing isn’t just called making money,” Hansen said. “We have to remember that things can go down by a lot.”
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