From 100 million to 4 million

[FANOFJESUS]

http://www.nytimes.com/2009/08/21/business/economy/21inequality.html?_r=1&pagewanted=1

 

[NW-Bound]

Wow! This is THE John McAfee, founder of the McAfee AntiVirus Software.

From a net worth of $100M down to a mere $4M today. Wow! Will he recover, or stumble further? Obviously, a good entrepreneur but poor investor. He did raise a lot of money selling his stakes in the software company, but then squandered it in real estate and investments such as Lehman bonds. He wouldn't do nearly as bad if he would just buy Wellesley. Or give the $100M to me to invest. I don't know the time mark of that $100M, but suspect it was during the 2000 tech bubble. I still have a positive return since that peak in March 2000. I wonder what his burn rate was. I suspect it was a heck of a lot more than 4% SWR too.


PS. He went on margins and invested in subprimes! See attached quote below.

He continued to invest in financial markets, sometimes borrowing money to increase the potential returns. He typically chose his investments based on suggestions from his financial advisers. One of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.​

 

[Nords]

http://www.nytimes.com/2009/08/21/business/economy/21inequality.html?_r=1&pagewanted=1

For the rest of us annoyed by posters who start a thread with only a link, not some sort of value-added clarification, here's a summary:

In one stark example, John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.
“I had no clue,” he said, “that there would be this tandem collapse.”

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.
For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

BTW McAfee spent some of his wealth buying a significant portion of Molokai, as in roughly a thousand acres. At first he projected the image of a lifelong resident of the islands (similar to Omidyar and another eBay investor) but then "changed his mind":

Honolulu Star-Bulletin Business Column /2005/02/16/ (note that this was four years ago)
McAfee Puts Molokai Ocean Home Up for Sale : OceanHome Online
Molokai Hawaii Real Estate - Stephanie Coble

McAfee’s success also afforded him the luxury of owning about a dozen estates (he isn’t sure of the exact number) spread out across North America, Fiji, and Belize, and now he’s cashing it all in. In fact, his 280-acre Colorado mountain estate that was estimated at over $20 million was auctioned off for a mere $5.78 million. “I’m embarrassed that I built that house in Colorado,” says McAfee. “It sold to a gentleman who shouldn’t have bought it. The maintenance on that place is over $1 million a year.”

McAfee's done a fine job of annoying the Molokai residents, and it's hard to work up much sympathy for the guy.

 

[NW-Bound]

I reread the article. It appears that he might have had much more than $100M at the peak. The $100M was what he got from the sales of McAfee stock in 1994. The market then had a tremendous run up until 2000. And according to the article, McAfee did enjoy some investment successes during that bull market run.

The company went public in 1992, in the early years of one of biggest stock market booms in history. But Mr. McAfee is, by his own description, an atypical businessman — easily bored and given to serial obsessions... Two years after McAfee Associates went public, he was bored again... So he sold his remaining stake, bringing his gains to about $100 million. In the coming years, he started new projects and made more investments. Almost inevitably, they paid off.

OK! So, it looks like he is a typical anti-LBYM'er, having the lifestyle of a billionaire while holding the portfolio of a "mere" centimillionaire. Financing this lifestyle would require a heck of a lot more than the 4% SWR, hence he took risks trying to get a higher return. The result is "crash and burn".

I read the links provided on his land sales in Molokai, and do not understand the ruckus that it raised. Were there protests when the previous owner sold to him? What is the big deal? Did they expect him to donate that land for public use and now renege or what?

 

[A854321]

His story is far more akin to that of a toothless, trailer-park denizen who buys a winning lottery ticket at the nearest liquor store.

It says more about McAfee's hedonistic tendencies than about the decline of value.

LBYM applies to those worth more than 100 Million, too.

 

[FANOFJESUS]

For the rest of us annoyed by posters who start a thread with only a link, not some sort of value-added clarification, here's a summary:





BTW McAfee spent some of his wealth buying a significant portion of Molokai, as in roughly a thousand acres. At first he projected the image of a lifelong resident of the islands (similar to Omidyar and another eBay investor) but then "changed his mind":

Honolulu Star-Bulletin Business Column /2005/02/16/ (note that this was four years ago)
McAfee Puts Molokai Ocean Home Up for Sale : OceanHome Online
Molokai Hawaii Real Estate - Stephanie Coble



McAfee's done a fine job of annoying the Molokai residents, and it's hard to work up much sympathy for the guy.

I thought it would be a story others would like to read. I thought the readers would add thier own value after reading it. I guess I could have said, this is what happens when a middle age man does not buy the Vanguard Target Retirement 2010.

 

[Gone4Good]

Income mobility in the US is quite high - both upwards and downwards. While the "rich may get richer" in the aggregate it isn't always the same people in that rarefied group . . . that's especially true for morons like McAfee who aren't content with a net worth of $100MM and take stupid risks trying to turn it into $1B.

 

[calmloki]

Ok. gotta say it. The guy has more money and places than me - AFTER his crash and burn. His name is a household word in millions of homes. He has more homes and toys and experiences than I. He's better traveled. He's contributed more to the world. I really doubt he's done yet. What a loser?

Ran into this story from 2007 on McAfee's life style -
Looks like the guy puts some energy into living:
http://www.desertexposure.com/200711/200711_mcafee_icarus.php

 

[RunningBum]

I thought it would be a story others would like to read. I thought the readers would add thier own value after reading it. I guess I could have said, this is what happens when a middle age man does not buy the Vanguard Target Retirement 2010.

fwiw, I almost never click on a link to something the poster doesn't bother giving any kind of clue what it's about. I'm sure I miss some decent stuff, but I suspect a lot of it wouldn't be worth my time.

 

[atlas888]

With 4 millions, he is still in a better financial situation than most everyone. Plus, did he not have fun and enjoyed the good life for a not insignificant length of time?

 

[freebird5825]

What I got out of the article was a very brilliant man who put in the time to build something he excelled at (software), on the fast track so typical of the techno-explosion of the 1990s. Then he got bored, and got out of the rat race with a great profit. But he couldn't sit still for long, mentally OR physically.
Unfortunately he allowed that restlessness to spill over into his real estate ventures. This seems to be his worst "crime" against himself financially.
He'll lick his wounds, recover, and go dashing off again into something else. It ain't over til the fat lady sings.

 

[NW-Bound]

I don't think anyone here would feel sorry for Mr. McAfee. He had a great time with the money he had. He is also not a loser for making that much money from his software company. Still, the fact remains that he has been a poor manager of money. Let's suppose that someone asked him if given a mulligan, he should build more expensive houses than he could live in. What do you think his answer would be?

I thought the article told of a house that he had built but never moved in. A guy's got to enjoy his wealth, but burning it without getting much pleasure from it and to the point that you have lost most of it is certainly not a sign of financial maturity. This is another example of geeks who make good money but do not know how to manage it.

It would be interesting to see what he is going to do next. His spending has been so great that $4M would not last long. Yet, he might be able to go back to work and rebuild his wealth. There is also a chance he might just fade into oblivion, and we will not be able to satisfy our curiosity due to lack of press coverage.

 

[calmloki]

NW Bound: "I don't think anyone here would feel sorry for Mr. McAfee. He had a great time with the money he had. He is also not a loser for making that much money from his software company. Still, the fact remains that he has been a poor manager of money. Let's suppose that someone asked him if given a mulligan, he should build more expensive houses than he could live in. What do you think his answer would be?

I thought the article told of a house that he had built but never moved in. A guy's got to enjoy his wealth, but burning it without getting much pleasure from it and to the point that you have lost most of it is certainly not a sign of financial maturity. This is another example of geeks who make good money but do not know how to manage it.

It would be interesting to see what he is going to do next. His spending has been so great that $4M would not last long. Yet, he might be able to go back to work and rebuild his wealth. There is also a chance he might just fade into oblivion, and we will not be able to satisfy our curiosity due to lack of press coverage".

...
Ran into this story from 2007 on McAfee's life style -
Looks like the guy puts some energy into living:
Desert Exposure McAfee Dream of Icarus November 2007

Looks like he used his toys. Sort of like a friend of mine who buys only the best and latest of anything. To his credit, he knows what all the buttons do and uses (as far as my troglodyte self can tell) all the features. To me that's not wasting money but using it. Not the way I would, but I'm not financing his lifestyle either. Lots of ways to live a life.

 

[Nords]

I read the links provided on his land sales in Molokai, and do not understand the ruckus that it raised. Were there protests when the previous owner sold to him? What is the big deal? Did they expect him to donate that land for public use and now renege or what?

Honolulu Star-Bulletin News /2005/03/11/

When McAfee bought homes on Molokai a few years ago, he also spent money on computers for schools and other gifts for the community. All was well until national advertisements in January announced his plan to sell the land, including its ancient Hawaiian fishponds and other revered features. A firestorm of controversy erupted.
Activist Walter Ritte Jr., co-organizer of a series of community meetings and yesterday's protest, has said McAfee upset some Molokai residents by lying about his plans for the land.
"He came here as a good guy, saying he's not going to be developing or speculating, and everybody welcomed him," Ritte said in a previous interview. "I think that's important to try and understand how people are viewing him."
Ritte has dismissed McAfee's notion that local residents do not like "rich haoles" moving to the island.
"There's a lot of rich haoles on this island" who do not provoke anger, Ritte said.
McAfee said he thinks he angered the community six months earlier by purchasing an anti-drug advertisement taking residents to task for not taking action against illegal drug activity in their neighborhoods.

I think McAfee burned some goodwill by not working with the community. Land speculation and development are very sensitive subjects around here.

Plenty of other tech geeks/entrepreneurs make the islands their home without controversy. Henk Rogers and Pierre Omidyar are two who come to mind.

 

[Darryl]

If McAfee was a good conservative investor and focused on careful strategies and his 4% withdrawal rate, it's not likely he would have made the moves that got him to 100M. When do you stop doing the things that are working for you 1M 10M 100M 1B??

Sorry for not issuing the correct credit and butchering your tag but one of our family closes with "most of my money was spent on wine women and horses. The rest I wasted"

McAfee has had a good run to date, if he wants to join us with 4M we should be able to give him some good pointers, more likely he will play the game he knows. Hey he could still turn this thing around.

 

[Spanky]

His name is a household word in millions of homes

Every time when the virus scan uses 100% CPU.

 

[HFWR]

Every time when the virus scan uses 100% CPU.

And Windoze is using the other 100%...

 

[Meadbh]

McAfee was an entrepreneur in a highly volatile industry. To paraphrase Moshe Milevsky, he was a "stock" in terms of his human capital. Therefore he "should" have been putting his money in bonds and other boring, stable investments. Woulda, shoulda, coulda.....

He should join the forum and then we can sort him out.

 

[Bestwifeever]

I thought it would be a story others would like to read. I thought the readers would add thier own value after reading it. I guess I could have said, this is what happens when a middle age man does not buy the Vanguard Target Retirement 2010.

That kind of comment actually would have been helpful, rec--when just a link is posted we can't tell if the story is about somebody's Barbie doll collection fetching millions or aliens have landed (and invested in Vanguard Target Retirement Funds) or the Cubs won the World Series. So without some little comment a lot of people won't even click the link.

Now that he seems to need the money, maybe McAfee can go back to his company and work on the antivirus program to make it run a little more efficiently.

 

[FinallyRetired]

At $100M, a 4% SWR would net $4M a year, which is what he has now. So you can say he met his SWR, just a tad early.