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Comment by gwd | Hacker News Reader

From TFA:

> The 43-year-old’s remaining stake in the ride-hailing company now constitutes about a fifth of his $3 billion fortune, according to the Bloomberg Billionaires Index, down from about 75% before the lockup.

To be fair, if I had 75% of my net worth in a single asset, I'd also try to diversify. My wife and I both have lots of stock in the companies we work for, due to RSUs and employee stock purchase programs; and although we both believe our companies are a good investment overall, we regularly sell shares just so that we don't have so many of our eggs in those two baskets. 20% is a perfectly reasonable target I think.

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As an aside to the parent poster, an often-stated guideline for the maximum amount you should own in the companies you work for is 10% of your portfolio value [1][2]. Modern portfolio theory (Markowitz, et. al.) calculations for a bundle of assets probably would bear out that 20% in a single stock is not on the efficient frontier [3].

[1] https://www.marketwatch.com/story/dont-invest-in-your-compan...

[2] https://www.forbes.com/sites/maggiemcgrath/2013/10/22/how-mu...

[3] https://en.wikipedia.org/wiki/Efficient_frontier

Thanks for that! Just to be clear, what I meant was, "I wouldn't consider 20% as a target to be indicating he thought the stock was going to crash / was a bad value." I had thought of adding that even 10% or 5% would be reasonable, but I didn't really have any good grounds for saying so other than my totally untrained, amateur intuition. So thanks for the supplement. :-)

That not really applicable for "Directors" who are quite different to "employees /workers"

I’m not a big believer in MPT as correlations are unstable, but a simple rule of thumb would be anything over 10% as having significant exposure. With some big tech, there’s some diversification due to different business segments, ex: Amazon ecom/AWS vs recent IPOs where the stock might function more like an option.

Depends how the company is doing. Depending on the internal transparency of the company, as an employee you're often privy to a lot of information that Wall Street does not have access to, eg. you'll oftentimes know their upcoming product pipeline, employee morale, culture, and key metrics for the success of the business that are not published in their financials. If those are doing well but Wall Street is treating the stock poorly, it makes sense to max out your stock compensation and never sell, at least until the metrics turn or you leave the company. (Yes, technically this constitutes insider trading, but it's virtually impossible to prove that inaction was because of inside information vs. because of lazyness or inattention, unless there's a pattern of action.)

Even in that case, it may make sense to diversify. The market can remain irrational longer than you can remain solvent.

That saying's usually not true when you're dealing with employee stock compensation, where you own the shares outright and make enough in cash salary to live on. Ownership is forever (modulo a revolution or other forcible overthrow of the rule of law, in which case you have bigger problems). In the absence of leverage, you can afford to be perfectly rational and have an infinite time horizon.

As an employee at a megacorp, sure, you can see a little bit about how things are going from the inside. That said, you probably spend less time looking at reports than professional analysts. Secondly, sure, maybe you can see how great your company is, but do you have a frame of reference to a million other companies and their projects and cultures? There's a strong bias towards thinking you know more than the market that I would be wary of.

That depends a lot on your past background. A number of the employees at these megacorps have either worked in finance before, or at one of the big consulting firms, or they've done the Valley dance between the hot growth companies of the moment. So they do have that reference point between many different companies. There's sort of a revolving door among many of the elite institutions that run the world - Ivy League universities, large dominant corporations, big-name consulting, finance, and government.

If this doesn't apply to you, and a megacorp was your first job out of college that you stuck with for your whole career, you may want to be a bit more cautious with your capital.

You forgot to mention that many analysts are full of BS anyway: https://www.inc.com/geoffrey-james/financial-analysts-are-ut...

The company I used to work for not only didn't provide stock options or RSUs or (that I can recall) an ESPP for ordinary employees, they eventually took the choice to invest in company stock away from the 401k plan, because they decided it would encourage people to not diversify and they might be considered liable.

I remember when the CEO visited, and while she clearly didn't know that our division existed, the things she talked about highlighted how little we knew of the rest of the company. You have something with tens of thousands of employees, and you have probably quite a few groups of a few hundred people that just have no particular connection to the rest of the company. In our case, we started as an acquisition that was kind of forgotten about.

Diversification is for people who have no idea what they're investing in. Portfolio theory is spray/pray with no information which is what VCs do with unestablished startups, hoping for the wins to beat the losses. If you want to be that passive then just buy an ETF or all the large-cap blue-chip dividend stocks instead to keep it simple.

Investment funds with a real thesis and research don't do this. Concentrated positions and proper risk management is active investing and generates much greater profits. If you know a sector and company is doing well, diversifying will only reduce your returns.

Diversification can mean different things to different people.

If you mean that >30 stocks is pointless, I agree. How much different is the Dow than the S&P 500 or the whole market, even though its methodology is atrocious?

If you mean that even with a large edge, you should take positions that are >20%, I don't agree.

Then we don't agree. The concentration of a position depends on the confidence of the investment and direction. 20% isn't a magical rule, no point in following it blindly.

I mean, it's like sticking a knife in an electrical socket. Can you get away with it, possibly? Sure. That doesn't mean there's a significant downside to a rule of not doing it.

In theory, you sound good. But, in a 10 year window I have barely seen anyone beating S&P500.

Who do you mean by anyone? I know traders averaging 30% and the best one has done over 100% so far this year, and these are 6 and 7 figure accounts.

Although you make a good point about general portfolio diversification, the difference between a "normal" employee and a co-founder is fairly large in this instance. Co-founders are supposed to have confidence in the business they built - if they don't, why should other investors?

Travis should have confidence in the business he built while he’s running it.

He’s not in charge any more so why should he have unwavering confidence?

If Uber can only succeed with him in charge, and nobody else, then it’s not a very good let alone realistic business is it?

> Co-founders are supposed to have confidence in the business they built

The business they built and still either run or largely preside over, however Travis was ousted— I'm not sure he'd agree with their current direction as a result.

He's still on the board...

You can still want to maintain influence without having personal/financial exposure to the consequences.

But that sends a wickedly powerful statement to the market that you as a remaining board member would not hold the shares of the company you oversee... That's the discussion here.

Of all the negative signals Uber sends, this is the one the market is going to take issue with?

Touché! But cult-like stocks have a stronger relation than usual to their founder(s)' actions.

Stock price doesn't seem to notice FWIW:

https://i.imgur.com/Z8XaO2P.png

There are a lot of reasons a board member might reduce their stake in the company. Lack of belief in the company's strategy is a common reason, especially when boardroom drama is involved. I don't think investors will read anything into it other than Kalanick is rebalancing the risk profile of his portfolio now that he no longer has control of Uber.

Activist investors play this game all the time so it says nothing about the strategy one way or another, just that the appetite for risk is higher the more control you have.

The board supported him being ousted as CEO [1].

He can have a seat at the table, but the table is largely comprised of people who wanted him out, and can continue to make decisions he disapproves of.

This isn't a case of Larry Page and Sergey Brin at Google, or Bill Gates at Microsoft, where the founder is well-respected, left of their own will, and still maintains an influence in a meaningful capacity.

[1] https://www.reuters.com/article/us-uber-ceo/uber-ceo-travis-...

he's no longer involved in uber as CEO, why would he want to tie his wealth to something he's no longer steering? there's not even an argument for Optics here.

I agree. Although there are norms for the practice of selling large personal stakes, generally someone who is/has been a founder would announce their intent to diversify with a schedule — ie I’m going to sell x% over the next 3 years regardless of the price for purposes of diversification. Most investors accept that. I think in this case, his image is so tarnished that pretty much anything he does will be greeted with scorn.

So it can only succeed if he’s steering it? Doesn’t sound like a good business

? Would you want a majority of your wealth tied to a business you used to work at? Or would you rather use it towards things you are actively working on?

I want it tied to a good business. I’d tie my wealth to Google (when they were the same age as Uber), whether I’m the CEO there or not. It doesn’t matter because it’s a great business. If Travis is selling then he agrees it’s a bad business.

Generally true but when you're no longer running the show, these rules are less true; it's no longer about your own confidence in your ability to navigate to better outcomes.

> Co-founders are supposed to have confidence in the business they built - if they don't, why should other investors?

But what's in it for the co-founder? Usually it's that they have lots of power over the company, e.g. being a CEO, and have more freedom than someone who still has to prove that they deserve that power. Jeff Bezos for example "only" owns 100 billion USD but controls a 800 billion USD company, with the freedom and power of a cofounder. After a certain amount of money, say 10 million, you can fulfill most of your dreams. And there are plenty of people who have that amount. But few can say they are in control of a 0.8 trillion dollar company.

As the other comments point out, Travis was kicked out though so he lost his power. So it's only understandable that he diversifies his portfolio.

There are realms of wealth. Even 100m is not enough to comfortably afford a private jet. Several ultra wealthy like Bill Gates diversified a billion dollars from their company which seems to be about the limit where more money mostly becomes an abstraction.

One example is people who actually own mansions generally live in a relatively small space inside. You can only really use one room at a time and walking around takes time.

This comment reminds me of another comment [0] on Reddit that talks about the different levels of wealth. An eye-opener for the rest of us for sure.

[0]. https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_i...

Insane. I'm not sure if it's real or not based on the users post history but it's just hard to think about.

This is an amazing discussion of wealth in the linked reddit comment.

Shows how easy it is to underestimate how different lives we all live, depending on our experiences and outlook - even in the same country. Money is probably just one big parameter, but there are surely many others.

Hmmm that's a very interesting reddit comment. Thanks for sharing! I guess my comment was a bit too imprecise. Of course you can always afford additional luxuries, and money still remains a big factor in relative pecking order questions (which become more important the more super-rich friends you have!). But power over personal staff, even if it travels with you in your private jet and occupies half of the hotel when you arrive is not the same as power over tens to hundreds of thousands of employees. Also, that private staff is a net loss while the company is making you money.

Throwaway for obvious reasons, apologies.

FWIW, I kno(e)w four billionaires through my work (one deceased, one I lost contact with), and their life is not at all like described here, though they could afford that and more they keep a pretty low profile and you likely have never heard of them, and likely never will. But the 'controlling interest in a company you've likely heard about' is a common factor for three of those four.

The people that throw money around as if there is no tomorrow are typically the ones that have an unhealthy urge to be recognized as wealthy, the really wealthy people are relatively quiet about it in comparison.

That may of course be a reflection of the group of people that person connected to, I can see how there are very different circles of wealthy people just as there are different circles of people that are not wealthy.

Billionaires are just like the rest us when it comes to variety of personalities and motivations. The wealth just lets them indulge more in the extremes (like complete privacy or flamboyant fame).

$100m can very comfortably afford a private jet. Maybe not a brand new G6, but a small to mid size jet could be comfortably purchased and maintained while barely spending more than the market appreciation of that $100m.

A new mid-size jet will run you $10-20M.

Pilots and maintenance will cost you $1M+ per year. Depending on how much you use it, that could be significantly more. Spending 10-20% of your net worth on a vehicle up front + 1% pa going forward is not "comfortably afford".

If my net worth was $2M, I would not say that I could comfortably afford a lambo.

Don't buy a new mid-sized jet then...? You can certainly afford a small, used private jet if you have $100 million. Not to mention a lot of people that own private jets rent/lease them out, just like they do with yachts, which can help to offset a lot of the recurring costs. I know a guy that owns a relatively small business and he has a modest private jet (as modest as you can get while owning a jet) and he certainly doesn't have 100mm. Aviation is one of his hobbies, which likely plays into his decision, but it is feasible

Why buy a new mid-sized jet? I was responding to the comment that a $100m net worth can't afford a private jet, which is just not true. There are a LOT of options between commercial and a -new- mid-size jet. Buy used or get a brand new HondaJet for less than $5m. Can be flown by a single pilot and can fly anywhere in the continental U.S. with no more than a single re-fuel stop.

Or, fly anywhere in one swoop with a less than 10 year old Citation CJ4 or similar that will run you less than $6m and seat 10 passengers. And the annual operating costs will not get you anywhere close to $1m. Even a G650 isn't going to run you much more than $1.5m annually unless you are putting a ton of hours on it.

But I will also say that 10-20% of your net worth (wouldn't be up-front, it would be financed.) is not that big of a deal when you have a huge net worth. It's a lot when you make just enough to survive. It's not a problem when you still have enough left over for several lifetimes of comfortable living. Just depends on your priorities.

This is something silly one would do if they suddenly got a windfall - spend a chunk of it on a flashy purchase. You can just charter one for the once in a while you want a jet. How many flights is that, even for the 1M a year maintenance? Or fly 1st class. Or, you know, spend it on something that appreciates instead of losing value, like luxury real estate.

$1m maintenance is on the high end. Only a bigger jet would cost that much.

I agree that chartering is usually a better way to go. But private jet life is comfortably affordable at a $100m net worth. Maybe not private-jet-life, and mega-yacht-life, and rare-original-art life all at the same time. But you could definitely choose one or the other.

That's not completely true. Ignoring the tax and operational hedges I can employ if I legitimately use my plane for business purposes, if I fly more than 200 hours a year it's not that (relatively) expensive to own a personal jet. Admittedly, I'm not talking about a Gulfstream G5 or Lear 75, but something like a Citation III or Lear 31/35 cost US$500K-US$1m to acquire (refurbished) and cost less than $10/mi to fly (so less than US$1m for around 200/hrs/yr all in). That's not a big chunk of $100m, especially if you can justify it for business reasons. At the local GA airport where my niece is getting her pilots license, there are lot's of businessfolk and small businesses that justify owning an 8-12 place jet, and they have significantly less than $100m in liquid assets.

To be clear I am speaking of someone living off of 100m in assets. You can have negative net worth, be pulling in 35m/year and reasonably splurge on a 1m/year expense.

But, if you’re living off of say 5m/year from your assets a 1m/year splurge is a huge chunk of your income. At that level renting one would be far more appealing to most people. Though sure if owning a jet was a major hobby vs a means of transportation it’s easily possibly, just as I said a major expense.

If I'm making $100k/yr and I spend $20k cash on a second car (e.g. I don't use that often), or a pool, it's the same ratio, and people do it all the time. And that's just luxury items, not things I can justify from a business perspective. And I don't disagree for most people renting or fractional ownership of planes are undoubtedly better deals (200 hours is a lot of time in the air), but none of that is what you said.

It’s both 1m upfront and 1m every year after that. So, buying a second car for 20k every year is a different story.

Put another way, someone making 100k/year could send their kid to prove school for 20k/year, but it’s a major expense that would impact their lifestyle or savings significantly. It’s possible, but not affordable.

Planes and boats at all levels are known for being a sink for money - no experience personally, but come on, you know operating costs are huge. Like, at an ordinary person's scale, you buy a used German luxury car for $10K, but it's still the same car that was $60K new, which means fixing it will be proportional. And if you can't personally pilot it...

If you have tens or hundreds of millions, I imagine you could find ways to do the stuff associated with billionaires without spending anywhere near as much. If you want to fly on a private jet, you can buy a fractional share. If you want a mansion, you can buy almost anything, you just don't buy a dozen and forget about them. You would just have to have a scaled up middle class budgeting sensibility instead of viewing your wealth as unlimited.

If there is anything that really is limited to billionaires, it seems to me logically it's going to be status, proximity, location, attention that are in limited supply. Not material things.

Yeah but he's not running Uber anymore. Also, clouds have gathered...

I don't agree with this logic: you can be confident but prudent. Self-confidence leads to bias, I wouldn't consider it a bad sign that the co-founder stays prudent.

However, going from 75% to 20% means that something changed, and that's not a good sign

I'm pretty sure the thing that changed was that he was allowed to sell...

When most of your net worth is tied to a stock of a single potentially volatile company like UBER, you sure as hell want to sell that off and diversify your portfolio. He's not involved with the company any-longer, he has no reason to keep his stock. If he was still in-charge I get that you want to display confidence in the business and keep the stock.

TLDR: Most of your net worth in a single stock is insane.

What do you think changed for the worse beyond he's no longer part of the company, no longer party to the 'inner circle' decision making, and no longer has a vested interest in maintaining the perception everything is perfect?

Uber's stock price has been steadily falling since it went public. There are many people who believe it still has a long way to fall.

That kind of changes when one is forced out of the company.

Might even get a kick out of devaluing the stakes of those who forced him out. And I don't even write this in the tradition of "mean things Travis Kalanick would do", I believe that that the desire to do so would be there even for the best of us.

I do hope that vengeful behavior like that would subsequently hurt one's ability to find investors for future projects. Unfortunately there is also a lot of that "this only shows that he is ruthless, we like ruthless" attitude in the world so I'm not sure that it would actually be taken as a negative signal. But that surely won't be an issue for someone with a reputation so firmly dialled in already as Kalanick.

On top of that, the idea of him going back to square one doesn't fit too well with the mental model I formed back when he was constantly on the news, I'd rather type him as the rare exception amongst founders who can easily leave it all behind and indulge in the spoils - but that's just a gut feeling of course, I know less about that guy than I know about some people who have been dead for more than a thousand years.

How much confidence should anyone be expected to have in a company that canned them?

Aside from the point that he has been ousted at which point does a co-founder's requirement to hold a major stake in a company disappear. As a co-founder are you condemned to never diversify your portfolio?

That doesn't make any sense. You can be more confident in one asset than another, yet you should still diversify. In investing, you don't look for that one asset you're most confident in and put all your money into it. If I were a founder, I'd try to convince you to invest in my company, but I wouldn't try to convince you to put all of your money into it. Not putting all of his assets into uber doesn't mean other investors shouldn't put any of their assets into it. After all, it's still 20% of his portfolio, much higher than most of the shareholders, I'd bet.

That's true, but I don't think that makes it any less rational for them to diversify. 20% of your net worth is still a lot of risk to trade off just for a bit of investor confidence.

1/5 of your net worth isn't much to centralize especially if you have insider information in that asset.

Further, a lot of high net worth individuals that hold a large % of stock will announce their intention to diversity 6-12 months ahead of time to avoid this type of issue.

A rush liquidation usually isn't a good thing.

>> To be fair, if I had 75% of my net worth in a single asset,

to be more fair, balanced portfolio theory generally doesn't account for creating 2+ billion dollars out of thin air which you then need to diversify. I think it's appropriate to include the singalling impact that his massive position changes have on over-all value.

So yes, he's making the locally maximizing correct decisions because let's face it, that's what the individual cares about; You could argue that the overall maximizing decision is for the founders to keep huge volumes of equity and bare the exposure that comes with this because, hey - they really believe they are changing the world for the better!

Just as a sidenote, here in Denmark, our Version of the 401k, its illegal to have more than 20% in a single stock, for your own safety.

I love to make my own decisions about my safety. That's a ridiculous. Does the state compensate those who 'for their own safety' were disadvantaged?

You can loose your money outside of your retirement account too though.

And if I cross the street I could get hit by a car. I'm all for countries teaching their citizens about financial responsibility, right in school with the rest of the curriculum. But I would not want the state to tell me how I can invest, they are protecting their own interests as much or more than mine.

Except you get tax advantages in exchange from the restrictions on your retirement account. You can use a non retirement account if you’re not happy with them.

> But I would not want the state to tell me how to...

well then I would advise you to stay far away from Denmark. I personally don't feel like I have to rebel against the man every minute of the day and safeguarding people from engaging in hazardous financial behaviour is about as reasonable as forcing them to put a seatbelt on

I wonder if you can have 20% in the stock and the remaining in various forms of options that end up acting as the remaining 80%. If each of the options counts as its own stock you can do some interesting financial engineering work to make it happen.

Although options themselves are riskier so not sure what sort of incentive that sets.

Nope you can't. And you can't split by buying Class A and Class B stock.

This is for pensions only, If you want to do stocks on your own, you can do whatever, and even leverage the f out of it.

But I actually think this is fine for pensions.

A pension is very unlike a 401k. A 401k is an investment account that you, the employee own. A pension is an account the employer owns, m along with a promise they’ll pay out of it at a certain rate.

Pensions are different in Denmark, the employee owns the pension, and has a lot of options on how it works, how its invested etc. Thats also why pensionplans cant really default in Denmark, because its the employees own account, with money already in it.

You can’t diversify radically from your own company and at the same time tell investors it’s the future and it’s going to be trillion dollar business etc. If he really believed that he wouldn’t diversify. Look at Larry Ellison or the Google founders if you want examples of someone who believes financially in their stakes in their own companies.

> You can’t diversify radically from your own company and at the same time tell investors it’s the future and it’s going to be trillion dollar business etc.

Sure you can; in fact in many cases you should. Say, one knows (to keep things scientific; replace "knows" with "honestly believes" to somewhat reflect real life) his $100M invested in a company to have a 50% chance of being worth $1B in 5 years and 50% chance of being worthless.

This means expected 500% return in 5 years, which should make (diversified) investors pour money in. But as a real person with $100M net worth, I do not want a 50% chance of zero net worth at any expected return rate. I would rather get $80-90M today, which will give my family 100% chance of financial independence, and leave $10-20M in as a riskier bet. My 2c.

Not really. He already has enough money to live for a million lifetimes in luxury. There would be no reason to diversify at this point, unless of course he thinks Uber is doomed.

Ironically Uber is over $30 for the first time in awhile...hasn't been over $30 since even before lockup expiration.

There were fears that the huge number of shares would depress the price even further. Seems like that hasn't happened.

people that can't trade with conviction should not be in the market, whoever derives confidence in a company based on the founder's holdings deserves to get taken to the cleaners

and yes, that includes employees who are also married to their consolidated, vested, and liquid positions. they too should be treating it as a trade.

Pretty much. I learned this lesson the hard way in the dot.com crash, diversification is good.

Especially if you’ve been kicked out and think the company is going the wrong direction.

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