My Personal Finance Journey

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Investing Lessons from Martha Stewart

Contributed by mm | July 30, 2004 12:54 PM PST

A must-read from BusinessWeek on Martha Stewart's portfolio as revealed during the prosecution. Unlike what you may think, all the money and access to the best investment advice didn't give Martha above-average performance in her personal account. According to the article, "[h]er portfolio lost 47.35% of its value from June 30, 2000, when it was worth $4.5 million, to Dec. 20, 2001, vs. a decline of 21.26% for the Standard & Poor's 500-stock index."

Among the failures mentioned in the article, the most important one is failure to diversify. Maybe Martha is too self-confident, or people around her lack certain professional education; having 99% of net worth tied her namesake company, is a huge mistake nevertheless. (In comparison, Bill Gates is systematically offloading his Microsoft shares and now MSFT may only be 60% of his net worth. It should be much easier for Martha considering the significantly smaller size of MSO.)

A similar example is with Estee Lauder. As reported by TaxProf Blog:

The July Trusts & Estates journal has an interesting piece on the $550 million estate tax tab faced by the children of Estee Lauder, who died at 96 in April. Trusts & Estates asks "why Lauder, who surely had access to the best legal advice, would die with so many taxable assets. Wouldn't a good advisor have helped her transfer most of the money out of her estate long ago?" After noting that rich matriarchs often resist tax-driven efforts to diminish their power and net worth, Trusts & Estates observes that Lauder actually "did some very effective estate planning" by passing on to her family a $3.5 billion stake in Estee Lauder Inc. at an estate tax cost of "just" $550 million -- 16%.

I have to conclude that some personal finance knowledge is essential to everyone, and celebrities are no exception no matter what money can buy for them.

Source: The Kirk Report

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