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Eight Lifestyles of the Rich and Incompetent


The biggest house on the block usually houses a market loser.

A couple of years ago, a study called "Where are the Shareholders' Estates?," by Arizona State University professor Crocker Liu and New York University professor David Yermack, asserted: "Future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates."

The researchers' sources of information included property deeds, tax records, online databases such as and, Google searches, employment contracts, and voter registration data.

Their findings certainly show a privileged class:

  • The median home was valued at $2.7 million - more than 10 times the median sales price for all US homes in 2004;

  • It included 11 rooms plus 4.5 bathrooms, with a floor area of more than 5,600 square feet and a median land area of 1.25 acres;

  • 12% of CEOs' homes are situated on waterfronts; 8.5% are next to or on the grounds of golf courses;

The median CEO lives 12.5 miles away from corporate headquarters, though 6% of those in the study lived more than 250 miles or more away -- meaning it takes a plane ride to get to the office.

CEOs often buy new homes the year they get the "big" job, with a total of 164 S&P 500 executives doing so in this survey. To finance their purchases, the authors found that 44 percent used mortgages, almost evenly split between adjustable-rate and fixed-rate loans.

More interesting is that about one-third of CEOs appear to have exercised stock options and sold shares in the 12 months before they made a home purchase. The shares peaked right before the home was bought.

That doesn't mean that they necessarily sold those shares and then used the proceeds to buy their homes. The authors felt the timing of those equity moves was more than just coincidence, however, because the companies' share prices began to fall after that peak.

The study's authors found that a CEO who acquires an extremely large property generally exhibits inferior stock performance, as does a CEO who sold his or her firm's shares and options within 12 months prior to the purchase. A CEO who does not sell any shares to finance their house shows better stock performance.

"The stock charts show that some CEOs might be very motivated sellers who are rolling money into a home," Yermack said. "Home purchases could be a ruse. If you are going to dump stock, you can buy a house to cover your tracks."

Those living really large are the 12% of S&P 500 CEOs with homes topping 10,000 square feet, or on a minimum of 10 acres.

But occupying the biggest house on the block doesn't make you a winner on Wall Street. Their companies' stocks lagged the S&P 500 by about 25% over the 3 years after the CEOs' home purchases. In contrast, those buying more modestly saw their companies' stocks beat the market benchmark by about the same amount.

Does their thesis hold up? Minyanville took a look at snapshots of actual CEO homes versus their company's performance to find out -- and found some serious lifestyles of the rich and incompetent.

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