A wise man knows when to cut his losses


The Stockman's Model

The Stockman’s Model

David Stockman’s house, with twenty-three acres, is back with a new price of $13.4 million. That’s quite a cut from its 2010-2012 price of $23.5 million, and even its 2013 price of $19.750.

I’ve always suggested this house was overpriced, but instead of rewarding my prescience by giving me his listing, Mr. Stockman has chosen to return to his original broker, the one who priced it at $23.5 and kept him locked into a home he no longer wants for four long years.

That’s probably due to the magic Sotheby’s name and its “international clientele” (snort), but it could also be because he read my quote about his house in the NY Times.

In 2012, Mr. Stockman put his trophy home — with its 11 bathrooms, swimming pool and tennis court — on the market, asking $19.75 million.

Weak as the market was, the listing was removed — and Mr. Fountain is not surprised.

“For $9 million, it’s a nice little house,” he said. “But these types of houses don’t age well. There is just too much horse crap* out there on the polo fields.”

Stockman, you magnificent bastard, I read your book!

Oh well.

* Actually, I used the term “horse shit”, to go with the polo theme, but the Times editors cleaned it up


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17 responses to “A wise man knows when to cut his losses

  1. Cos Cobber

    I think the lack of success in selling his home has colored this POV on the economy. We are guilty of feeling too good when our homes feel valuable and too down when are homes are down….it doesn’t matter what bracket you are in, its the same deal.

  2. Publius

    This is a great example of ignoring the opportunity cost and why owner occupied R/E is not a good investment. Trigger warning…… 3,2, 1….

    For argument’s sake let’s say that instead of listing @ 23.5mm in 2010, Mr Wonder Boy sold his estate for a 50% haircut of list net of all those gouging fees for $11.75mm at the end of Q1 2010. If he took the proceeds of that sale and purchased the SPDR S&P 500 ETF (ticker SPY), at month end June 2014 that position would be worth (dividends reinvested) $21.445mm. Instead he still owns the house with all the costs of ownership and now lists @ $13.4. Or viewed another way, had he sold the house for $7.34mm in Q1 2010 and invested the proceeds in SPY, at June 2014 month end, the position would be worth ….. $13.4mm!!!!

    I know, I know, if you can afford a house like this who cares? As someone who has managed money for very wealthy people for 3 decades, I have watched this scenario unfold numerous times and in some cases I have watched the same people do this on numerous occasions much to their detriment and to their heirs….

    If it takes you 4 years to cut your loses, your are not wise, your just like all the other “retail investors”… buy high sell low

    • Anonymous

      Like everybody would put 100% of their home equity in the stock market.

      • Publius

        If you are wealthy like in this example, your home equity should be a relatively small % of your balance sheet; if it’s not, your not wealthy. Remember opportunity cost affects everyone regardless of economic status. Given the poor financial condition of most Americans particularly those near retirement, I suspect that this concept is not on the radar.

        The point that you are missing, because you are not thinking is that opportunity costs + cost of carry are ignored even by the most affluent. When you actually run an alternative scenario like the above, it becomes much clearer, or it least it should. If it isn’t clear, you are probably long too much house.

        • Anonymous

          I suspect Mr Stockman has a lot more net worth than 10 mm and probably has a lot of direct and indirect exposure to the stock market already. Clearly he would have done better to have sold earlier but it is over simplistic to assume the house proceeds would have been reinvested in the stock market. Perhaps he would have bought in Aspen or Palm Beach.

  3. Once

    What is comical is Mr. Stockman was on TV and talking about how the unemplyment rate would be five or six points higher if it was measured the way it was in just 2000. So if one is privy to knowledge that suggest the economic recovery is worse than it is or non existant, why wouldn’t he discount the bejesus out of the home before things get even worse?

  4. Inagua

    Stockman built it in the 1990s, right, Chris? I eyeball his cost at maybe $10 million. What do you think? Any record of what he paid for the dirt? To be sure, he has done better with this house than he did with Collins & Aikman, but this is his money, not other peoples like he usually loses.

    • BigMike

      The 10 acre lots started selling off in the early to mid 1980’s at 750k a piece.
      It’s 23 acres? Let’s say 2.5m in early 90’s numbers.
      Built at $200/ft, (17000 sq.ft) 3.4 million
      So that’s about 6 million.
      Landscaping, hoa fees, and taxes for twenty years: 3 million.
      Decor etc. 1 million

      It’s 10 million on the low side.

      • New In Town

        who takes into account landscaping, hoa fees, taxes and decorating in what someone’s return was on a house?