From today's WSJ:
Dellionaires' Spend Freely,
Even in a Stormy Stock Market
By MICHAEL M. PHILLIPS
Staff Reporter of THE WALL STREET JOURNAL
AUSTIN, Texas -- The stock market meets the real world amid the dusty live oak and
emerald putting greens of Barton Creek.
Just about everyone in this new high-end subdivision just west of Austin has made
a killing in the stock market -- from the guys in the pro shop of the Barton Creek
Country Club to the venture capitalists who paid $40,000 for an annual membership
there. Barton Creek's "starter" homes start at $500,000. This is Dellionaire country,
the land of riches from the stock of Dell Computer Corp. and hundreds of other
high-tech companies located in the Austin area.
If it is striking how many people in Barton Creek are awash in stock-market money, it
is even more striking how durable their spending has been since the stock market
began its stomach-turning undulations. Dell shares, for example, are down more than
7% from a 52-week high of $64.6875 in late August, although Tuesday's closing
price of $59.875 still marks a more than eightfold increase, adjusted for splits, over
the past 21 months.
"There's a lot of ability to absorb hits before one says, 'This is serious. I'm going to
cut back,' " says Pete Winstead, a wealthy Austin attorney who worked on Dell's
initial public stock offering in 1988. "I don't know where that point is."
No Pullback
It is a truism that rising stock prices create more economic growth because they
make people feel wealthy and spend more. Last year alone, the bull market is
thought to have added $60 billion to U.S. consumer spending, according to
Goldman, Sachs & Co. research. So now that the markets have become so volatile,
are people pulling back? Not here.
Take real-estate broker John Guerra, a tall, elegant man of 40. Not long ago, he was
serving food and drinks at the 19th Hole, a watering hole in the men's locker room at
the Barton Creek Country Club. Now he owns Barton Creek Realty Inc., the
development's only on-site brokerage firm. He also owns shares of Dell, Microsoft
Corp. and other companies.
Last year, Mr. Guerra's agency sold 100 lots in Barton Creek, plus 25 homes built on
spec for between $700,000 and $2 million each. (In Austin, the median price of a
single-family home was less than $120,000 in the first seven months of 1998.) Mr.
Guerra himself has signed a contract to buy a two-acre lot in Barton Creek for more
than $100,000. He plans to build a $500,000 custom home on it.
If the Dow Jones industrials were to take
a deeper and longer dip, Mr. Guerra says,
he might consider holding off on his
house-building plans. "I don't see that
coming right now," he declares.
Jerry Nugent, 30 years old, earns a salary
of $40,000 as a golf pro at the Barton
Creek Country Club, a unit of Dallas
company Club Corp. International. He
started investing in the market at age 19
and now values his stock portfolio at
more than a quarter-million dollars.
He is concerned about the stock market
and checks it often on TV sets in the
locker room and pro shop. For now,
though, he says he is sitting tight.
"We're enjoying a very good local economy," Mr. Nugent says, "so the changes in
the market don't really affect my day-to-day mentality.' "
'You Hear Stuff'
Mr. Nugent says he picks up stock tips on the practice range and in the locker room.
"You hear stuff," he says. Invest whatever you can in stocks, no matter how little,
he advises the club's younger pros. After all, that is how Mr. Nugent came up with
the $25,000 down payment on a $125,000 house three years ago. In June, he forked
over $30,000 in cash for a fully loaded white Chevy Z71 truck.
There has been some queasiness. On Saturday, Aug. 29, a local banker plunked
down $15,000 on a $62,000 BMW 740i at the local BMW-Lexus dealership. On
Monday morning, the Dow Jones Industrial Average dropped 512 points, and the
banker canceled his order. He was "in a state of panic -- all white," recalls Bill Argo,
the dealership's general manager.
But that has been the exception. Last month, the luxury-car dealership sold 111
Lexuses -- 40% more than its previous one-month record, says Mr. Argo. He figures
about a quarter of his buyers live in Barton Creek. "So far we've been pretty
insulated" from the market's dramatic drops, Mr. Argo says.
Developer Stratus Properties Inc. has put up 230 single-family homes in Barton
Creek in the past several years. David A. Ruehlman, president of Austin Eagle
Management Services, which runs the Barton Creek development for Stratus, says a
long-term market decline, if it comes, could cut sales by as much as 25%. But there is
no sign of a sales slowdown yet, he says.
Sometimes, the current spending spree seems only slightly less spectacular than the
one that led up to the oil-industry bust and savings-and-loan crisis that devastated
many Texans in the 1980s. Back then property values plummeted, and many
real-estate fortunes disappeared. This time around, the risk of chain-reaction
defaults is lower, people in Barton Creek say.
Half the buyers of Lexuses and a quarter of the BMW buyers in Austin pay cash,
according to Mr. Argo. Mr. Ruehlman says many home buyers have minimized debt
by cashing in stocks and making large down payments.
"People aren't going crazy like they were 10 years ago," says Jeffery C. Garvey, a
Barton Creek club member and general partner in Austin Ventures, a local
venture-capital firm. Austin Ventures has invested in several companies that later
went public, including Tivoli Systems Inc., which International Business Machines
Corp. bought for $750 million in 1996. Mr. Garvey paid cash when he bought a
custom home in 1994 and a Porsche 911 Cabriolet in 1995.
Big Difference
Another difference between Texas real-estate speculators of the 1980s and Texas
stock-market investors of the 1990s is that many of today's individual investors view
stock holdings as retirement savings. In 1997, 13.5% of the nation's total
stock-market capitalization was held in individual retirement accounts, Keoghs and
other defined-contribution plans that investors can't readily access. By comparison,
in 1987, just 8.6% of stocks were in such accounts.
Economists, as a result, think today's mom-and-pop investors may be less sensitive
to market turmoil: Although more individuals are in the market today than during the
1987 Black Monday crash, they don't worry so much about money they can't touch
for 20 years, the argument goes.
That is the thinking of 36-year-old Gale Gilbert, who played quarterback for three
National Football League teams before retiring in 1996. These days, Mr. Gilbert lives
off the income from his small fuel-delivery business, and has his leftover NFL
earnings are invested in the market to finance his children's education and his own
second retirement.
"You lose $200,000 to $300,000 on Friday and Monday, but you're in it for the long
haul," says Mr. Gilbert as he waits for his tee time at the Barton Creek Country Club,
recalling the late-August weekend when stocks fell so precipitously.
Mr. Gilbert indulged a little during the spring: He told his wife he would take her to
Nordstrom's, in Dallas, and let her spend the gains his Dell stock registered during
one randomly selected day. Dell's three-point gain that day generated thousands of
dollars in extra revenue for Nordstrom's.
Stocks also have been good to Sally Allen, Barton Creek's 30-plus membership
director, and her husband, Brent, who started investing in an electronics-industry
mutual fund in 1993. In 1994, they cashed in some of their investments and spent
$40,000 more than they had originally planned on a four-bedroom house on five
acres with two horses.
When the market tumbled that dark Monday in August, the Allens didn't flinch.
"My husband says you haven't lost anything until you sell," explains Ms. Allen.
The Briton considers herself a natural-born gambler: In 1980, two years before she
became a Texan, she lost 100 British pounds ($168 at current exchange rates) betting
that Miss Ellie shot J.R. on the popular TV drama "Dallas." (The character Kristin
Shepherd did it.)
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