patrick.net

DP, in a typical VC fund, only 1 out of 10 deals turns out to be one of those home runs. The distribution goes something like this:

1 out of 10 is a home run
3 or so make a decent return
2 or so make some money
The remaining ones lose some or all of the investment

Malcom,

Sounds about right (if not on the generous side).

My guess would be he's getting in as an LP, not investing in the portfolio companies directly. If it's a top tier fund, he'd be getting 5x+ above market out per fund.

In the spirit of ridiculous realtor quotes, try this one from Victoria BC:

MOTIVATED SELLERS! TRY YOU OFFER! Not a single detail has been left untouched during the renovation of this 1912 character home locatyed Victoria's west-end. Featuring a galley kitchen with stainless steele appliances, all new cupboards. Original fir flrs have been redone, vaulted ceiling with its olde-style markings, looks brand new. New roof, gutters & exterior. Just a short walk to the local YMCA, as well as Banfield Park & schools. Available immediately!

This is not an area known for great schools. Motivated sellers and available immediately smack of desperation, final thing to note is the prive and the square footage:

House Asking Price: $327,000
House Size: 778 sqft
Lot Size: 2790 sqft

Link is here.

I know this isn't a California price, but there are one bedroom apartments with more square footage, and these type of prices here are still in real dollars in an environment where liar loans and neg-ams have not taken hold.

I presume that you exclude the houses.

This is not fair. A renter with 250K liquid assets will be considered richer than a homeowner with 1M house equity (and nothing else) that can be liberated at any moment. :)

tsusiat, we all know that British Columbia is the best place on earth. It is special.

That stat on millionaires is wrong. There are 300 million people in this country, and something like 2.5 million millionaires. Taking the children population out of that means the top 1% have a net worth of over 1 million.

There are actually almost 9 million households which have a 1 million dollar net worth or greater.

"DP, in a typical VC fund, only 1 out of 10 deals turns out to be one of those home runs."

You're correct. The VC is a well respected entity earning consistently high returns for the investors. They concentrate on Biotech/BioPharm. Most of their deals come from acquisitions even before product goes into last stage trials. Their goal is 10X. invest $20Mil, sell for $200-250M. Product must have positive data. If their portfolio companies go public, they get snatched up by bigger pharmas once Phase III is going smooth with great data. Typically around 1 - 2 Billion.

The figures can move around because some organizations exclude the primary residence paid for or not from the net worth calculation, others just go by a straight net worth of all assets minus liabilities.

The figures can move around because some organizations exclude the primary residence paid for or not from the net worth calculation, others just go by a straight net worth of all assets minus liabilities.

Net worth is a rather useless measure around 1M.

Yup, realizing the exit strategy is the make or break move in the VC model. It definitely has its drawbacks but it keeps things moving in this country.

How so Peter?

How so Peter?

Because it does not tell anything about financial well-being at all. When the average house is already selling at around 1M, it does not not give useful information such as purchasing power and spending behavior.

However, any net worth is still net worth though. It is just that low-end figures do not tell much.

Actually net worth is the best indicator for spending power as it is a true measure of wealth. IMO it is the truthiest. (joke, please no grammar correction)

I think that is why conservative institutions make you drop the house from the equation. Of course though, you can always max out your HELOC, move the funds to your savings account for the calculation, then just pay it back, that's why I believe you should include your house since you can work it in anyway.

I think that is why conservative institutions make you drop the house from the equation.

Yeah, liquid net work is a better measure.

Net worth is a better measure if used within the same demographics group.

In any case, it is also a valuable tool because when you compare your net worth at different times, it tells you precisely if you are going up or down.

In any case, it is also a valuable tool because when you compare your net worth at different times, it tells you precisely if you are going up or down.

True. It is a good measure to compare against yourself.

According to some insider info that I have wrt that hedggie guy, he doesn't have $1.8M sitting in other vehicle making higher return. He is counting on making the same bonus as 2004-2006 to make his mortgage payment. If he really knows what he is doing, he should not have bought a home in the last 3 years to begin with, he should have rented an upscale place, put all his savings and leverage that up in something betting on the housing bust. I also know what his investment portfolio was like since he bragged about it, he is betting on the economy sustaining itself for another 5 years.

People who bought $2M+ homes should be worth at least $10M. Middle classes take on mortgages because that is the only way we can buy a home. Rich guys who want to stay rich don't just allocate a big portion of their net worth in a home for self-occupation. Owner-occupied homes are not an investment, no matter how much my home is worth, I can hardly cash out on it, because I will need a place to live in ultimately.

My fear:

When hedge funds are making big money, they are speculating big time. (Forget about statistical arbitrage, let's go long on leverage!)

When the landscape changes, there will be blood on the street. Financial institutions are just as prone to emotion as individuals. (Greed, fear, escalation of commitment, framing, etc)

"Wow, to my surprise, there is a subject dedicated to what I wrote! "

Everybody likes to show off their tools, even Patrick.net.

Doctors make 150-200K right after residency.

No actually they don't. Well at least the 4 MD's I know don't.

Do you guys really doubt that salaries of ‘300K-1.5million’ is not common in consulting, finance, etc after 10-15 years experience? Kids nowadays right out of business school at 28 years old are making 300K in investment banking for example. See businessweekonline.com for the story. And that isn’t even good enough now that private equity firms are paying 350k-400k! I shake my head, but it’s the truth. 10 years out of business school puts one at 38 on average, and allows for 3 levels of promotion (associate to VP, VP to Director, and Director perhaps to MD.. this is every 3 years).

Ok, so now we're using IB millionaires and VPs as our benchmark of housing "affordability"? What's next, billionaires and CEOs?

No quotes here but funny:
http://www.greeleytrib.com/article/20070422/BUSINESS/104220151/-1/rss04

Realtors housing foundation to raffle house

"Affordable housing is important to Realtors. With what seems ever-increasing prices, sometimes pushing many potential buyers out of the market, here's a way that you can help your potential neighbors achieve the dream of home ownership.

The Colorado Association of Realtors Housing Opportunity Foundation will raffle a new home, built by Sanctuary Homes worth $300,000 or a cash prize of $200,000 among their many great vacation packages and season Broncos tickets in their fifth annual raffle."

The only way to own a home in CO is through a raffle. When you win, you get a choice of an "appraised" $300,000 house or $200,000 in cash. Which is the better choice?

How much do they make after residency at 30 years old then?

I know one with 100k - 150K salary plus 200K debt.

People may continue to believe that doctors are generally very rich and securely employed, but recent data proves otherwise. After four years of medical school, and four more years working as a resident for about $30,000 a year, a general practice physician will earn an average of $117,000 a year, according to Physicians Search, an Anaheim, Calif., recruiting firm that places doctors in large practices, hospitals and HMOs nationwide. After three more years, the average general practitioner will earn $147,000 a year. Specialists earn more. Neurologists begin at an average salary of $150,000. Cardiologists begin at $180,000. These are certainly higher salaries than most people earn, but most doctors now graduate from medical school with huge debts, in many cases more than $100,000.

Morrissey also notes that he must pay $50,000 a year for medical malpractice insurance out of his own pocket just to be allowed to work in the ER. "I have to make all that money back before I take home a dime," he says.

I humbly submit that the "Bay Area" be hereby known as the "balla area".

Brand,

Fair enough on the gluttonous "upper middle" FBs. No one loves to rail against FB stupidity and greed more than I do --that should be painfully obvious to anyone by now :-).

Nonetheless, while hardly blameless, I really don't see the FBs as the "prime movers" in the current mess. It's not as if everyone around the country just woke up one day and said "Gee, this old 1200sft ranch just isn't doing it for me anymore. I need to go get a million-dollar NINJA and buy me a McCrapsion!"

Let's face it, the system today rewards excessive indebtedness (and not just in housing), and does everything it can to encourage it, while basically punishing responsible borrowers and savers. When the Fed drops short rates to 1%, Congress starts giving flippers tax-free money, Greedspan starts pimping option-ARMs and MBS/CMOs magically make the banksters' default risks "disappear", what do you expect? Overborrowing is almost the most rational behavior under the circumstances.

BB,

a smart guy would never buy a $3.5M house in 2004-2007. He should have invested in stocks betting on housing bust themes.

Now, if that guy has $30M to spare, then he is just acquiring a trophy home along with a trophy wife. Unfortunately his total net worth is not even $3M.

We will see how these finance guys fare after the bust. Most of those IB people, no offense to those posting here, after getting laid off, can hardly find anything even remotely comparable to what they are making in the good years.

Peter P says: Because it does not tell anything about financial well-being at all. When the average house is already selling at around 1M, it does not not give useful information such as purchasing power and spending behavior.

Peter, I agree with most of your statement. The part about "the average house is already selling at around 1M" is completely ridiculous. IN THE BAY AREA AND NEW YORK! Qualify your statements, people, qualify your statements. The vast rest of the United States is nowhere near your insane bubble levels.

In the rest of the U.S., being a millionaire probably means either a successful business owner or someone with at least 40% or more of their net worth in liquid assets.

Hey Brand, congratulations on working a boomer jab in there!

IN THE BAY AREA AND NEW YORK! Qualify your statements, people, qualify your statements.

I was actually waiting for someone to point this out. Yes, of course you are right! :)

Randy, Could you please take my last comment out of moderation? Thanks.

HARM says: Overborrowing is almost the most rational behavior under the circumstances.

HARM, my friend, we're going to permanently disagree about that statement. I don't care how "free" the money gets, only a total idiot uses credit to buy depreciating luxury assets in any amount which approaches a meaningful percentage of their net worth.

The only real exception is people like Randy H, who used cheap credit to buy an Audi so he could capitalize on a better rate of return (i.e. he recognized an opportunity cost and used credit to sidestep it). The vast majority of people are completely innumerate, so it isn't a "strategy" for them.

Malcom: Stupid boomers. :o

Big Brother,

How many assumptions, exaggerations, and, frankly, talking-out-of-your-a$$ statements can one person make? Apparently many, as you have shown in your post.

I can’t comment on IBanking/finance, but I can say from personal first-hand knowledge for both doctors and lawyers. Your numbers are very skewed upwards. Doctors *can* make in the range of $300k plus, but that is a exceedingly small minority, limited to subspecialists who perform procedures or high-end practices, especially in areas of doctor oversupply like the Bay Area, which on top of that is dominated by modestly-paying Kaiser. Lawyers start out at $150K or so out of law school *only* at top-tier law firms. There is a fixed, almost herd-driven pay increase scale at these firms that NEVER reaches $300k. One makes that much at partnership. And as you either know and refuse to admit, or are ignorant, only a miniscule fraction of lawyers even at these top-tier firms make partner. Most get off the rat race and work in house, for smaller lower-paying firms, or do something different alltogether.

Bottom line (to use a TOS technique): You are FOS.

(reposted from a comment in moderation, altered to avoid moderation)

There has to be a point when people are accountable for their own actions. To me this phenomenon of blaming the lender for lending you too much is very new. Up until this point in time, the advocates for the poor were always saying how unfair it was that credit was tight.

They are the cause of all of society's ills.

My friend’s wife is finishing residency in August. She has 3 job offers ranging in between 150 - 190K in Nevada. She chose one that has 7 days continuous work of 12 hours each day and then 7 days off and the base pay in 180k. She is 31 and she is in internal medicine.

Hi_there,
Unlike what Big Brother says, your friend's story is in line with reality. I must add that Las Vegas pays much higher for doctors than the Bay Area, as there are fewer doctors wanting to live there and a resultant undersupply.

Kidding of course.