Murray Stahl Episode 9: Reflections on Dell Computer
from Investing Odyssey Hosted by Drew Goldman
A May 20, 2004 essay by Murray Stahl takes apart Dell's buyback arithmetic. From *Reflections on Dell Computer and Other Matters* (Studies in Absurdity, Book VI): Dell did not invent direct selling of electronics; Hugo Gernsback's Electro Importing Company sold radios by mail order in 1905. Over five fiscal years Dell earned $9.856 billion and spent $11.051 billion on buybacks, yet its fully diluted share count fell by only 153 million, because option shares kept being issued and did not have to be expensed. About $11 billion of shareholders' money bought shares then worth about $5.2 billion, while accounting returns on equity still looked superb. Stahl concedes that options are a way to pay employees who would otherwise need cash, but notes that no one can know what cash they would have taken. His ending: Gernsback's science fiction, like modern accounting, requires a very well developed sense of imagination. Part of **Stahl, From the Start**, short explanations of Murray Stahl's early writings. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit investingodyssey.substack.com
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