Have insiders become too bold? It's a question worth asking. Each week, news breaks about executives suffering margin calls. Directors of Boston Scientific
I never thought I'd say this, but Oracle's
Includes 23,150,000 shares subject to currently exercisable options or options exercisable within 60 days of the record date and includes 911,744 shares owned by Mr. Ellison's spouse of which he disclaims beneficial ownership. Includes 442,241,175 shares pledged as collateral to secure certain personal indebtedness, including various lines of credit. [Emphasis added.]
So according to the numbers, 37.6% of Ellison's stake in Oracle -- equal to roughly 11% of the current float -- is at risk to Mr. Market's mood swings. Yikes. As if Oracle weren't already getting enough trouble from SAP
The good news? Last year, Ellison had 525 million shares committed as collateral, so he's reducing his exposure and paying off debt. Smart thinking.
I've never been in favor of buying on margin, and I'm still not. We know of its dangers thanks to Benjamin Graham, whose overleveraged portfolio nearly broke him during the Great Crash of 1929.
Graham was as smart as they come, Mr. Ellison. He's the man Warren Buffett calls his mentor. Please learn from his mistake; eliminate your margin exposure, lest you torpedo my portfolio, too.
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Tim owned shares of Oracle at the time of publication. Chesapeake Energy is an Inside Value pick. Get access to all of Tim's Foolish writings here. The Motley Fool's disclosure policy hasn't bought on margin yet.