Saturday, August 24, 2013

The Queen of Versailles

On the train this weekend, I watched a documentary called The Queen of Versailles. Released in 2012, it follows billionaires David Siegel and his engineer turned beauty queen wife Jackie as they embark to build the largest single family home in America starting in 2008. Siegel is the founder of Westgate Resorts, a large timeshare business. David's plans for his home and his business are rocked by the financial crisis, putting the putting the Versailles project on hold, and the sale of PH Westgate in Las Vegas.

Two financial lessons jumped out at me while watching.

1. The dangers of cheap credit.
During the movie, Westgate's business is highly dependant on credit, both for themselves, and for the people buying time-shares in their company. They sell time-shares to people, at low monthly payments, for long mortgages. Instead of setting up a sustainable business, they leverage the mortages into new projects. When the credit drys up, the business cannot make the payments, resulting in the company having to sell their flagship property in Las Vegas. Near the end of the movie, he says that he should have only had 15 properties, instead of 30.

2. The dangers of being too invested in your own company.
Although the Siegel's paid cash for their current home, they took out a mortgage on the property to invest back into Westgate. When the company runs into difficulty, the creditors demand that David take a pay cut, putting their current home at risk. At my company, I have the option to buy shares every year at a small discount. Many of my colleagues buy these and remain invested. So their employment, their pension, and their investments are all tied into one company. I buy the shares to gain the advantage of the discount, but then sell and invest in other companies.

The movie paints an unsympathetic picture of a slightly out of touch billionaire wife trying to cut back and economize (While still eating caviar for Christmas breakfast). There are also some interesting side threads as the movie explores the mind set of people who buy timeshares, and the impact of the financial crisis on ordinary people. I would recommend a watch if you have a chance to find this movie.

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