Gordon Gekko was wrong

My position on the federal bailouts has been well documented here — I’ve been against it from the very start.
No bailout for investment banks.
No bailout for automakers.
But, alas, no one was listening to my voice from Main Street.
The problem is quite clear — the government is now doing exactly what Wall Street did that got the country into the mess it is right now — reacting to emotion instead of  due diligence fundamentals.
If I ran a hotdog stand in a community where business was phenomenal for the first three years — but suddenly the demographics changed and the community shifted toward more vegans — it would be my responsibility to quickly shift to a more vegan-friendly menu — or hang an “out of business” sign on my door and move along to the next venture.
The problem is, this country is becoming enablers for a lot of sick companies that need a good dose of rehab specifically performed through the bankruptcy courts.
That’s what bankruptcy is in place for.
If a company’s business plan no longer works — whether they be a hotdog vendor, investment bank or automaker — then it gives them the opportunity to come up with a profitable restructuring plan on their own two feet, as well as the opportunity to pay their employees and investors who stuck it out with them through their bad days — or face the reality that there are just no more buyers for what they’re peddling, and it’s time to move on.
Enough on that, as in many cases, I realize I’m just preaching to the choir here.
So let’s focus on things more in our own control — our own portfolios.
Interestingly, I see Warren Buffet’s Berkshire Hathaway just announced he is scaling back its interest in P&G and Johnson & Johnson — but I’m not too surprised. Even though I haven’t heard Buffet’s rationale for such a move, my philosophy on these names is that they are all good, solid products by both solid companies — but in these days of everyone trying to save a buck, many are downsizing to save where they can and buying more generic brands of the same products these companies make, i.e. instead of Tide or Charmin, Mrs. Smith may instead reach for the store brand.
Some of my best investment decisions are based on watching what people are — and are not — buying.
People always think I’m joking when I say if I ever left my current employer, I just may go get a job working at the checkout counter at a grocery store, as I’d get immediate information on what’s moving and what’s not — and that’s some of the best due diligence footwork around.
On another front, I’m still sticking with the same portfolio on my due diligence list. As you may recall, instead of jumping on the rash emotion of the market a couple of weeks ago, while many others were sounding alarms about Walmart for fear they wouldn’t meet the Street’s numbers again — I said right here that I’d give them a couple of weeks to see how they did.
If you’re an investor in Walmart — and you made the same decision as me — congratulations on sticking it out, as you just saw your shares increase by a few bucks each.
But don’t sit on your laurels and dwell over it, do a little due diligence and decide if now might be a good time to take a little off the top from your profits.
Because, while those slick Wall Streeters, who have fantasies about being the next Gordon Gekko act like fools mimicking that famous movie line of “greed is good” — I always tell them that greed will get them burnt — it already did.
The name of the game is cost leveraging and due diligence — always has been — always will be.
Just a reminder not to base any of your investment decisions on anything you read here. Do your own due diligence, or at least enough research to pick the right professional to do it for you.

One Response

  1. I think Gekko might have been too simplistic about greed, but he did draw the line at profit–which is more than I can say for the bankers, traders, and Wall Street hotshots who contributed to the financial crisis.

    Gekko would have sneered at people like Madoff who got rich at the expense of even their own shareholders.

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