Monday, October 19, 2009

Buy low, sell high

posted Fri, 15 Oct 2004

Do not buy stock in my company.

I guess this information is not really that useful because I am not going to tell you the name of the company that employs me, but I will give you some things to look for before you invest your hard-earned money in any company.

Basically, you want the revenues of the company to turn into profits for the shareholders rather than be diverted to the CEO’s pet charity projects or to irresponsible corporate spending.

The CEO of my company is in M’town this week. There is some big deal on Monday downtown where the company foundation is giving a million dollars to some person they have decided is worthy of some award. Recipients in the past include Nobel Prize winner Rigoberta Menchu, whose autobiography includes some out and out lies -- she claimed all sorts of disenfranchisement at the hands of the white meanies, like her brother starving to death – but no one in her family remembers that event or even that brother.

For more information about Rigoberta, a darling of the left, see what David Horowitz wrote (warning: he does have a point of view) and what CNN wrote (they also have a point of view, which is usually not anti-left).

Why is my company giving money to charities? I don’t know. The objective of a corporation is to make money legally and ethically for its shareholders. If the shareholders want to donate the earnings to charity, that’s fine. But the officers – the employees of the shareholders – should not be making that decision for the shareholders.

Why do I say “The CEO is in town?” you ask? Shouldn’t the CEO live in the same city as the operating headquarters of the company he runs?

Well, no. He can’t live here. No, he has to live in New York with all the other executives of my company and with the other CEOs. He has to be close to Wall Street is the official reason, but I think it’s because he – and the CEOs before him – just don’t want to live here. They are snobs. They think M’town is Hickville. It may well be Hickville, but their fiduciary responsibility is not to spend the shareholder’s money on unnecessary office space in Manhattan.

I haven’t had much success finding commercial rental rate differences between New York and M’town, but I can give you some information on residential property. A friend of mine moved from M’town to New York a few years ago. He sold his 2,200 square foot house on half an acre for about $130,000 – a gorgeous little house with wood floors and plaster walls. One of those post-WWII ranch houses – well built, not one of the trash tract houses like they throw together now.

He bought an 800 square foot apartment in Manhattan for $515,000. No yard. No garage.

Think about the office space for 100 people in New York in those terms. Now think about what it would cost in M’town. We are talking orders of magnitude here.

One of my moles in the NY office told me that the company pays for a chauffeur to drive the CEO to work every day. I don’t have a problem with that. It’s better that he spend the hour in the car working on memos and email than driving, but I don’t think it necessary for the company to also pay another driver to bring the director of investor relations from his Connecticut home to work. Can’t he take the train like everyone else?

One argument for not moving the NY people here is that we would lose too many good people. How insulting. The only people good enough to do those jobs live in NY or are willing to live in NY? Please. The economy is not that good. And even if it were, there are plenty of good people who don’t want to live in NY who want to do that sort of work.

Wal-Mart is far more profitable than my company and they are headquartered in Arkansas. ARKANSAS! Can you imagine how nuts that must make the Wall Streeters and the East Coast snobs? The Wal-Mart executives live in Bentonville. That’s in Arkansas. Yet they live to tell the tale.

So here are two big ways my company throws money away: big donations to charities that do not support the company’s business strategy and a headquarters in New York for no good reason. Oh. Did I mention the corporate jets that go with the NY headquarters? Because of course our guys can’t fly commercial!

When you go to buy stock, read the 10K (or maybe it’s the 8K – I can’t remember) of the company you are considering. Go to sec.gov and search for the company you want and then for the 10K, which is the annual report. The pay of the five highest-paid executives is at the end of the report. Look to see how big their raises and bonuses were compared to the company’s profitability. Look at the footnotes in the financial statement to see if the CEO made any nine million dollar donations to the U of Miami for a basketball arena even though his company (Ryder, perhaps?) was not making any money. This is useful information.

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