Wednesday, November 17, 2010

The Latest in Government Propaganda

Other than a little more than two years ago when events in the stock market and the financial markets worldwide took over center stage of the attention of everyone in the free (and not-free) world, I have tried hard not to make this spot into a stock market blog. There's a lot of reasons for that, but basically it comes down to the fact that I've already been there and done that. I've mentioned this a couple of times before here on the blog, but a long time ago, back when the internet was truly in its infancy, I stated a stock market website that essentially met the exact definition of a "blog" even though nobody was using that word back then. This was the mid 1990s, when other than maybe by a couple of freaky guys wearing black nail polish and spiky hair while living in their mommy's basement hacking away on the newly-discovered internet (thank you, Al Gore), today's "blogs" were simply referred to as "websites", or maybe just "URLs" by the dorks of the world. But that's what I had -- a stock marker blog. I kept it going, updating daily, for several years. I even turned it into a nice little side business, selling some regular financial information and predictions for a monthly subscription. I had a credit card machine, a merchant account with a local bank in southern New Jersey, the whole kit and caboodle.

But that all ran its course. After maybe 6 or 7 years of regular updating and provision of financial information, the grind eventually took its toll. Sometime in 2004, I stopped updating that site, and I don't foresee myself reopening that part of my life anytime soon. Don't get me wrong -- I still love the stock market, I still follow it like a hawk every single day of my life, and I'm sure I always will just like I always have since I was a kid. But having to follow things closely every single day, having to make picks and predictions for paying customers day in and day out, and just generally being subject to accusations of being wrong, being an idiot, having my head up my ass, etc., it really turned into a serious drag after a while. Given that investing directly impacts people's money, I found after several years, after weathering the dot-com bust of the early 2000s, and everything else in between, that I just didn't want to subject myself to that kind of public scrutiny anymore, so I stopped it. And as I said, I haven't looked back on that decision at all, despite those couple of months in late 2008 when all I could think about was the market, the financial sector, and the Wall Street engine that completely and totally makes the city where I live go. And to this day, even though I have a lot to say in my personal life about the stock market almost all the time, I try generally to keep that out of what I write about here, preferring to limit my opportunities for public embarrassment for my predictions to areas like football games, baseball over-unders, things like that.

All that said, this story has really got me chuckling today. GM's new IPO has been expanded by 31%, huh? Due to extensive investor demand, you say? Oh, and this move just happens to decrease the U.S. Treasury's stake in the new GM from 61% to 26%, as most of the additional shares being offered will come straight out of the government's stake. That is just so convenient, isn't it?

One thing people don't know is that the first step to being a smart, successful investor is always going to be using your common sense. I'm not saying that any untrained, inexperienced person can use their god-given brains and become a millionaire by speculating in metals, coffee beans and index futures -- far from it, of course -- but at the same time, I've always counseled anyone who has asked me that, if you don't understand what a company or an individual investment really is, how it makes its money, and certainly if you haven't even got a basic understanding of the financials and the relative valuation of a stock, then you have no business investing in it. This isn't the kind of thing that you need some kind of a finance degree to do either -- but I always have to chuckle when people complain about losing money in, say, some biotechnology stock, which they bought at $40 a share and now it's at $3 a share, when the company never had any earnings (or any real prospects for earnings) at any point during the time they've owned the stock. Only a fool puts his money into a company without having at least a basic knowledge of what the company does, how they make their money, and what level of sales the company has generally in comparison to its valuation in the market. I mean, if you invest in a company with $10 million a year in revenues, when that company is currently valued at $5 billion in the marketplace, without some very clear reason why you think the gap between those two numbers will narrow significantly in the near term, then you're just asking to be separated from your money.

So about GM. Remember, this is the company that lost market share for its cars basically every year from 1959 through their bankruptcy in 2009. Every. Single. Year. As a general statement, the company hasn't been responsive to the needs and desires of American car buyers -- for generations now, mind you -- and they still have the most bloated, overextended distribution network in the modern car-selling world. In the end they didn't close nearly as many of their dealerships as was originally reported they were going to have to close, and as such the new company will still have something like three times as many dealerships in their distribution, sales and service network as their profitable foreign competitors in the U.S. They were able to renegotiate some of their ridiculously over-fluffy benefits for current and past employees with the UAW, but again not nearly as much as was agreed they needed to renegotiate back when the bankruptcy was imminent a year ago. And most of all, what changes has the company made as far as the cars they are going to produce, both in terms of selection and quality? Have you heard of any substantive changes on this point? Me either.

The new company is basically a slightly-better-but-still-generally-all-the-same-problems General Motors. I couldn't help but break a smile when I even saw they were emerging from bankruptcy and heading for such a large IPO, and frankly I can't help but laugh every time I read anybody talking about what a good buy the new GM stock will be. As the company prepares for potentially the largest IPO in human history, the government now wants investors to believe that this thing is just so oversubscribed, that there is just so incredibly much demand for shares in the new General Motors, that they are having to increase the number of shares offered by a whopping 31%, something I'm not sure I can recall happening in any IPO in my memory. And this huge increase in shares will just happen to bail out the government to a significant degree of the absolutely, unprecedentedly massive share it recently took in the company in bailing them out a year ago?

Come on. You don't have to be trained or experienced in finance in order to see what is going on here. If you simply refuse to put your money into something whenever you do not have a clear sense of the value, of where the impetus is going to come from for a company to grow and a stock to move higher over time, you'll find yourself consistently not on the losing side of trades that never had a chance to make it in the first place.

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Blogger James Atkin said...

Hey man,

I was hoping you might be willing to swap blog links with me. I've already added you to mine @


9:55 PM  
Blogger GnightMoon said...

Enjoyed this post. It's nice to read about something I don't know much about from a competent author.

12:06 PM  

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