Buy, sell or hold?
I love hypotheticals, so here’s one that I’ve been mulling over lately…
Recently there have been some problems with the company’s attempts to strengthen its overseas operations. While the company’s performance at home has been strong, the backlash of attempting to sustain an early marketing success abroad has caused upheavals among some of the staff and required the replacement of two Department heads responsible for operations here in the U.S. At the same time, the company’s CEO is only a little over a year away from retirement and he’s struggling to maintain his grasp on the company’s operations. He consistently finds himself at loggerheads with the two Department heads who seem to be more interested in meddling in overseas operations than they do in running their own departments.
This turmoil has had little impact on you financially, but there are signs that the market will soon slow and subsequent dividends will shrink or disappear altogether.
Then your broker calls.
“Hey,” he says. “I wanted to let you know that there are rumors on the street that the company’s earnings report for next quarter is going to be a real downer. Apparently all of the focus on the company’s problems overseas have stagnated their business here. They’ve done no new product development and they’re having trouble with all of the cheap labor they’ve been hiring. Product recalls are at an all-time high. Sounds like no dividends for a while and the share price is definitely going to go down for the foreseeable future.”
You consider this for a moment and then ask, “well, what do you think I should do?”
“I don’t know,” he responds. “You may want to consider selling some of the stock, or you could wait and see what happens at the next shareholders meeting.”
You hang up and fiddle with your Rolodex until you come upon the well-worn card of your friend the Chairman. After dialing the number and being passed through a couple secretaries, you hear a familiar voice on the other end of the line.
Without the pleasantry of a hello, your old friend starts. “I know your concerned about the upcoming earnings report.”
“Well, aren’t you?”
The chairman chuckles, “aaahh, we’ve been through this before. Remember the mid-90’s? Same thing happened then… staff shake-up, new leadership. Only that time our problems were customer satisfaction not the overseas operations.”
“What’s being done to rectify the current problem,” you ask.
And then your friend the chairman says something that you weren’t really thinking about.
“Look,” he says with some seriousness, “this CEO’s got about a year and a half left on his watch. Before we hired him he had a similar situation at his last company. He inherited a staff with different objectives than those he was charged with by the board that put him there. In the end he found common ground and made it work. Heck, some of his biggest adversaries in the beginning turned out to be bigger supporters than some of his best friends.”
“Do you think he can do it again?”
There’s long pause on the other end of the line, “God I hope so. If not, your stock won’t be worth the paper its printed on.”
So there’s my hypothetical. America - buy, sell, or hold.
As for me I’m holding. I don’t have any other choice.
