John Dowd: When I sold Nextel, I diversified into MSFT and others.
You must be a good fortune teller. While Nextel floated, MSFT and Dell shot through the roof. I stood back as long as I could, I hated to invest in MSFT, I hate bigness. However, under the circumstances, I couldn't sit on Nextel while it floundered and others cashed in on the boom. I won't kid you though, I didn't buy in at the beginning, more toward the end, however I do have a small gain and I'm not selling yet. Now about the debt. I covered this in posts way back, so I won't waste much time now.
It's not the borrowing that's bad. It's easy for anyone to understand that expansion, like Nextel's, takes massive amounts of cash. I am a working accountant, I see this daily, speak to bankers almost daily about client's borrowing. What bugs me then? This!!!!!!
Borrowing without mention in any business plan, 2 billion, count it, 2 billion, of which, most of the money went outside the company to purchase unrelated investments. The junk bonds that were floated undermined the stock that we own, or should I say, used to own.
John, you just started a business and need money to purchase machines and inventory. Your accounting firm suggests a stock issue. Upon selling enough stock to finance your company, you change gears, and spend the money buying another unrelated company instead. Now, you still need to buy machines and inventory so, you borrow more money from a bank. Later on, you realize that you miscalculated the amount of money needed, also miscalculated the bad debts, so you borrow more money from your father in law, who wants to be paid back first. How do you think the original shareholders feel?
Regards again from
Al G., gut feel specialist, with a stomach ache. |
