<<it is easy to criticize management, but management's job's is not to manage the stock price, but to build a long and lasting business that is profitable.>>
I COULD NOT DISAGREE MORE.
IMO, you are absolutely, dead wrong. **PRIVATE** business management - yes, all they have to do, is "build a long and lasting business that is profitable". A **PUBLIC** business management's job is FIRST to build value for stock shareholders, and yes, most of the time you do it through building a profitable business. But it is not ENOUGH to run a *public* business well - you have to make sure the stock rewards the stockholders.
Take an extreme example: company XYZ, sells ordinary rocks for prices that result in no profits, only losses - legally, without fraud etc. However, due to the way the management "sells the sizzle" (again, legally and without fraud), the stock price climbs through the roof. In my book this is excellent management - they took care of the MOST IMPORTANT thing - shareholder value.
What if the objection is: this is only a short-term profit, while long term it will be a disaster. Wrong again. The company in question can use the expensive shares to acquire a "genuine" business, and so deliver long-term value to the shareholder. The brilliant management started with NOTHING, no profits, and delivered ***LONG TERM*** value to the shareholder. F.ex. it is often said AMZN never makes a profit, but is worth more than Barnes and Noble and Borders put together. OK - what if AMZN turns around and buys Barns and Borders with its stock???? Or buys some other business that actually generates profit like a Disney? Now you have both short and long term value for shareholders. All thanks to the brilliance with which management started with ZERO or less than ZERO, and delivered their shareholders a huge value.
This is of course a well known tradition - and no "funny business" - forget AMZN. This has been used by WCOM for YEARS as a method. Using stock/debt/leverage to build themselves into a GENUINE giant, with immense LONG TERM value for shareholders. GBLX is trying to do the same. The managers who can do that are the truly brilliant ones. The late Ross of Time/Warner was such a guy - who used these techniques to build an empire that is still delivering LONG TERM value to shareholders.
Understand - it is IMMENSELY important to take care of exactly the thing you criticize <<but management's job's is not to manage the stock price>>. Because managing the STOCK PRICE allows you to expand and deliver truly HUGE **long term** (and short term!!!) value to the shareholder.
Manager "A" runs a funeral business. He runs it well, doesn't take on debt, makes a profit, and as you put it <<build a long and lasting business that is profitable.>> After 30 years, he expanded the business, profitably and the stock appreciated by 5-20% year or so. Manager "B" went into debt, didn't make a dime of profits, only losses, but he was brilliant at hyping up the stock price used that very stock to swing deals that delivers eventually an empire that is worth 100 times as much *long term* value as teh stock of Manager A. That was, Ross of Time/Warner. See, Manager B, knew that his job IN FACT IS <<to manage the stock price>>.
There is a disastrous misunderstanding out there. You think that you are buying a COMPANY in the stock market, while in fact, you as an INVESTOR, are buying a STOCK of the company. That is not the same thing. Simple illustration: IF you buy a *company*, all the profits/losses go into your pocket - nobody can take it away from you (OK, the IRS, LOL!). But if you buy *stock* in the very same company - any number of things can happen. You "share" can be diluted when more shares are issued, so someone CAN take away the company from you. Or perhaps the company is not profitable, but the STOCK is. There is a RELATIONSHIP between the company and the stock. But one is not the other. Jeff Bezos of AMZN, if he had to rely on profits, would be homeless today (or in debtors jail in older times) - his company has losses, and that's what he would have if all he had was the company. But he has STOCK - and he is one of the 100 richest men in America. And it is *long term* - because he can use the stock TODAY to buy a real PROFITABLE business that will sustain him for the *long term*. If all he had was the company, in the *long term* he might be broke. Dramatic illustration of the difference between the stock, adn the company. Thus, long-term or short-term, it is possible to have a good stock and a bad company, or a good company and a bad stock.
That is why I stress that management of a PUBLIC company has a completely different role than of a PRIVATE one. Your argument is a textbook illustration of the catastrophic misunderstanding of the relationship between a stock and a company:
<<it is easy to criticize management, but management's job's is not to manage the stock price, but to build a long and lasting business that is profitable.>>
You, as an investor in the STOCK MARKET, are buying a STOCK, not a company directly. In the order of importance in the stock market: FIRST stock SECOND company. If you fail to understand that, you will lose money in the market.
I buy a STOCK as an investor, and I look to see how management is managing STOCK. If they do it through building <<long and lasting business that is profitable>> - great. If they do it by swinging from a chandelier - great. All I care about is the stock. I invest in stocks. And don't fool yourself into thinking this is short-term vs long-term value. Read my examples again, to understand that often managing a stock is exactly what leads to LONG TERM value.
<<You Sir worry too much about intraday crosscurrents that have nothing to do with the longer term.>>
On the contrary. I DO worry over the long term. But I believe I have a more accurate fix on what will deliver LONG TERM value for my STOCKS.
<<Say more that a week.>> You gotta be joking. Look at where this stock has gone from July till today - a loss of well over 50% of the value of the stock. Knight Trimark was the same company with the same management in July as it is today. So, following your example of buying the *same* company in July for $60 a share, you'd be sitting on a gigantic loss today. How long term before that $60 is reached and superseded? A year? Talk about long term! Sorry, you are buying stock - and I am concerned about the long term STOCK prospects.
<<it is easy to criticize management>>
Indeed it is - the stock lost over 70% of its value from the high. This is ABYSMAL performance. And I can certainly point to many missteps by KP - which I've done over many posts. And I mean exactly not the business - which I always agreed that probably KP is brilliant at. But I care about this about as much as I care about his being brilliant at pocket-pool. He did a lot of damage by incompetence in managing the STOCK. And unhappily for many longs, they own the STOCK.
Again, don't fool yourself into thinking that KP is building long-term value. What matters, the only thing that matters - long-term, even from a business point of view (look over my examples of how *truly brilliant* management builds REAL value by appreciating stock), is STOCK management.
A final example. MSFT - I always bring up MSFT as a great company to invest in long term. And I have made this point repeatedly - management is brilliant. Not jut the business. They understood something KP never did. They know their real job is satisfying shareholders. They used their shareprice to generate options that attract talent that builds their business (many net companies took that lesson to heart). That has allowed them to grow 100 times faster and more powerful than they'd otherwise be able to do. They take great care of MANAGING the stock price (the famous "management" of their price by low-balling expectantions etc., etc., etc.,). And they are fanatical in taking care of their shareholders - equal disclosure to the big guys as well as to the small shareholders (none of the NITE management BS), etc.
KP doesn't hold a candle to B. Gates as a manager. Perhaps KP is even more brilliant than Gates at running the BUSINESS. But KP is a complete failure at running a public business. As a shareholder value builder, KP gets an F.
Believe me, when I decided against being an investor in NITE, it was because of the quality of management, not because the business is bad. The business is good. But I decided that I cannot trust management, and I don't believe they are good managers of shareholder value.
Think about these things carefully, and you will see why I adamantly dissent from the praise being heaped upon KP by so many.
Good luck!
Morgan |
