Now that the shutdown has been shutdown, we’re going to try get back to business with a lesson on paying attention to companies you own.
Today’s lesson is – know your CEOs.
We made this rule years ago when we were reporting on new, venture-funded businesses in Oregon. Most were high-tech companies, but one was a vegetarian burger company founded by a local restaurateur.
IFO was mightily impressed by this company, and when her client publication went out of business, she could no longer report on it. Yay! She jumped in a bought some shares.
She was pleased with what she saw … until she read that the CEO had sold MILLIONS of his shares. She called and asked him why he had sold and he said, “I wanted to buy my folks a house in Hawai’i.”
Unconvinced, she sold all her shares before their price began its long, steep decline. Shortly after that, the CEO left the company. He had hand-sold those burgers to get his business up and running. That passion was no longer there, because he and the board of directors had sold his ‘baby’ to a big cereal company.
Now, to the case at hand. IFO rarely discusses her own holdings, but for this part of the lesson, she must. It’s IBM, which recently disclosed disappointing revenues and earnings for the sixth quarter in a row! IFO never noticed. Was she too busy laughing at the G-vt shutdown????
The stock price dropped some 7% just since the recent quarterly earnings report. The shares hit a high at $215 in March this year and today closed at $173. That is a 20% decline in seven months!
While some analysts downgraded the stock, others jumped to the company’s defense, mentioning approvingly that IBM has a policy in place of spending $10 billion a year on share buybacks.
IFO is not a fan of share buybacks. She understands the math, but does not approve of the mentality that buybacks imply – nothing else to do with all that money???? BTW, the company has more than 434,000 employees!
The Motley Fool website has this comment (slightly edited by IFO) by Patrick Morris today:
In November 2011, when Buffett disclosed his position in IBM on CNBC, he said about the management at IBM that “they treat their stock with reverence, which I find is unusual among big companies.”
[H]e also [said] one reason he liked IBM was that it articulates its vision and executes on it. CEO Ginni Rometty noted the company is “taking action to improve execution in our growth markets unit and in the elements of our hardware businesses that are under performing,” which suggests the company has a clear plan to turn its poor performance in its struggling areas around, while also devoting resources to the businesses where it could grow.
Rometty, who was appointed Pres. & CEO in Jan. 2012 and Chairman of the Board in October 2012, doesn’t seem to have “executed” on the “vision.” And look at their top three executives. Sheesh!