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America was soft and you can't tell me that eastman Kodak (disgusting avoidance of easy, than hard decisions), GE (disgusting balance sheet management) and Citibank (disgustingly greedy management and ignorant boards) are what iilled the blue chips.
All these comapnies made hundreds of greedy, bad decisions to end where they are now.
we watched as common shareholders and CNBC cheered them on making the people the stars and not the products and companies.
really....we should all be ashamed.
The lack of supervision by the boards and shareholders have put us in a terrible position. The only question I would throw out there is:
Did our (the public) desire for unrealistic stock market returns encourage the risk taking by these companies? Look at the latte factor? Some of those tables use 10% annual returns!
I would be willing to bet that less than 25% of America has reviewed their 401K asset allocations in the last 12 months. It just keeps pumping into the stock market and mutual funds.
what would you cite as some examples?
http://www.avc.com/a_vc/2008/12/bits-of-destruc...
pretty prophetic stuff.
Update: http://blogs.harvardbusiness.org/haque/
that should give anyone not familiar with him a good primer
But I also agree with what you mentioned in your 3rd to last sentence. New companies, built around modern secular opportunities, with new(ish) DNA (to use Umair's term) will fare better. Technology companies should maintain relative outperformance because we have not come anywhere close to driving all possible efficiencies through technology implementation (not too mention the next iteration of innovation).
-- look at how 2006's 'value investments' have done. what were the companies with low P/E ratios that paid lots of dividends? banks and financials. say you were looking for blue chip, safe investments in 2006; based on the historical definition you would have been very, very wrong.
-- i recently interviewed at a financial company i had previously worked at a few years ago when they were a startup. right now they have 500 employees, lots of cash in the bank, and they are expanding judiciously. in short, they are acting like a blue chip company. meanwhile the big banks are in all kinds of trouble and are not able to extend professional security to anyone. the tables have turned.
-- given that, this is the wrong time for the country to become risk adverse. if we could let the old institutions fail and start working on the new, we would be much better off ten years down the road. but given the level of financial risk aversion at this point it's going to be difficult. i think we could get stuck in a professional "liqiuidity trap" for some time.
Company A) Company bailed out 3 times and is nearly nationalized with 2008 FY losses of ~$18B
Company B) Company that received one bailout and is begging hat in hand with 2008 FY losses of ~$31B
Company C) Company that uses Govt's new programs related to TLGP and the Fed backing of CP with 2008 NI of ~$18B and expecting another ~$15B of NI in 2009.
There goes our working class...and a big chunk of the market.
A previous quote of mine from JLM the Hood comments that I feel apt to repeat:
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I keep coming back to the sobering thought that this crisis is more profound than a housing subsidy and as Rick S points out...collectivism is not the answer. Not to sound sensationalist, but I think we've reached peak life quality in the conventional sense.
We're at the precipice of a profound transformation...I don't have the answer but I suspect it has something to do with our sense of the American Dream....Dinner cost me around 30 bucks - plus 5 years of angonizing temptation to open a great bottle of wine...priceless.
Relative share price performance and therefore bonuses are strongly correlated to ROE.
But once again, short-term gains have come at the expense of long-term damage.
As the saying goes, if you ain't got debts you can't go bust.
Companies whose core businesses were inherently growing didn't see the need and so didn't get into trouble.
The new blue chips are companies like Google, Cisco, and Microsoft, who have dominant market positions and cash-heavy balance sheets.
Right now I'm seeing huge opportunities for healthy and innovative companies to take market share through consumer-friendly and value-priced products. I'm seeing that every day in my company's largest client, which is knocking the cover off the ball against its entrenched competition.
Of course in the instance of GE they had a commercial paper program to fund their manufacturing operations for a long time before they ever wandered off into real estate. They had in effect been financing their internal manufacturing requirements while GM had been financing their external customer credit requirements.
I guess the challenge is that if you are going to be both a manufacturer and a lender, then you better be damn good at both and have a "blended" balance sheet which reflects the realities of these two very different types of risks.
And you better have a management which has an intimate understanding of both of those lines of business and is able to resist the temptation to favor one over the other.
GE Capital, as an unregulated financial institution, was able to weather the S & L crisis the last time around because it could do things that banks could not to restructure its problems (thereby delaying the accounting day of reckoning) while not "marking to market" their loan portfolio. In many ways it was simply "financial engineering" but it worked.
but a year later sold it also-my bonds and CD's saved my fanny-GM has only one real option BK and reorganize they are knee deep in inventory with vehicles that have an outdated fuel delivery system - cars that have 6000 to 7000 pound curb weight and get 15 miles per gallon in the city- They should retrofit their fuel delivery system -This is a little of the subject- Blue Chip is as dead as Custer-I think in the future if VC firms go public and generate profits they may restore investor confidence - howardlindzon doth speak the truth-
Its low market cap should have gotten it kicked out of the club years ago. Must be that mountain of unprofitable sales, which now appears to be more like a gigantic jobs program. I sure hope we've learned the lessons of Gosplan and keep Washington out of trying to pick next year's model.
It is interesting that there is not a single company anybody can find which has really weathered the storm --- and it seems like there should be some. I can make a case for Walmart and McDonald's but their stock price undermines that argument. Are there some out there?
I conclude with the commentator that this "sea change" is more than just an industry, cyclical, sector or segment issue. This is a paradigm shift --- a drop to a lower curve on a family of curves.
"Help, I've fallen down and I can't get back up to the higher curve!"
Warren Buffet, who did not exactly cover himself with glory in the last 2 years, makes a couple of great comments in his "letter" --- have plenty of cash always (I guess not too astounding for a guy in the insurance biz.) and look at a home as a "comfortable" place to live rather than a trophy or paen to wealth. I am not suggesting that I agree with that but I think it is interesting from a chap who can afford anything even now.
Conspicuous consumption is way out of fashion (even if you can afford it) and khakis and top siders are way in --- economical metaphorically speaking. Or as I like to say --- worn jeans and old, old boots.
Money --- whether equity or debt --- has a price. When debt becomes too cheap --- as I think it did --- then folks fail to load in the equity because they are blinded by the light --- of the cheap debt. Equity props up balance sheets, which is after all the entire problem w/ the financial sector just now. We all have to remember the big difference in hunting for debt or equity --- pricing and safety are two different things. Even though money is still just money. Debt, like speed, kills.
It will be interesting to see the long term impact of getting the crap scared out of us because I doubt it will be a long term impact like our fathers' comments about the Great Depression. We all have very short memories just now.
One of my favorite rules is --- we all have one month of experience but only six times. That's how fast the economy and life is moving. You certainly can't get away today with what you would have contemplated just four months ago.
YTD, SPX -18.6%, NASD -12.6%, and DOW -19.5%. If the DJIA weren’t price-weighted, it would been down 30%+ I suspect given YTD, C -80%, BAC -75%, AA -50%, CAT -50%, GE -50%, AXP -40%, GM -40%. These stocks are the lowest priced stocks in the DJIA. None of them has a meaningful market cap with the exception of GE which is still a $90 bln cap. IBM is +5% and it just so happens to be the highest priced stock in the DJIA.
The phrase was coined over 80 years ago to describe high-priced stocks. It has come to mean over the years any stock that's large quality company. I believe quality is measured by the business model, management, quality of earnings, transparency, free cash generation above all. Today, the phrase "blue chip" is meaningless. The problem is the import people place on it.
I think this points to the fundamental problem with the way public companies are incented. These blue-chip stocks are ones that have achieved what the market wants them to achieve - bigness. Big public companies are supposed to keep getting bigger. Show year over year growth. So they keep buying up companies. Creating "synergy". Creating "efficiencies". But I have yet to see one big company that really does synergy well. Fred, I think it may have been you or one of your readers that suggested if the gov't bails out GM, they should force them to be broken into smaller pieces and I couldn't agree more. We need to figure out a way for public companies to be rewarded without becoming 500,000 employee companies that are too big to innovate. So it's just now all finally catching up. All these blue chip companies waste too much money, have too little accountability, have too many people whose jobs are to not screw up rather than to take risks and come up with good ideas. Last time I got a Ford rental car, it took me two minutes to identify at least a dozen major UI flaws in the controls. You're telling me that out of all those people making way more than I do, not one of them thought to say, "Hey, this design sucks! We shouldn't spend a billion dollars sending it into production!"
As surprising as it is, it should be no surprise that they are falling harder.
whew. </rant>