More reasons why retail investors should never buy individual stocks.
LinkedIn is currently down about 42% (yes, 42%). Beat estimates but got downgraded by analysts and very severely.
http://www.marketwatch.com/story/linkedins-stock-suffers-biggest-ever-selloff-2016-02-05Symantec is up some 3% on a down day for tech with a failing business outlook but financial engineering arrangement
http://www.marketwatch.com/story/despite-billions-in-fresh-cash-symantec-will-cut-costs-and-go-into-debt-2016-02-04Both are companies that management is running to the ground and have been for a long time. You would never know it looking at the stock market movements. Twitter is joining these not surprisingly.
The thing that is common to both Symantec and LinkedIn is the inability of the management to innovate and keep moving the initial advantage they had. Both were playing not to lose, rather than to win.
But then since being in the capital markets makes the management rich enough in a year or two that they can retire anywhere in the world even if their jobs disappeared overnight, what exactly motivates them to do anyhing other than egos. Instead, shareholders and employees get left holding the bag. This is not what capitalism is about.
Symantec is essentially being taken private in a fire sale but you wouldn't see it from the recent financial engineering reported in that article. I would have loved to see the covenants in that debt financing. Getting a board seat for debt financing in a public company is unheard of except perhaps in very dire situations or bankruptcy. And people are bidding up the share price for the dividend announcement like dogs salivating at the sight of meat in the hands of an intruder.
Symantec was once a powerful force in software. They let their products deteriorate as the technology moved and cheaper competitors moved in. It had no vision in leadership, no new markets established. A near perfect failure to execute with very little to blame externally.
LinkedIn stumbled on to a great near-monopoly opportunity but ran the company only slightly better than CraigsList in innovation with extreme intolerance to risk taking. Part of the problem is going to public markets before the revenue is stabilized. The CFOs a reluctant to let the company spend on anything and if the CEO isn't a Bezos or Zuckerberg or a Sergei, who is willing to take a bold stand and set a strong direction, they just stifle the company into hubris and incremental changes until it falls apart. Often penny wise and pound foolish. Tim Cook may be taking Apple in the same direction.
Gilead will probably get a financial engineering CEO next.
All a consequence of easy money creating a greater fool market.
Comments
Part of my continued narrative that it is very difficult for individual investors to assess the health and potential of a company, especially when financial engineering becomes common and clues from the greater fool market can be completely misleading. Yes biotechs and software tech have seen this. But look at the current thread on COP and the sense of betrayal.
You are right that stocks can be purchased for many reasons, for juicing up returns or for steady income. But I am not sure if you diversify enough to avoid being badly hurt by a single company or two destroying significant wealth in these chasing returns markets, that you would do much better than a competent dividend or equity income focused mutual fund. Unless you were taking much more risk of capital loss than you realize... @old_skeet seems to do just fine selecting the right funds for income.
I think there was a time when companies were very stable, the dividends were seen as sacrosant and companies were reluctant to cut dividends for fear of getting their shares punished. Dividends are looking like old pension plans to be replaced by you taking market risks on the returns instead. No management team can increase their total comp by maintaining dividends. Replacing those dividends with share buy backs to boost share prices or to stop bleeding does wonders for their incentive-based compensation plans.
You are also correct in that there is risk associated with this. One certainly needs to pay attention. I've found Josh Peter's writings to be helpful as well. Common sense is also helpful.
Oddly....old_skeet has also been (wrongly) criticized for being "too diversified". I guess the only axiom which is applicable is "to each his own".
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