Don’t fall in love with individual companies that you partially own through the ownership of their stock shares.
This concept is difficult for many investors as they exalt the benefits of a particular company’s product or service that they provide. For example, they may discuss how a retailer is always crowded when they go to the store and believe that this must translate into large profits and thus a valuable company.
With the speed that company data is transmitted to all investors around the world, all information is quickly captured in the current stock prices of all stocks. If in fact the company is doing well, those long-term profits will already be factored into the stock price.
I think back to my childhood when they were 2 companies which I frequented often on Long Island NY. I would’ve thought these companies would have continued to flourish decades later. However, that is not the case.
The first company is RadioShack which recently filed bankruptcy with the trademark and other intellectual property sold to a hedge fund in May 2015. RadioShack at its heyday had 7,000 stores was a favorite of tech heads and average do-it-for-yourself consumers who wanted to buy electronics. Walking into the store was like walking into the future with all of the electronic gadgets. During those years the company had a cachet of being on the cutting edge of all computer technology. The company helped the average consumer begin to use technology in a personal way.
However, RadioShack was unable to adjust to the modern digital world and the rise of electronics, especially mobile products from the likes of Apple that didn’t need a RadioShack store. The company moved rapidly from being perceived as a cutting-edge company to one from the bygone era. The reality of American capitalism is one of destructive forces. It is difficult for a business to go on forever due to the fact that someone is always trying to take market share and come up with a better way to reach the consumer. It is what drives innovation in the marketplace.
Of the first companies on the Fortune 500 list created in 1955, 88% of those companies listed don’t even exist today.
Another store that was a Crimmins household favorite was Sears Roebuck. I can say that other than my school uniform, all of the apparel for the Crimmins’ came from Sears.
This second company, which is now known as Sears Holding Corporation (with the merger of another dying retailer Kmart), seems to be on a death spiral. The company continues to lose sales to various competitors and has started to sell off of the company to raise money. They have sold their stake in Sears Canada and spun off its Lands’ End clothing business to generate cash. The sales declines have come at the hands of Home Depot (appliances), Best Buy (consumer electronic sales) and Macy’s and others (apparel).
Now Sears is planning to raise more than $2.5 billion by selling more than 200 of its top Sears and Kmart properties and leasing them back through a new REIT. This will hopefully buy the company some flexibility with the suppliers who have demanded tougher payment terms over concerns about the retailer having access to cash especially with the upcoming critical Christmas holiday season.
I hope that Sears is able to weather the storm but the long-term outlook is not promising. After this week’s stock decline, the company’s market value is around $2 billion versus $235 billion for Wal-mart and $151 billion for Home Depot.
So these two companies of my youth are indicators how investors should diversify across the entire available publicly traded companies and not to fall in love with particular companies even if they have nostalgia for them.
What companies are you in love with ?
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