Thursday, March 24, 2016

The Game of Stocks

Imagine a world where a king's head can be chopped off at the jealous whim of a former knight. Or a lord trading secrets in order to gain more favor and land from a queen. This world exists folks, welcome to the Game of Stocks.

I've spent the last almost decade working closely with those people that trade in the stock market.

Most of them seem stressed, privileged, and angrily satisfied. In the brief glimpses of what that money could earn you, a yacht, lake house, or vacation to Costa Rica, I got calls from guys desperately trying to sign in on their "day off" and would often hear the family complaining that their broker parent was signing in to work again.

It put a bad taste in my mouth for all of it. The guys that trade. The people who invest. Companies that go public.

I understand why companies go public. They see a chance to expand, to make their product better, to make their company stronger. But that opens them up to people that don't care. People that got into it to make money, the stock holders. And from what I can tell, the stock holders with the power, don't care if your company is bought, moves overseas, or stops innovating, at long as they can make a dollar and get out before the ship sinks.

I'm reading Dethroning the King which talks in depth about what lead to InBev buying Anheuser Busch. It's interesting to see some of the behind the scenes stuff that I always assumed happened, but wasn't privileged to know.

What I'm learning, is even the most powerful and rich people on the planet, are just as scared and petty as the rest of us.

There's a story about AB hiring a bunch of banks to pitch them strategies on how to stop a hostile takeover. AB picked their favorites and dismissed the other banks. Well, one of those banks went to InBev and was like, "Hey dudes, we don't like those AB guys anymore. They didn't pick us for kickball. We have all this financial information that you may like to see, maybe we buddy up?" Like literally, billions of dollars at play, and a butt hurt bank goes out of their way to stab an American company.

There's stories about InBev offering $65 a share when AB's stock was in the low $50s, and stock holders shutting down the acquisition of Mexican brewer Modelo by AB. An acquisition that would've saved AB and kept them American owned and would've brought the stock prices up naturally.

And just how bulletproof the Busch family felt sitting a top their St. Louis thrones. The gall they had to just say, "Nah man, we're good just owning America. We don't need protection against those foreigners. We're too big to fail." (Heard that one before haven't you)

A buddy of mine admitted he's part of the problem, although a small one. He knows he's giving money to a company with the promise of a return, and he demands that return get larger and larger.

Eventually there's no where left to grow, no other companies to buy, no major innovation in the near future. So how do you keeps the stock holders happy? How do you keep them from selling shares off in droves or demanding the head of the top dogs of the company?

You start making cuts. First things to go are research and development and Information Technology. Both divisions that generally cost money, and don't make money. (Both of which are incredibly necessary nowadays thought)

Micheal Dell famously bought back Dell computers and penned an article basically saying, "Stock holders want short term money, despite what our customers want, despite us staying innovative with new products, and it put Dell behind many other computer companies."

The stock holders are happy when you show them the graphs that say, "We trimmed up, we made slightly more profit for you."

Then the next quarter comes and the stock holders say, "Hey, what's up with this? You're not making any more than you were last quarter."

The company says, "We have a strong, diversified portfolio, but the market was weak this quarter. We promise next quarter to make more."

Then they start looking at departments they can outsource to other countries. Data entry, accounts payable, third shift workers, all gone.

Then the next quarter the company get a pat on the back.

Then quality starts suffering, no innovations have come in a while, and there's no more fat that can be trimmed. In fact, those offshore positions are now making a middle class wage, which means they are worth more money. Which means companies either find a new third world country to go to for cheap labor, or they onshore a fraction of the jobs that were once here and just have people do several jobs for one paycheck.

The morale of the people still with the company, working several people's jobs are at an all time low.

The company tries to calm stock holders, talking about a fickle market and the lack of spending (which the large amount of unemployed / recession scared workforce is probably contributing to), but the stock holders no longer have it. They demand the CEO step down. A new one steps up.

That CEO makes a promise to quality. They hire a bunch of American contract workers, start righting the ship, that is at least until robots can replace the people.

Rinse, repeat, the American dream.

Did we betray the idea of the free market? Or is the American dream only meant for a select few?