If you make investing decisions based on the news, you will suffer debilitating setbacks in your portfolio time and again.
What comes to mind when you think about Sears & Roebuck today, compared to what you remember as a kid, and what you may have heard about this company decades ago? Sears was historically THE company to buy general merchandise.
I remember reading The Great Brain books as a kid. It’s a collection of stories told from a younger brother about his big brother, aka The Brain, who is quite smart, but governed by a money loving heart. Anyway, these books set back in the days when silver dollars were common currency, the character mentions having the rare and golden opportunity to order from the Sears catalog. As a kid, I remember that Sears was the place to get all sorts of stuff. But what do you think of it today? Do you flock to that store to buy things? Or do go elsewhere.
So would you consider investing in that company by purchasing its stock? Perhaps not. Take a step back. If you had the chance to buy stock in Sears thirty years ago, would you take it? Perhaps. But what if you knew everything you know now about how its gone down hill over the past years? Would you buy it then? Read this article for details on exactly how might fare.
Based on bad new stories over the years, you might say “no!” But if you actually looked at the balance sheets over that time frame, you would actually do quite well. Sears grew big and accumulated many various assets. As it crumbled, it sold off pieces into separate businesses. As a stock holder, you would hold lots of different companies, all generating profits. In fact, you would do quite well.
How can this be? As stated by the economic Nobel laureate Milton Friedman, “when companies go bankrupt, their factories don’t go poof.” Assets are sold off. New management is hired. Things are repurposed. New businesses plans laid out. Mid and senior level managers may get rolled and some employees may suffer, but in general, the core underpinnings of the company get refreshed, not burned to the ground.
This point seems to be lost on the press in general. Any shutdown of a company seems to draw reporters to find the saddest stories and turn them into headlines. They never bother to find these people a year later, and see how they are doing. On rare occasion, I saw a journalist actually find one such employee, only to discover that they were doing WAY better than before. They used to putter along with a poorly performing company. But getting tossed forced them to find something else, and they actually found something better.