A friend visited the other day and as she settled down with a cup of tea, she peered round the room, admiring my new apartment which is larger than my last. I’m probably one of the few retired people who has upsized her space rather than downsized. My friend must have wondered how I managed it all on a public employee’s pension. The truth is, I didn’t. I got lucky in the stock market. But luck really isn’t the word I should use. I invested early and steadily, regardless of day-to-day stock fluctuations and that savings plan paid off. I believe investing in the stock market is a good strategy for getting ahead, though it takes a tolerance for uncertainty to do so.
I was reminded of the ups and downs of investing as I browsed through the December 2014 edition of Fortune Magazine. A glance at the table of contents was an abridged version of those companies currently in favor and those which are not. “Fallen Arches,” by Beth Kowitt is one example. The article examines the trouble McDonald’s, former darling of retirement funds, is falling out of favor. The company failed to anticipate the public’s growing appetite for healthy foods. Now investors are jumping ship as the once golden company tries to right itself.
Another pundit warns Amazon may be sailing against headwinds also. (“Amazon Goes to War Again (and Again) by Adam Lashinsky, Fortune, December, pgs. 73-74) The fear here isn’t that CEO Jeff Bezos is too far beyond the times, but too much in front of it. Eager to catch the next wave, Bezos has diversified the company to such a degree that it is open to too many risks. His latest attempt to enter the wireless phone market with Fire, for example, has cost the company $170 million not to mention the $83 million in unsold inventory it carries on its books. (Ibid pg. 74) So far, Amazon’s efforts to enter the book publishing business hasn’t fared well either. (Blog 1/2/15) And not many hold out much hope for its efforts to take on Google in advertising, Microsoft in Cloud computing and AliBaba in e-commerce. Unlike Steve Jobs, Bezos is accused of being unable to stay focused and to do a few things well. (“The Most Ambitious CEO in the Universe,” by Miguel Helft, Fortune, 12/14, pg. 143)
Bezos isn’t alone in his ambitions. Larry Page CEO of Google, is also striking out in multiple markets and technologies. The difference is that Amazon is bleeding capital while Google has huge cash reserves. But in either case, critics wonder if both companies will be around in 10 years or if their efforts to diversify will cause them to implode.
The questions that surround Amazon, Google and McDonald’s are important to investors because when they buy a stock, they put their money on what they hope will be a company’s winning strategy. Investing isn’t like betting on a horse race but gambling is involved. A CEOs decision affects not only his or her company, but it affects investors, the economy and even the financial health of other nations. It’s a huge responsibility which may explain why they get their large salaries.