Since I wrote my May briefing a couple of market trading days ago, the upward trend has reversed and the news over the weekend that the legendary Sage of Omaha, Warren Buffet’s Berkshire Hathaway fund has taken big losses and he has sold all his airline stocks at a loss is hardly cheering. What perhaps is more significant is his comment that he is not putting money into the market because he can’t find anything attractive to buy.
I read an article by a financial journalist making the same points as me about the hollow value of start-up companies. The writer, whose elegant prose proved why he is a journalist on a national paper and I am an investment analyst, added one point I failed to make: the reason many start ups grow so fast is that they offer customers $10 worth of services for $5 and that makes it pretty easy to acquire customers. And burns capital at a terrifying rate.
I have to confess I once did that! My then employer’s marketing department had set its managers targets for selling all sorts of accounts – just because that is what marketing departments do. My branch was not well placed to open the required number of “little saver’ childrens’ accounts per month because of our location and client base. That of course was not an excuse that satisfied the regional sales manager (ex-insurance company).
We had access to certain promotional goodies, so I ordered up the full allowance of Parker ball point pens and then sent out into the pedestrian precinct the better looking young members of staff wearing the sashes provided for events, telling them to offer a pen to anyone who had kids with them if they would open an account for one Pound.
Of course, as the pens were worth more than twice that even in the 1980, the outcome was a 100% success. My branch was even awarded a commendation in the monthly marketing bulletin.
If only I had understood that corporate operations were frequently that stupid, I might by now be a billionaire!
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