Posted on 06/29/2002 2:28:53 AM PDT by kattracks
Investors who lost money in the corporate scandals sweeping the nation shouldn't look to Mayor Bloomberg for sympathy.
"People who were buying stocks in the stock market at multiples that never made any sense should look at themselves in the mirror," the mayor said.
"They're as responsible, I think, as those that actually committed the crimes of misstating earnings and fudging the numbers," he said.
The remark, made on Bloomberg's weekly WABC-AM radio show, drew heated criticism from the other side of City Hall.
'Knee-Jerk' Reaction
"That's just like equating a woman who dresses in ways that some might feel is provocative as being just as guilty as a rapist," said City Councilman James Sanders (D-Queens), chairman of the Economic Development Committee.
Sanders called the mayor's remark "unfortunate" and a "knee-jerk" reaction to the corporate scandals. "I'm sure, in his frustration against this great theft of everyday working people by the callous and criminal elite, he overstated his position," Sanders said.
But Ed Skyler, Bloomberg's press secretary, said the mayor "stands by his statement."
"The mayor is asserting his belief that investors have a responsibility to educate themselves about the companies they invest in," Skyler said. "Nobody gets something for nothing. That was the myth of the Internet bubble."
During the radio program, the mayor, the billionaire owner of Bloomberg LP, called the corporate scandals a disgrace.
"If there was fraud committed, I am 100% behind investigations and prosecution and enforcing the law," he said. "People in management have a responsibility to conduct their affairs honorably and legally."
Bloomberg conceded that government "probably hasn't done as much as it could" to protect investors. But "this isn't a government oversight issue," he said.
I don't think he is absolutely correct. The buyers are responsible for the risk they take in getting a good return. But they are not responsible for assuming the risk of the illegal behavior of executives, as they will ultimately prove in court. It is true that the go-go late 90's stock market was an environment where crooks thought they could get away with their illegal behavior. But I don't believe that a buyer assumes that liability.
Mr. Bloomberg indirectly attacks the greed of the investor which has to be considered in the run-up to this market bubble. He is right in this respect, but does not take account of the dishonesty and fraud of the participating companies.
It is hopelessly utopian to think that financial reports will never by faked. Of course, when these are faked, the truth comes out eventually, and the marketplace disciplines companies responsible, as has happenned with, for example, both Enron and Arthur Andersen.
Well diversified long-term value (low P/E) investors should be OK. "Investors" who gambled on high P/E or skyrocketing stocks, planning to bail out right before the inevitable crash, got what is usually coming to gamblers.
As for suing to recover such loses, anyone can sue anyone. But if the marketplace has properly disciplined the true wrongdoers, there should be nothing there to recover.
That's a huge part of the issue. Another part is that people have been encouraged to trust mutual funds to do the research for them, to wait things out, "things will be better tomorrow", and now the line is "but interest rates are so low, there's no point in putting your remaining money in banks".
There is so much information out there, but so few people (as a percentage of investors) are even trying to use it.
So, there are really a lot of things going on here, and the one that can be fixed by better regulation and oversite has to be fixed. Greed and stupidity? There will still be plenty of that to go around.
'Scuse me yer honor, but if the earnings are artificially inflated by billions of $, the multiples don't look so bad.
WCOM is a case in point.
I was going to make the same point, but you did it much better.
After some years, she put all of her retirement money in the market in '99. I remained committed to value investing and stayed primarily in lower yielding, but not overvalued, investments, despite almost daily admonitions that I was missing the market and would rue the day. Now her broker is full of suggestions that amount to churning, and she's so far down (having bought near the top of the market) that she might as well hang on for the long ride, as taking losses now would only feather the broker's nest.
Don't you love it when your spouse considers the neighbors' or her pals' investment advice sounder than your conclusions based on a graduate degree in economics.
Caveat Emptor
Look, here’s the problem with your assumptions. The companies that have been exposed as “cooking the books” were incredibly overvalued EVEN ASSUMING THE PROFITS THEY REPORTED WERE TRUE.
I know that I’m talking about. This is my business. The Enrons, Worldcoms, Global Crossings, Xeroxes who have been shown to engage in fraud … as well as the Ciscos, Lucents, Nortels, Corning Glass’, JDS Uniphases (who have not been accused of fraud) were trading at market multiples that only an idiot – or someone using the “greater fool” theory – would ever buy into.
It does not take a rocket scientist. If a company is trading at a P/E ratio of 100, it would take 100 years for an investor to get even if the company decided to take ALL of its profits and pay it out in dividends. If that sounds like a good deal to you, don’t call me because I don’t deal in those kind of drug dreams.
Most of the dot.coms did not have P/E ratios because they had no “E” (earnings), and did not project breaking even for many years. At lot of the hype in the cell phone industry assumed the not only everyone in Europe and North America would have a cell phone, but every dirt-poor farmer in China walking behind his wife while she pulled the plow would also have one – and replace it on a quarterly basis.
OK, so there was a lot of hype. Wall Street analysts were talking this kind of talk. But that is no reason to throw common sense overboard. At some point, if you light a cigarette, you should acknowledge the risks you are running. And if you buy some over-hyped and over-priced stock without thinking about how the company makes its money, don’t blame someone else.
Your comments are indicative of the type of emotion driven decision making that drove a lot of the speculative bubble.
Did you hear the story about the cat that sat on the hot stove? He won’t do that again. But he won’t sit on a cold stove either.
Two points. I’m in the business and have always dislike commissions because there is an inherent conflict of interest when you trade stocks on a commission basis. Tell your wife to change to a fixed fee based account where there is no cost to individual trades. This eliminates the fear of “churning.”
Second, hanging on to a lot of these failed tech stocks is known as “being handcuffed to a corpse.”
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