Thursday, October 23, 2014

Stock Talk - 5

A new reality has come to the stock market:  The founders and leaders of the flashiest companies listed on the stock market don’t give a damn what their stock does.  This may be good or it may be bad, but them’s the facts, and you should be aware of them.

Amazon reported disappointing earnings today, and the stock promptly tanked 10 percent. Do you think Jeff Bezos cares? Do you think the founders of Google or Facebook or Alibaba really care if they or their key employees are worth a few hundred million less than they were a week ago?  They do not, and, as I say, that may be a good thing – as long as you understand the fact.

Years ago, when I was serenading Wall Street, it used to be different. People left big companies to join start-ups on the promise of wealth that would eventually be realized via stock options. Today, a hot company goes public and  - wham! – dozens of new millionaires or billionaires are minted overnight, and if years later the stock drops 10 percent in a day, Jeff Bezos, Mark Zuckerberg, and Larry Page and their top lieutenants are still very, very wealthy.

Given that reality, how should you invest?  Personally, I don’t invest in Amazon or Google or Facebook or Alibaba, though for many investors they have been great investments. It’s just that I like my companies’ leaders to have skin in the game.  Mind you, I don’t expect the CEO to be a pauper; that would be unrealistic. But I do want him or her to care what the stock does, just as I care.

I have nothing against great wealth. God bless Bill Gates and the others on the Fortune list.  The opportunity to make unlimited wealth is one of the qualities that has made the United States the most powerful nation on the planet. I devoutly hope that the CEOs of the companies I invest in will make billions and billions. But by then I will be long gone, looking for the next batch of billionaire wannabes.