Back when I was an undergraduate at Washington & Lee University, I made the argument to one of my history professors that low-fee DRIP plans provided an example of where Marxist principles actually overlapped with capitalist principles (I know what you’re thinking right now, and the answer is yes, I was always this sexy). My logic was this: I pointed out to the stock ownership plans that Ford, General Motors, Bethlehem Steel, RJ Reynolds, and Philip Morris offered their working-class employees to demonstrate how these plans satisfied the Marxist appeal to allow the workers to become part-owners of the company if they so desired while also appealing to the traditionally American capitalistic notion that if you work hard, spend less than you earn, and do something intelligent with that spread, you have the freedom to put together a nice life for yourself.
As part of my long-term study into the various operations of financial institutions, I have also come across ubiquitous payment processor Western Union. In what has now become seven years of writing about investments, I have never once endorsed Western Union as a potential investment. In early 2011, the stock traded at around $21 per share, a higher price than the current valuation of almost $17 per share, or around $7.5 billion.
Why do I never speak highly of it?
Because the terms of its costs with customers continues to get worse and worse.
The most vivid illustration of Western Union’s decline came in a working paper titled “Remittances and the Problem of Control: A Field Experiment Among Migrants From El Salvador” by Nava Ashraf, DIego Aycinena, Claudia Martinez, and Dean Yang.
With the rise of online price comparison shopping, many sellers have come to appreciate that consumers will purchase a product or service at the lowest possible price offered, with little tolerance to pay a higher price among similarly situated substitutions. Perhaps this has always been the case, but the ubiquity of consumer access to pricing has bludgeoned the ability of some sellers to charge a higher price than other available peer sellers providing the same stuff.
I invoke the Newtonian principle that “for every action, there must be an equal and opposite reaction” to assert that when one source of profit (say, charging higher prices than another nearby) is thwarted, something else gets monetized elsewhere.
If you look at businesses that sell items costing more than a few hundreds or more, the rise of what I’ll call “sticker price parity” has led to these companies to offer in-house financing options … Read the rest of this article!
When I contemplate a potential investment, one of the hard decisions to make is defining the point at which a management team’s executive compensation becomes so excessive that it ought to deter investment.
So far in my life, the only stock I ever disqualified from consideration solely on the grounds of excessive compensation was Occidental Petroleum, where Ray Irani was doing things like collecting $76 million pay packages here and there. He’s gone now, but you can read about some of his collected spoils by clicking here.
lIn addition to executives given lavish pay packages, there is the fact that some stock options come with low performance hurdles. For instance, I was reading this article on the St. Louis Post-Dispatch website about the new President and Chief Operating Officer at Peabody Energy. Per the Post-Dispatch article, this is what Glenn Kellow has to do at Peabody to get … Read the rest of this article!
I have always found it odd that people that a breakup of the big banks like Citigroup, Bank of America, Goldman Sachs, JP Morgan, and Wells Fargo would somehow screw over shareholders.
As you probably know, the most legendary business breakup of all time occurred when the Supreme Court decided to break up John Rockefeller’s Empire at Standard Oil into dozens of baby oil pieces. Rockefeller was on a golf course at the time he found out about the ruling from one of his aides, and he reportedly responded to the news by saying “Buy Standard Oil” and then going on to sink a ten-foot putt (hate him or love him, you gotta admit that the big dogs of American capitalism lack the panache that the titans of yore possessed).
Of course, we all know what happened–the disparate parts became things like Exxon, Chevron, Conoco, Buckeye Partners, parts of BP, … Read the rest of this article!