Market Breakdown With Steve Forbes And David Scranton – April 3, 2016
Guest: Steve Forbes
We’ve spoken a lot today about short sighted companies and why they seem to be managed with only the immediate future in mind. Now, I’m going to talking about just one more critical problem with companies that focus on the short term and then before we run out of time we’ll talk about what investors can do about. There are short sighted and I’ll even throw in cold and heartless companies that knowingly released a product that could turn into a disaster. They’re aware of it but ignore it anyway, the most recent example of this of course, is Volkswagen. If you’re not familiar, last fall there was mounting evidence that Volkswagen had intentionally added a computer program on at least some of its models, to defraud emissions tests. Eventually the EPA discovered that four hundred and eighty two thousand Volkswagen diesel cars in this country alone were emitting up to forty times more toxic fumes than permitted by law. Forty times, Volkswagen sold these cars knowing they had emissions problems but instead of taking the far sighted plan and fixing it which would have reduced immediate profit. They reprogram the computer to trick the emissions test into thinking these cars were within the right range. Now, fast forward a few months and Volkswagen not only faces public relations problems they’re also considering footing the bill to purchase back more than one and a half million cars. Additionally, they’ll probably be hit with lawsuits related to health and safety issues costing many times more than if they were future oriented and didn’t cheat in the first place. The same has been true of many other companies over the years you remember the Ford cars and trucks that caught fire and the Firestone tire blow out issues. Well as a host of chemical companies, paper producers, restaurants and pharmaceutical giants that saved a small amount in the short run but pay dearly down the road in the long run. All because of corporate shortsightedness, this is corporate myopia at its worst and I’ll emphasize it cost shareholders and cost management their jobs. Employees their pensions and ruin the health of customers. In some cases the so-called cheating has put the company out of business so the question becomes, what can you do about this corporate myopia? I’m not sure there’s a perfect way to defend yourself from outright fraud, corporate cheating or management simply turning a blind eye to problems that will cost them down the road. This is really a problem of oversight, investors should pay more attention to whose put on the board of directors for example, admittedly that’s not always easy. The first place that the Income Generation can benefit from corporate myopia is if you’re going to be in the stock market at todays near record highs. You at least can put yourself in a position to collect high dividends from highly rated companies, if a corporate C.E.O. has been a place for a while and they’ve paid a consistently high dividend it may be worth just taking a bit of a deeper look. You can find executive level compensation and information on of any public company by going to the SCC dot gov. website. The analysts at my company for example, Sound Income Strategies also like to look at dividend growth. They like to look at low debt to equity ratios and a high ratio of short term assets over short term expenses i.e. a lot of liquidity.
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