Monday, in Dallas, is a day where everyone is a Monday morning quarterback.  I suppose it is to be expected on the Sports pages when the local team loses a game that could have sent it into the NFL playoffs.  But it is surprising to see “Monday morning quarterbacking” on the financial pages.

One of our local columnists is the son of a stock broker.  I have observed him inform readers one day that the market is rigged, and then within a matter of weeks (after the market has risen substantially) that “now” is a good time to buy stocks.  His column Monday identifies three substantial investment mistakes that he and two others made over the last year.  The problem isn’t pointing out the mistakes; the problem is he is mistaken in his reasons for the mistakes.  When your goal is to help investors make better decisions, mistaken mistakes can’t go unchallenged.  (We will deal with two of the three stocks he mentions).

Chesapeake Energy - a natural gas company “built” on a mountain of debt by Aubrey McClendon.  Our erstwhile columnist advises against the mistake of owning “a lot of company stock”.  Several years ago I did an analysis on the Forbes 400 richest Americans.  There were a couple trial lawyers on that list, a meaningful number of real estate investors, but far and away the majority of the wealthy get that way as a result of “owning company stock”.  Michael Dell, Ross Perot, Bill Gates, Larry Ellison, Arthur Blank and the Waltons are just six of the hundreds of people on the wealthy list because they owned “a lot of company stock”.  The issue isn’t the company stock.  The issue is the debt used to build the business and the margin debt Mr. McClendon used to finance his stock purchases.  Debt, at the company level and on a personal level, is what got him into trouble and not owning a lot of company stock.

Facebook – is the social networking site.  Many people jumped in (including the news reporter) at the IPO (initial public offering) price.  The stock dropped by half before recovery some, but not all, of its substantial losses.  This mistake is what I like to call the definition of the word “assume”.  Our columnist assumed he was getting in on the ground floor of owning a social networking company.  Because of this assumption, he didn’t do his homework which would have revealed that Facebook has no profits despite having a billion worldwide subscribers/participants.  Company value is based on profits.  Facebook had none then and has little now.  Moreover, Facebook had been selling shares in private offerings for the prior two years.  Knowing this information would have made clear he was not getting in on the ground floor.  Back to the definition of assume, especially when it come to investing…doing so will make an ass/ [outa] u/me. 

We’ve all done it and hopefully learned from it…