A client’s question recently struck me as a great thing to think about in the new year. The client wondered who would be the next Warren Buffett or Sandy Weill.
The stock market exists to provide capital for industry, and in turn industry has to provide an acceptable rate of return on that capital. On a historical basis, we can easily measure the rate of return for any public company and anyone running a public company.
Hence the question of the next great CEO like Berkshire Hathaway’s Buffett or Citicorp’s Weill, the answer of which has everything to do with wealth creation and nothing to do with popularity.
I read an article about Donald Trump right after his casino company went bankrupt. An analyst quoted in the story said a true businessperson’s value in society is measured by how much wealth that person creates for other people, not for himself.
By that measure, Donald Trump is a complete failure. (And how our elected officials ever allowed our state to get involved with him is beyond me. I hope Gov.-elect Mitch Daniels will pull the plug on the Trump Casino deal soon.)
Using the wealth-creation metric, though, Warren Buffett and Sandy Weill are total successes. Well, who’s next?
My client asked about Edward Lampert, the Wall Street tycoon who recently put together the Kmart-Sears merger. Lampert brought Kmart out of bankruptcy and reissued the stock. In the 18 months since it came public again until the announced merger, KMRT went from $15 a share to more than $100.
A great move, but I am not so sure there’s much left to Lampert. Kmart took off because Lampert was selling the only thing of value, the real estate. Sales numbers were not improving. Kmart did not suddenly figure out how to battle Wal-Mart.
I think Lampert realized he was running out of room to impress, so he dazzled the crowd. The merger is complicated enough to keep the crowd at bay for another 12 months, at which time he will probably cash out and move on.
The next deal Lampert gets involved with will be successful, at least for the short term. I don’t get the feeling he is in the long-term wealth-creation business.
Another thing my client and I talked about was the concept of the next big thing. Is there another invention or innovation like the light bulb lurking out there somewhere?
I’m the wrong guy to ask this question. I am a technical analyst; therefore, I don’t spend any time looking for the next big thing. I can let you know shortly after it gets momentum if it truly has legs, but I can’t alert you to it from the ground floor.
I know nanotechnology, biotechnology and fuel cells have huge potential, but this is already well documented. From where I am sitting, I do not see another Internet about to rise up. But I do see a pretty good environment to make money in stocks. For the last few days, we have been experiencing that pullback I have been talking about. I am not going to let it get too far before I add to positions. It remains a good idea to buy the dips until further notice.
Hauke is a local money manager. His column appears weekly. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at email@example.com.