- Martin Sosnoff
Shareholder Rape A Repeatable Offense
When an annual report opens with the phrase “your company” toss it in the wastebasket, immediately. It is not your company. It’s management’s company. Anyone who talks about shareholder democracy should be jailed. The shareholder’s vote is as powerful a voice as a referendum in Afghanistan.
The individual investor probably spends 5 minutes over a corporate annual report. Proxy statements get disregarded, the proxy card unsigned, unmailed. Decades ago, Adolph Berle wrote “The proxy machine has become one of the principal instruments not by which a stockholder exerts power over the management, but by which his power is separated from him.”
Corporate boardrooms, take care of their own. I just read that the headman at Exxon Mobil, Darren Woods, took home $36 million past year. But, the dividend payout ratio for XOM is meagre, approximately 30% of current earnings power. I remember when Exxon’s headman took home, $26 million, inclusive of stock rights, a repeated act.
Have you ever heard of the SEC objecting to corporate proxy materials? First, proxy statements can be half as long as Tolstoy‘s “War And Peace.” The material is crafted by corporate lawyers, who design the make-up in minute type so difficult to decipher without a magnifying glass. The section on management compensation is riddled with corporate jargon to disguise all the capital management has qualified itself for, normally. Over five years or less.
Let’s face the facts. Exxon Mobil was once riding high but proved a horrid stock between 2017 and 2020. It peaked near par, then plummeted below $40 a share. The investment consensus on a specific stock determines its stock price. Major companies show half to three quarters of shares controlled by professional investors. First whiff of fish, they bang out such goods. Then, move on to other stocks in less cyclical sectors of the market, like ethical drug houses, consumer non-durables like Coca-Cola and Procter & Gamble. This is happening currently.
Note the move in Eli Lilly.
The investment dilemma can be stated another way. If the biggest and most adequately capitalized corporations can’t consistently achieve a high rate of return over 5 years, you better own them only when profit margins are about to reignite.
This is the earnings momentum (or recovery) play. It helps, too, if you can project interest rates with some accuracy. The history of Wall Street operators is that few of us are so good at what we do. For me, the reciprocal is never position yourself where you can get buried, even bruised, badly.
Exxon Mobil is a good example. In 2001 XOM was number 3 on the S&P 500 Index with a market capitalization pushing $400 billion, right behind Microsoft. Mid 2020 Microsoft’s market cap was at $1 trillion. Exxon down to $160 billion from $324 billion, mid 2019, a mini-disaster in a major property.
You can appreciate why I’m enraged at its headman awarding himself $36 million. Market cap in 2014 was pushing $400 billion. The price of oil made this guy rich, not for his management initiatives.
EXXON MOBIL PRICE CHART
Since 2001, Exxon has consistently and methodically, held within its operating cash flow construct – but got hardly anywhere. Early sixties, Tom Watson, in an aside, told me IBM (Watson) had bet the company on development of its 360 computer. (They won)
This case is clear-cut. For large cap oil field operators, point of entry is critical. Spring of 2020, Exxon bounced from $30 to $50 a share, but far below its previous high of $80. Today’s weakness in oil futures is impacting the energy sector across-the-board.
Thumbing through my “Silent Investor, Silent Loser,” published in 1986, I found this nugget: Bob Kobel, then my director of marketing, said to me one day: "I've watched you for years and now I understand it.”
“ What do I do? I’m not sure I know what I do anymore,” I said.
“Well the first thing is you find a company with position on the board. It could be the New York Times, Dow Jones, even Boeing. The company has to have market presence.”
The first stock I ever made serious money on was Electrolux. I liked the machine and read in “Consumer Reports” that they raised prices biannually. The stock traded OTC at six times earnings. My first wife insisted I buy her this damn expensive machine. I got even and bought the stock, too. Electrolux then sat relatively cheap and undiscovered.
“Hi Bob. Once again I own Boeing. They need to get their act together on aircraft assembly and quality control. I’m waiting and waiting.”