Stock Holders Short-Changed Then, Now, Maybe Forever

My experience with chart books is most of us miss their message. You can easily riffle the pages and come up with nothing. But, for anyone who has struggled through a business cycle to stay solvent, a simple chart picture can sum up your plight and make you more reactive before everything’s all gone. 

The chart above depicts stock erosion in dividends decade by decade. It has caught nobody’s attention. Investors don’t think about whether the stream of dividends they receive is adequate,  too much or too little. Same goes for salary compensation. These days, the guys in t-shirts take home more than their starched white collared brethren. 

But, the chart which measures dividends to the growth of the country’s GDP shows an alarming decline in dividend payouts. It’s gone on too long and nobody speaks out. At the least, you should bang out your errant shares or maybe, buy just non-dividend paying growth stocks. My cardinal rule is I won’t buy a stock where I see management overcompensate itself. 

Think of Tesla and its ilk. Fat proxy statements, I summarily dismiss to the waste basket. Teams of lawyers compose such documents designed to obscure the many ways management compensates its inner circle execs. Start with a reading of Tesla’s document years ago where Elon awarded the control block of stock to their maximum leader(you know who).

This bland chart which resembles a black diamond expert ski trail, covers recession in the sixties, seventies, even the  eighties. After the development of the transistor in 1961, tech stocks got too overpriced with P/E multiplies in the forties. The market red-dogged ‘em on their poor quarterly financial reports that proved so disappointing to all. Does anybody but me remember when color television was a growth business back in the fifties?

The SEC was more focused then on throwing an apprentice printer into jail for peeking at a proxy statement on a deal whether management was overcompensated or not.  

I remember walking through the Egyptian wing of the Metropolitan Museum of Art some 50 years ago with Saul Steinberg. He liked to hold his annual meetings in the cozy Grace Rainey Rogers Auditorium. Saul was coming off a very successful year for the insurance business, Reliance and he had just sold his sea container subsidiary for a handy profit. 

“Look at those poor mummies,” Saul said to me. ‘They are my old shareholders from the sixties when all I knew was how to buy in French. I’m 40 years old and now I know how to sell in French.” The acquirer, Gelco, almost choked a year later on one of my sea containers. Slippage in world trade was its downfall along with the weak rate structure for containers. My chart herepicks up the sixties peak in dividends for the country, and the downward slope that is near vertical. 

Harold Geneen, the harsh speaking genius who ran IT&T into the ground with subs like Rayonai offered no protection for shareholders from his aggressive management. Best summed up by this lonely, boring graph of what shareholders endured from flighty managements in the sixties, seventies and eighties. 

Ask Donald Trump about his deal activity in casinos back in the eighties.  Axiomatically,  sellers know more than their prospective buyers. 

As Saul summed it up in the sixties. “It’s easier to buy in French than to sell in French.”