May 21, 2007

Lubed-Up Stock Market: Use Some Protection!

Did you know that the stock market needs lubrication? That’s right. Stop throwing around those slips of paper and start squeezing giant tubes of KY Jelly all over the pit, because the Associated Press is describing the market’s growing liquidity as the source of its “lubrication.”

And the lubed-up market is going bananas right now because of corporate takeovers. Talk about an investors dream . . . they really should not call these guys who engineer hostile takeovers “corporate raiders,” although I actually think the only person who uses that expression is CNN’s Lou Dobbs, and he’s gone insane anyway.

If the “hostile” takeover by the corporate “raider” is really so hostile and raiderous, then why are investors not only pushing their stocks in front of the raiders and saying, “Here! Buy it!” but even more, actually buying up stock in the hope that the raiders will take it away from them?

We’ve been over this before, but let’s review: Investment advisors tell you to invest in solid companies with long-term growth potential so you can protect your principal and optimize your opportunities for strong returns.

Then, when the licensing people have left the room, they tell their protégés: “Forget that! Wheel and deal so you can get big bucks now!” It’s the only possible explanation.

At the close of last week, the Dow hit a record 13,556.53 – that’s 13,556.53 fish turds, trust me – because all the recent takeovers had added to the liquidity of the market and everything was lubricated!

Wow. This is getting me excited just talking about it.

So lots of investors figure that, what with the lubrication and all, this is a good time to get in. Sure, prices are rising. But if you get in now, prices might hit their peak while you already have shares in your hand, because the raiders are coming! And as everyone knows, when they really want to take over a company, they’ll pay anything.

Wait. Does everyone know that? Is that even true?

Beats me. It seems to me that corporate raiders are no more stupid than anyone else on Wall Street, which may not be much of an endorsement, but when they pay overheated share prices for a company they really want, they have reasons for doing so.

It may be to gain market share. It may be to take control of an asset possessed by a competitor – perhaps a piece of intellectual property, a service capability, some technology or maybe the strength of some personnel within the organization. They know they’re overpaying, but because they know how to turn their newfound property into major returns, it’s worth it to gain control.

So what does that have to do with you? Well, that’s what I’m asking you. You’re buying up stocks like crazy because you hear about corporate takeovers going on, and you think maybe you’ll be the next lucky stockholder who’s just sitting around stroking the certificate of his 40-cent shares when some tycoon comes along and insists that you take 80 cents a share for them.

You’re rich! Happy day! Now you can go buy that beachfront property and sit there whittling all day long.

And this is going to happen to you because . . . ? Oh, because lots of takeovers are going on, so why not your company? Well, what is it about your company that makes it prime for a takeover? Does it have lots of cool things going on, but still find itself dominated by some other company that has the ability to take it over just by waltzing in with wads of cash?

Well then, have you considered what will happen if no one takes over your company? Then you’re stuck with the stock, and since you’re buying during a market high, guess what? You overpaid!

But you did it because you were sure that someone else would come along and overpay you even more. Then you sat and thought: In order to do that, someone would have to have a lot more money than you have, and yet they would still have to be dumb enough to overpay. And since you just overpaid yourself, that would mean they would have to be even dumber than you.

Richer than you. And dumber than you. That’s who you’re looking for. And you just overpaid for a whole bunch of stock because you thought maybe you could find someone like that.

This is what happens when the market becomes lubricated. Someone really needs to get these investors some protection.