Myth Dispelled: Investing in Cool Sometimes cool doesn't work out so well
I worked for Enron
from 1996 to 2001. Whereas I worked for
Enron Europe, the now-notorious US company’s European subsidiary, location didn’t
matter in the end.
What most readers
probably don’t know, particularly the younger ones, is that leading up to the
2000 internet bubble, Enron was the ultimate cool stock. We could do no wrong. We were creating new businesses left and
right and the company did have true competitive advantages – mostly tied up
around its trading capabilities, strong asset position and technology.
There have been
books, movies, even a Broadway show written about the demise of Enron so I’ll
just add a few additional & personal data points:
in cool, from $20 / share when I joined to a peak of $90 / share in March 2000
to mere pennies / share by December 2001.
Enron’s strong competitive advantages – and it really did have them – was no
match for very bad, senior management in Houston.
employees learned the hard way about the value of diversification. And the value of investing all of your money
outside of your employer. Because if
your employer runs into trouble and lays you off, there is a good chance your
company stock value has taken a severe hit as well.
millionaires nearing retirement realized that they would have to work for the
rest of their lives as their retirement savings, stock investments and jobs all
vaporized on that dark day in late 2001.
don’t get me wrong, I like cool as much as the next guy. And some folks can make serious money
investing in cool (a certain hybrid car company or an innovative products
company whose founder has recently passed away both come to mind). But two lessons stand out to me:
Diversification is critical –
particularly if you work for the cool company
For your long-term wealth
creating vehicle, stick with the bluest of blue chip companies who have been
around a long time, have a huge competitive advantage (some call this a moat),
ideally has smart people like Buffett or others as large shareholders and, perhaps
most importantly of all, has a history of not only paying dividends, but
increasing the dividends year after year, decade after decade. THIS is the secret of wealth creation.