Tuesday, November 23, 2010

“Yes, Vir-Gennia, there is a Santa Claus.”

Let’s revisit the old Christmas story about Virginia, the little girl who wrote to the newspaper editor to ask him if there really was a Santa Claus. Only instead of a little girl, our inquisitive child is America’s biggest manufacturing company. General Motors just floated the second largest public issue ever floated; she sold $20 billion of treasury shares so far, and there is a possibility that number could rise to $23 billion because of certain options issued to her investment bankers. Yes, Gennie Motors, there is a Santa Claus – and he came early this year.

I feel like the wide-eyed child on Christmas morning. I am just fascinated by the investing world. Yes, investors tend to be intelligent and well informed. Yes, they tend to be sophisticated and positive. But, my, don’t they have short memories!

Didn’t Toyota sell 600,000 more cars than GM in 2008, to become the world’s biggest auto manufacturer? And didn’t GM, the second biggest car company in the world, go broke anyway? How can a company (GM) sell 8.3 million cars in 2008 and declare bankruptcy in 2009? And then, miracle of all financial miracles, how can they raise $20 billion in new capital in 2010? What’s wrong with this picture?

The only logical course for a typical investor is to revisit his understanding of Santa Claus. When we were seven years old, our beliefs were quite different from when we were only four. But maybe we were wrong when we were seven – maybe our opinions as a four-year-old were closer to reality than when we were seven. What is reality and what is fantasy?

Reality check #1: The governments of Canada and the USA invested billions in GM in 2009.
Reality check #2: GM declared bankruptcy anyway, and her shareholders lost all their money.
Reality check #3: investors just ploughed another $20 billion into GM.

Ordinary investors need to live in the real world, not the illusionary world of high finance. Our world is the world of low finance: this is the world in which we must survive. Our job is to be the guardian of our own personal wealth. Check in on your own reality. It’s not about GM – it’s not about government bail outs. It’s about your financial survival in the real world.

General Motors stock is a great vehicle for day traders: it is newsy, volatile and trades millions of shares per day. But if it starts to drop in price, big American pension funds will jettison it just as fast as they recently bought it. The reality of GM in the twenty first century is stark and Grinchy… not what you want in your stocking on Christmas morning.

To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).

Contact Ken directly at ken@castlemoore.com.

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