Tuesday, April 5, 2011

Voting Chevy

With a federal election campaign in full swing, we keep hearing that the electorate have short memories. Let’s test those memories.

Remember the General Motors bail out of 2009? Most of us recall the irony of the super-supportive NDP, with six sitting Members of Parliament elected by the people of Oshawa, Windsor and Hamilton backing the Conservative government’s multi-billion dollar tax-payer loans to GM in order to preserve manufacturing and steel making jobs in those three cities.

But do you know the hidden story?

My father tried to bail out GM single-handedly: at the age of 85 he bought a brand new Chevy. He believed in the North American auto industry: those cars were made of Canadian steel and he had worked as a machinist for the Steel Company of Canada for 30 years. In my father’s day, GM was the pride of American manufacturing and Stelco was the pride of Hamilton. For him, buying a Chevy was an act of patriotism. His purchase was helping his neighbours keep their jobs. But, in spite of his heroic octogenarian effort, both GM and Stelco declared bankruptcy. His sincere effort had been wasted.

Just before GM declared bankruptcy, the governments of Canada, Ontario and the USA had promised them bail-out loans totaling thirty-three billion dollars. Buying a Chevy had not been enough. Now my father, along with all the rest of us tax-payers, had loaned GM a very large sum. We all hoped the Conservative government, with the support of the NDP, working on behalf of my father, would somehow spin this straw into gold.

But even the big bail out loan didn’t prevent the inevitable. On June 1, 2009 General Motors declared bankruptcy. The common stock went to zero and was de-listed. I wonder how many pension plans owned GM stock. It seems logical that the pension plan of a company who sells steel would own shares of its biggest customer. If it did, then GM had declared yet another “gotcha!” on my father by stinging his pension plan.

The following year, the new streamlined stripped down General Motors issued new stock: over $20 billion in new stock! The various governments had recouped part of their loans!

Why is it important for readers to remember this ironic corporate fiasco? In my investment book, Beyond the Bull, I encourage investors to be objective: try to see economic situations for what they really are. Try to learn from the way other people behave in the economic world. That’s how you can become a better investor. But it’s not easy.

Now that Canadians are in an election campaign, political parties are aggressively trying to persuade us to see the situation the way they see it – and to vote for them. The Beatles once sang: “Try to see it my way…” There’s no objective thinking in an election campaign!

And what about my father? He passed away last summer, leaving me to drive his new Chevy. With gasoline prices flying through the roof, I’ll probably trade it for a small car with better fuel efficiency.

And what about you? Are you objective in your economic thinking? When your RRSP dropped 30% in the 2008/9 stock market crash, were you able to stay objective? Are you able to objectively look at the various candidates in this election? Or is it easier to slip back into your old familiar patterns of seeing the world the way you’ve always seen it?

Most investors are like my father, still thinking in the old ways. Most investors think that big blue chip companies are safe investments. But GM was once the biggest. Stelco was once the biggest. Buying and holding big blue chip companies no longer works. It’s time to be objective; it’s time to re-think the old ways.

The first step in becoming objective is to remember. Remember what happened in the past and learn from your mistakes.

Can we be objective about this election? When all the votes are tallied, will the NDP be re-elected to those six union-town seats in the House of Commons?

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).

This article and others by Ken are available at http://kennorquay.blogspot.com.

Contact Ken directly at ken@castlemoore.com.

No comments: