So, WorldCom was a $3.8 billion accounting fraud. We hooted it up over that one, calling the company’s collapse the largest bankruptcy in the history of the United States. That stat always bothered the Barometer because we were, after all, relying on the company’s numbers to get the loss figures. Now comes Bernard Madoff and his securities firm, an operation that managed to lose $50 billion. Madoff, the former chairman of Nasdaq, was able to run nothing more sophisticated than a Ponzi scheme for four years. The SEC said, “Now what exactly happened here?” Mr. Madoff’s lawyer offered, “We will fight to get through this unfortunate series of events.” “Unfortunate series of events” is the name of a children’s book series, but is hardly descriptive of a gigantic fraud. The Barometer has but one question.
How many times must we repeat the same scheme and the resulting losses before we learn? The same scheme is, “I promise you more money and returns than the market has ever seen because, after all, I am smarter than the other guys.” The Barometer understands that the recent Wall Street performance of a gaggle of the brightest minds coupled with a pack of quantitative dweebs would not take much brain power to top. However, since the time we have had markets we have fallen for the Ponzi model. In the Barometer’s career, we have had New Era Philanthropy, the Baptist Foundation of Arizona, Lincoln Savings and Loan, and too many others to name, and the story is the same. For some reason not at all tied to financial performance, charismatic leaders are able to convince others to invest big-time dollars with the same outcome: the inevtiable loss of big-time dollars. If it sounds too good to be true, it is too good to be true. Business is very basic: good product, keeping costs low, customer service, and, perhaps above all, forthrightness. Forthrightness with customers, vendors, suppliers, and investors. This formula is simple — perhaps too simple to fail. We have lived through sophistication and the yields have proved non-existent. Back to basics. Run to the basics. Invest in companies that follow the basics. Restore the economy with the basics. And start demanding dividends. Dividends don’t lie. paper gains do. See the Barometer’s book, Building a Business Through Good Times and Bad: The Lessons From 15 Companies, Each with a Century of Dividends.Â
2008 is the year of the Ponzi Scheme. We have Madoff and then Petters in Minnesota (who is still denying guilt) being accused of a $3.5B – $13B Ponzi scheme. I like your comments but good, simple, and basic business principles, or principaled principles, seem to crazy for some people, you have to go the illegal route…unfortunately a lot of greedy people are willing to co-opt sound investment strategies and get taken.