by Adam Hartung | Aug 4, 2016 | Election, Leadership, Politics
Donald Trump has had a lot of trouble gaining good press lately. Instead, he’s been troubled by people from all corners reacting negatively to his comments regarding the Democrat’s convention, some speakers at the convention, and his unwillingness to endorse re-election for the Republican speaker of the house. For a guy who has been in the limelight a really long time, it seems a bit odd he would be having such a hard time – especially after all the practice he had during the primaries.
The trouble is that Donald Trump still thinks like a CEO. And being a CEO is a lot easier than being the chief executive of a governing body.
CEOs are much more like kings than mayors, governors or presidents:
- They aren’t elected, they are appointed. Usually after a long, bloody in-the-trenches career of fighting with opponents – inside and outside the company.
- They have the final say on pretty much everything. They can choose to listen to their staff, and advisors, or ignore them. Not employees, customers or suppliers can appeal their decisions.
- If they don’t like the input from an employee or advisor, they can simply fire them.
- If they don’t like a supplier, they can replace them with someone else.
- If they don’t like a customer, they can ignore them.
- Their decisions about resources, hiring/firing, policy, strategy, fund raising/pricing, spending – pretty much everything – is not subject to external regulation or legal review or potential lawsuits.
- Most decisions are made by understanding finance. Few require a deep knowledge of law.
- There is really only 1 goal – make money for shareholders. Determining success is not overly complicated, and does not involve multiple, equally powerful constituencies.
- They can make a ton of mistakes, and pretty much nobody can fire them. They don’t stand for re-election, or re-affirmation. There are no “term limits.” There is little to tie them personally to their decisions.
- They have 100% control of all the resources/assets, and can direct those resources wherever they want, whenever they want, without asking permission or dealing with oversight.
- They can say anything they want, and they are unlikely to be admonished or challenged by anyone due to their control of resource allocation and firing.
- 99% of what they say is never reported. They talk to a few people on their staff, and those people can rephrase, adjust, improve, modify the message to make it palatable to employees, customers, suppliers and local communities. There is media attention on them only when they allow it.
- They have the “power of right” on their side. They can make everyone unhappy, but if their decision improves shareholder value (if they are right) then it really doesn’t matter what anyone else thinks
One might challenge this by saying that CEOs report to the Board of Directors. Technically, this is true. But, Boards don’t manage companies. They make few decisions. They are focused on long-term interests like compliance, market entry, sales development, strategy, investor risk minimization, dividend and share buyback policy. About all they can do to a CEO if one of the above items troubles them is fire the CEO, or indicate a lack of support by adjusting compensation. And both of those actions are far from easy. Just look at how hard it is for unhappy shareholders to develop a coalition around an activist investor in order to change the Board — and then actually take action. And, if the activist is successful at taking control of the board, the one action they take is firing the CEO, only to replace that person with someone knew that has all the power of the old CEO.
It is very alluring to think of a CEO and their skills at corporate leadership being applicable to governing. And some have been quite good. Mayor Bloomberg of New York appears to have pleased most of the citizens and agencies in the city, and his background was an entrepreneur and successful CEO.
But, these are not that common. More common are instances like the current Governor of Illinois, Bruce Rauner. A billionaire hedge fund operator, and first-time elected politician, he won office on a pledge of “shaking things up” in state government. His first actions were to begin firing employees, cutting budgets, terminating pension benefits, trying to remove union representation of employees, seeking to bankrupt the Chicago school district, and similar actions. All things a “good CEO” would see as the obvious actions necessary to “fix” a state in a deep financial mess. He looked first at the financials, the P&L and balance sheet, and set about to improve revenues, cut costs and alter asset values. His mantra was to “be more like Indiana, and Texas, which are more business friendly.”
Only, governors have nowhere near the power of CEOs. He has been unable to get the legislature to agree with his ideas, most have not passed, and the state has languished without a budget going on 2 years. The Illinois Supreme Court said the pension was untouchable – something no CEO has to worry about. And it’s nowhere near as easy to bankrupt a school district as a company you own that needs debt/asset restructuring because of all those nasty laws and judges that get in the way. Additionally, government employee unions are not the same as private unions, and nowhere near as easy to “bust” due to pesky laws passed by previous governors and legislators that you can’t just wipe away with a simple decision.
With the state running a deficit, as a CEO he sees the need to undertake the pain of cutting services. Just like he’d cut “wasteful spending” on things he deemed non-essential at one of the companies he ran. So refusing funding during budget negotiations for health care worker overtime, child care, and dozens of other services that primarily are directed at small groups seems like a “hard decision, well needed.” And if the lack of funding means the college student loan program dries up, well those students will just have to wait to go to college, or find funding elsewhere. And if that becomes so acute that a few state colleges have to close, well that’s just the impact of trying to align spending with the reality of revenues, and the customers will have to find those services elsewhere.
And when every decision is subjected to media reporting, suddenly every single decision is questioned. There is no anonymity behind a decision. People don’t just see a college close and wonder “how did that happen” because there are ample journalists around to report exactly why it happened, and that it all goes back to the Governor. Just like the idea of matching employee rights, pay requirements, contract provisioning and regulations to other states – when your every argument is reported by the media it can come off sounding a lot like as state CEO you don’t much like the state you govern, and would prefer to live somewhere else. Perhaps your next action will be to take the headquarters (now the statehouse) to a neighboring state where you can get a tax abatement?
Donald Trump the CEO has loved the headlines, and the media. He was the businessman-turned-reality-TV-star who made the phrase “you’re fired” famous. Because on that show, he was the CEO. He could make any decision he wanted; unchallenged. And viewers could turn on his show, or not, it really didn’t matter. And he only needed to get a small fraction of the population to watch his show for it to make money, not a majority. And he appears to be very genuinely a CEO. As a CEO, as a TV celebrity — and now as a candidate for President.
Obviously, governing body chief executives have to be able to create coalitions in order to get things done. It doesn’t matter the party, it requires obtaining the backing of your own party (just as John Boehner about what happens when that falters) as well as the backing of those who don’t agree with you. ou don’t have the luxury of being the “tough guy” because if you twist the arm to hard today, these lawmakers, regulators and judges (who have long memories) will deny you something you really, really want tomorrow. And you have to be ready to work with journalists to tell your story in a way that helps build coalitions, because they decide what to tell people you said, and they decide how often to repeat it. And you can’t rely on your own money to take care of you. You have to raise money, a lot of money, not just for your campaign, but to make it available to give away through various PACs (Political Action Committees) to the people who need it for their re-elections in order to keep them backing you, and your ideas. Because if you can’t get enough people to agree on your platforms, then everything just comes to a stop — like the government of Illinois. Or the times the U.S. Government closed for a few days due to a budget impasse.
And, in the end, the voters who elected you can decide not to re-elect you. Just ask Jimmy Carter and George H.W. Bush about that.
On the whole, it’s a whole lot easier to be a CEO than to be a mayor, or governor, or President. And CEOs are paid a whole lot better. Like the moviemaker Mel Brooks (another person born in New York by the way) said in History of the World, Part 1 “it’s good to be king.“
by Adam Hartung | Jul 13, 2016 | Employment, Leadership, Regulations, Trends
This week Starbucks and JPMorganChase announced they were raising the minimum pay of many hourly employees. For about 168,000 lowly paid employees, this is really good news. And both companies played up the planned pay increases as benefitting not only the employees, but society at large. The JPMC CEO, Jamie Dimon, went so far as to say this was a response to a national tragedy of low pay and insufficient skills training now being addressed by the enormous bank.
However, both actions look a lot more like reacting to undeniable trends in an effort to simply keep their organizations functioning than any sort of corporate altruism.
Since 2014 there has been an undeniable trend toward raising the minimum wage, now set nationally at $7.25. Fourteen states actually raised their minimum wage starting in 2016 (Massachusetts, California, New York, Nebraska, Connecticut, Michigan, Hawaii, Colorado, Nebraska, Vermont, West Virginia, South Dakota, Rhode Island and Alaska.) Two other states have ongoing increases making them among the states with fastest growing minimum wages (Maryland and Minnesota.) And there are 4 additional states that promoters of a $15 minimum wage think will likely pass within months (Illinois, New Jersey, Oregon and Washington.) That makes 20 states raising the minimum wage, with 46.4% of the U.S. population. And they include 5 of the largest cities in the USA that have already mandated a $15 minimum wage (New York, Washington D.C., Seattle, San Francisco and Los Angeles.)
In other words, the minimum wage is going up. And decisively so in heavily populated states with big cities where Starbucks and JPMC have lots of employees. And the jigsaw puzzle of different state requirements is actually a threat to any sort of corporate compensation plan that would attempt to treat employees equally for common work. Simultaneously the unemployment rate keeps dropping – now below 5% – causing it to take longer to fill open positions than at any time in the last 15+ years. Simply put, to meet local laws, find and retain decent employees, and have any sort of equitable compensation across regions both companies had no choice but to take action to raise the pay for these bottom-level jobs.
Starbucks pointed out that this will increase pay by 5-15% for its 150,000 employees. But at least 8.5% of those employees had already signed a petition demanding higher pay. Time will tell if this raise is enough to keep the stores open and the coffee hot. However, the price increases announced the very next day will probably be more meaningful for the long term revenues and profits at Starbucks than this pay raise.
At JPMC the average pay increase is about $4.10/hour – from $10.15 to $12-$16.50/hour. Across all 18,000 affected employees, this comes to about $153.5million of incremental cost. Heck, the total payroll of these 18,000 employees is only $533.5M (after raises.) Let’s compare that to a few other costs at JPMC:
Wow, compared to these one-off instances, the recent pay raises seem almost immaterial. While there is probably great sincerity on the part of these CEOs for improving the well being of their employees, and society, the money here really isn’t going to make any difference to larger issues. For example, the JPMC CEO’s 2015 pay of $27M is about the same as 900 of these lowly paid employees. Thus the impact on the bank’s financials, and the impact on income inequality, is — well — let’s say we have at least added one drop to the bucket.
The good news is that both companies realize they cannot fight trends. So they are taking actions to help shore up employment. That will serve them well competitively. And some folks are getting a long-desired pay raise. But neither action is going to address the real problems of income inequality.
by Adam Hartung | Jan 30, 2016 | Current Affairs, In the Rapids, Leadership, Web/Tech
Apple announced earnings for the 4th quarter this week, and the company was creamed. Almost universally industry analysts and stock analysts had nothing good to say about the company’s reports, and forecast. The stock ended the week down about 5%, and down a whopping 27.8% from its 52 week high.
Wow, how could the world’s #1 mobile device company be so hammered? After all, sales and earnings were both up – again! Apple’s brand is still one of the top worldwide brands, and Apple stores are full of customers. It’s PC sales are doing better than the overall market, as are its tablet sales. And it is the big leader in wearable devices with Apple Watch.
Yet, let’s compare the stock price to earnings (P/E) multiple of some well known companies (according to CNN Money 1/29/16 end of day):
- Apple – 10.3
- Used car dealer AutoNation – 10.7
- Food company Archer Daniel Midland (ADM) – 12.2
- Industrial equipment maker Caterpillar Tractor – 12.9
- Farm equipment maker John Deere – 13.3
- Defense equipment maker General Dynamics – 15.1
- Utility American Electric Power – 16.9
- Industrial product company Illinois Tool Works (ITW) – 17.7
- Industrial product company 3M – 19.5
What’s wrong with this picture? It all goes to future expectations. Investors watched Apple’s meteoric rise, and many wonder if it will have a similar, meteoric fall. Remember the rise and fall of Digital Equipment? Wang? Sun Microsystems? Palm? Blackberry (Research in Motion)? Investors don’t like companies where they fear growth has stalled.
And Apple’s presentation created growth stall fears. While iPhone sales are enormous (75million units/quarter,) there was little percentage growth in Q4. And CEO Tim Cook actually predicted a sales decline next quarter! iPod sales took off like a rocket years ago, but they have now declined for 6 straight quarters and there was no prediction of a return to higher sales volumes. And as for future products, the company seems only capable of talking about Apple Watch, and so far few people have seen any reason to buy one. Amidst this gloom, Apple presented an unclear story about a future based on services – a market that is at the very least vague, where Apple has no market presence, little experience and no brand position. And wasn’t that IBM’s story some 2.5 decades ago?
In other words, Apple fed investor’s worst fears. That growth had stopped. And usually, like in the examples above, when growth stops – especially in tech companies – it presages a dramatic reversal in sales and profits. Sales have been known to fall far, far faster than management predicts. Although Apple has not yet entered a Growth Stall (which is 2 consecutive quarters of declining sales and/or profits, or 2 consecutive quarters than the previous year’s sales or profits) investors are now worried that one is just around the corner.
Contrast this with Facebook. P/E – 113.3. Facebook said ad revenues rose 57%, and net income was up 2.2x the previous year’s quarter. But what was really important was Facebook’s story about its future:
- Facebook is now a “must buy” for advertisers
- Mobile is the #1 ad trend, and 80% of revenues are from mobile
- Revenue/user is up 33%, and growing
- There are multiple unmonetized new markets that Facebook is just developing – Instagram, WhatsApp, FB Messenger and Oculus
In other words, the past was great – but the future will be even better. The short-term result? FB stock rose 7.4% for the week, and intraday hit a new 52 week high. Facebook might have seemed like a fad 3 years ago, especially to older folks. But now the company’s story is all about market trends, and how Facebook is offering products on those trends that will drive future revenue and profit growth.
Amazon may be an even better example of smart communications. As everyone knows, Amazon makes no profit. So it sells for an astonishing P/E of 846.9. Amazon sales increased 22% in Q4, and Amazon continued gaining share of the fast growing, #1 trend in retail — ecommerce. While WalMart and Macy’s are closing stores, Amazon is expanding and even creating its own logistics system.
Profits were up, but only 2/3 of expectations – ouch! Anticipating higher sales and earnings announcements the stock had run up $40/share. But the earnings miss took all that away and more as the stock crashed about $70/share! A wild 12.5% peak-to-trough swing was capped at end of week down a mere 2.5%.
But, Amazon did a great job, once again, of selling its future. In addition to the good news on retail sales, there was ongoing spectacular growth in cloud services – meaning Amazon Web Services (AWS.) JPMorganChase, Wells Fargo, Raymond James and Benchmark all raised their future price forecasts after the announcement, based on future performance expectations. Even analysts who cut their price targets still kept price targets higher than where Amazon actually ended the week. And almost all analysts expect Amazon one year from now to be worth more than its historical 52 week high, which is 19% higher than current pricing.
So, despite bad earnings news, Amazon continued to sell its growth story. Growth can heal all wounds, if investors continue to believe. We’ll see how it plays out, but for now things appear at least stable.
Steve Jobs was, by most accounts, an excellent showman. But what he did particularly well was tell a great growth story. No matter Apple’s past results, or concerns about the company, when Steve Jobs took the stage his team had crafted a story about Apple’s future growth. It wasn’t about cash flow, cash in the bank, assets in place, market share or historical success – boring, boring. There was an Apple growth story. There was always a reason for investor’s to believe that competitors will falter, markets will turn to Apple, and growth will increase!
Should investors think Apple is without future growth? Unfortunately, the communications team at Apple last week let investors think so. It is impossible to believe this is true, but the communicators this week simply blew it. Because what they said led to nothing but headlines questioning the company’s future.
What should Apple have said?
- Give investors a great news story about wearables. Show applications in health care, retail, etc. that really makes investors think all those people with a Timex or Rolex will wear an AppleWatch in the future. Apple sold investors the future of iPhone apps long before most of people used anything other than maps and weather – and the story led investors to believe if people didn’t have an iPhone they would miss out on something important, so they were bound to go buy one. Where’s that story when it comes to wearables?
- ApplePay is going to change the world. While ApplePay is #1, investors are wondering if mobile payments is ever going to be big. What will make it big, when, and what is Apple doing to make this a multi-billion dollar business? ApplePay launched to a lot of hype, but very little has been said since. Is this going to be the Apple version of Microsoft’s Zune? Make investors believers in ApplePay. Convince them this is worth a lot of future value.
- iBeacons are one of the most important technology products in retail and inventory control. iBeacons were launched as a great tool for local businesses, but since then Apple has said almost nothing. B2B may not be as sexy as consumer markets, but Microsoft made investors believers in the value of enterprise products. Demonstrate that Apple’s technology is the best, and give investors some stories about how companies are winning. Most investors have forgotten about beacons and thus they no longer plan for substantial revenues.
- Apple has the #1 mobile developer community, and the best products are yet to come – so sales are far from stalling. Honestly, the developer war is critical. The platform with the most developers wins the most customers. Microsoft taught investors that. But Apple never talks about its developer community. IBM has made a huge commitment to develop iOS enterprise apps that should drive substantial future sales, but Apple isn’t exciting investors about that opportunity. Tell investors more stories about how Apple is king of the developer world, and will remain in the top spot – better than Android or anyone – for years. Tell investors this will turn users toward tablets from PCs faster, and iPod sales will start growing again as smartphone and wearable sales join suit.
- Apple will win big revenues in auto markets. There was lots of rumors about hiring people to design a car, and now firing the lead guy. What is going on? Google has been pretty clear about its plans, but Apple offers investors no encouragement to think the company will succeed at even winning the war to be in other manufacturer’s cars, much less build its own. Given that the story sounds limited for Apple’s “core” products, investors need some stories about Apple’s own “moonshot” projects.
- Apple is not a 1-pony, iPhone story. Make investors believe it.
Tim Cook and the rest of Apple leadership are obviously competent. But when it comes to storytelling, this week their messaging looked like it was created as a high school communications project. Growth is what matters, and Apple completely missed the target. And investors are moving on to better stories – fast.
by Adam Hartung | Sep 11, 2015 | Current Affairs, Defend & Extend, In the Swamp, Leadership
Jeff Smisek, CEO of United Continental Holdings, was fired this week. It appears he was making deals with public officials (specifically the Chairman of the Port Authority of New York and New Jersey) to keep personally favored flights of politicians in the air, even when unprofitable, in a quid-pro-quo exchange for government subsidies to move a taxiway and better airport transit.
Wow, horse-trading of the kind that put the governor of Illinois in the penitentiary.
But you have to ask yourself, couldn’t you see it coming? Or are we just so used to lousy leadership that we think there’s no end to it?
United has been beset with a number of problems. Since Mr. Smisek organized the merger of Continental (his former employer) with United, creating the world’s largest airline at the time, things have not gone well. Since announcing the merger in 2010, more has gone wrong than right at United:
The merged airline didn’t start in a great position. It was in 2009 that a budding musician watched United baggage handlers destroy his guitar, leading to a series of videos on bad customer service that took to the top of YouTube and iTunes and his book on the culture of customer abuse at United underscored a major PR nightmare.
How could things seem to constantly become worse? It was clear that at the top, United’s leadership cared only about cost control (ironically code named Project Quality.) Operational efficiency was seen as the only strategy, and it did not matter how much this strategy disaffected employees, suppliers or customers. In 2013 United ranked dead last in the quality ranking of all airlines by Wichita State University, and the airline replied by saying it really didn’t care.
The power of thinking that if you focus on pennies and nickels the quarters and dollars will take care of themselves is strong. It encourages you be very focused on details, even myopic, and operate your business very narrowly. And it can set you up to make really dumb mistakes, like possibly trading airline flights for construction subsidies.
Focus, focus, focus often leads to being blind, blind, blind to the world around you.
There were ample signs of all the things going wrong at United, and the need for a change. The open question is why it took a criminal investigation into bribing government officials for the airline’s Board to fire the CEO? Bad performance apparently didn’t matter? Do you have to be an accused lawbreaker to be shown the door?
The story broke in February, so the Board has had a few months to find a replacement CEO. Mr. Oscar Munoz will now take the reigns. But one has to wonder if he is up for the challenges. As a former railroad President, his world of relationships was much smaller than the millions of customers and 84,000 employees at United.
United’s top brass has a serious need “to get over itself.” United’s internal focus, driven by costs, has disenfranchised its brand embassadors, its customer base, and many industry analysts.
United needs to become a lot clearer about what customers really need and want. Years of overly simplistic “all customers care about is price” has commoditized United’s approach to air travel. Customers have been smart enough to see through lower seat prices, only to be stuck with seat assignment and baggage fees raising total trip cost. And charging for everything on the plane, including cheesy TV shows, has customers wondering just how far from Spirit Airlines’ approach United would drift before someone reminded leadership what their customers want and why they used to choose United.
Unfortunately, it is a bit unsettling that CEO Munoz said his first action will be to take 90 days “traveling the system and listening and talking to our people and working with our management team.” Sounds like a lot more internal focus. Spending more time talking to customers at United’s hubs, and seeing how they are treated from check-in to baggage, might do him a lot more good.
United became big via acquisition. That is much different than building an airline, like say Southwest did. Growth via purchase is not the same as growth via loyal customers and an attractive brand proposition. United has clearly lost its way. It has a lot of problems to solve, but first among them should be understanding what customers want. Then designing the model to profitably deliver it.
by Adam Hartung | Jan 6, 2015 | Current Affairs, In the Rapids, Innovation, Leadership
Crude oil has dropped 50% in just 6 months. At under $50/barrel, gasoline is now selling for under $2/gallon in many places. This is a price rollback to 2008 prices – something almost no one expected in early 2014.
It is easy to jump to conclusions about what this will mean for sales of some products. And many analysts have been saying this is a terrible scenario for Tesla, which sells all electric cars. The theory is pretty simple, and goes something like this: People buy electric cars to save on petrol costs, so when petrol prices fall their interest in electric cars decline. With gasoline cheap again, nobody will want an electric car, so Tesla will do poorly.
But this is just an example of where common wisdom is completely wrong. And now that Tesla has lost about 1/3 of its value, due to this popular belief, it is offering investors a tremendous buying opportunity.
There are three big reasons we can expect Tesla to continue to do well, even if gasoline prices are low in the USA.
First, Teslas are great cars. Not simply great electric cars. So quickly we forget that Consumer Reports gave the Model S 99 out of a possible 100 points – the highest rating for an automobile ever. In 2013 Motor Trend had its first ever unanimous selection of the Best Car of the Year when all the judges selected the Model S. The Model S, and the Roadster before it, have won over customers not just because they use less petroleum – but rather because the speed, handling, acceleration, fit and detail, design and ride are considered extremely good – even when comparing with the likes of Mercedes and BMW – and when you don’t even consider it is an electric car.
It is a gross mis-assumption to say people buy Teslas because they are electric powered. People are buying Teslas because they are great cars which are fun to drive, perform well, look stylish, have low maintenance costs and very low operating costs. And they are more ecological in a world where people increasingly care about “going green.” In 2015 consumers will be able to choose not only the Roadster, and the fairly pricey Model S, but soon enough the smaller, and less expensive, Model 3 which is targeted squarely at BMW Series 3 customers. Teslas are designed to compete with all cars for consumer dollars, not just electric cars and not just on the basis of using less fuel.
Second, the market for autos is global and gasoline isn’t cheap everywhere. Take for example Hong Kong, where gasoline still retails for $8.50/gallon (as of 31Dec. 2014.) Or in Paris or Munich where gasoline costs $5/gallon – even though the Euro’s value has shrunk to only $1.20. Outside the USA most developed countries have a lot more demand for oil than they have production (if they have any at all.)
Almost all of these countries offer incentives for buying electric cars. For example, in Hong Kong and Singapore the import tax on an auto can be 100-200% of the car’s price (literally double or triple the price due to import taxes.) But in these same countries the tax is greatly reduced, or eliminated entirely, for buying an electric car for policy reasons to promote lower oil consumption and cleaner city air. So a $100,000 Mercedes E class in Hong Kong will cost $200,000+, while a $100,000 Model S costs $100,000.
Further, outside the USA most countries heavily tax gasoline and diesel in order to discourage consumption and yield infrastructure funds. So even as oil prices go down, gasoline prices do not decline in lock-step with oil price declines. Consumers in these countries have a much greater demand than U.S. consumers for high mileage (and electric) cars almost regardless of crude oil prices. So thinking that low USA gasoline prices reduces demand for electric cars is actually quite myopic.
Third, do you really think oil prices will stay low forever? Oil is a commodity with incredible political impact. Pricing is based on much more than “supply and demand.” At any given time Aramco, or its lead partners such as Saudi Arabia and the UAE, can decide to simply pump more, or less fuel. Today they are happy to pump a lot of oil because it hurts countries with which they have a bone to pick – such as Russia (now almost out of bank reserves due to low oil prices) and Iran. And it helps USA consumers, reducing domestic interest in things like the Keystone Pipeline which could lessen long-term reliance on Aramco oil. And investing in risky development projects like the arctic ocean. Tomorrow these countries could decide to pump less, as they did in the mid-1970s, driving up prices and almost killing the U.S. economy.
Oil prices have a long history of instability. Like most commodities. That’s why a state economy like Texas, where they produce a lot of oil, could boom the last 4 years, while manufacturing states (like Wisconsin and Illinois) suffered. With oil back under $50/barrel drilling rigs will go into mothballs, oil leases will go undeveloped, fracking projects will be stalled and the economy of oil producing states will suffer. Like happened in the mid-1980s when Saudi Arabia once again began flooding the market with oil and exploration and production companies across Texas went out of business.
Most people are smart enough to realize you look at all aspects of owning a new car. There are a lot of reasons to buy Tesla automobiles. Not only are they good cars, but they are changing the sales model by eliminating those undesirable auto dealers most consumers hate. And they are offering charging stations in many locations to make refills painless. And you don’t have to change the oil, or do quite a bit of other maintenance. And you do less damage to the environment. It’s not simply a matter of the price of fuel.
It is always risky to oversimplify consumer behavior. Decisions are rarely based entirely on price. And, as Apple has shown with sales if iOS devices and Macs, people often buy more expensive products when they offer a better experience and brand. Long term investors know that when a stock is beaten down by a short-term reaction to a short-term phenomenon (such as this fast decline in oil prices) it often creates an opportunity to buy into a company with a great future potential for growth.
