RE: Non-CANSLIM question : Re: [CANSLIM] Is the market ready to rally?

From: "Fred Richards" <ffradrich@attbi.com>
Subject: RE: Non-CANSLIM question : Re: [CANSLIM] Is the market ready to rally?
Date: Wed, 1 Jan 2003 13:35:14 -0600

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Jans

There are those who think my 40 years of real-time experience is valid . . .
and also a few who disagree.

But it has been my experience that many CEO's and  board members only look
at the short-term effects (one or two quarters and a couple of years at the
most)  of many of their decisions. That is the driving force today in my
humble opinion.  Also, it is the time frame that most investors and
financial analysts look at.  They can't see beyond the end of this quarter.
Look at the knee-jerk reactions of the lemmings who are today's portfolio
managers for confirmation.  But again that is the price we pay for stocks
that are valued on the basis of high P/E's and hype, not the solid
foundation base which Ben Graham and Armand Erpf espoused.

Your suggestion that cutting costs enables companies to buy time has been
used often to justify actions.  But if the management was doing their jobs
properly, why did the company get into the fix in the first place?

It has been my observation that most companies that have wielded the
cost-cutting stick carelessly have found it extremely difficult to restore
morale, creativity and profitability in the long-run.  Look at AT&T and most
of its off-spring,  the railroads, the airlines, etc. and maybe, you will
see a little of the reasoning I'm trying to suggest is better.

I remember well when a group took over a major public transportation company
in 1994 and their first order of business was to hire telephone operators to
answer the phones and scrap the automatic telephone answering system that
kept customers wanting to make reservations going through menu's for five
minutes before being able to make one (and that was if you had a touch-tone
phone, if not, it was a real night-mare.)  And that was a cost-saving
measure . . . sure!  The old board members were aghast!  But revenues
started up each quarter since then and the losses became less and shortly
turned into profits.

In 1981, we purchased a company from the bankruptcy court whose board had
reduced the staffing by 75% over seven months and sales were down 85% in the
same period.  By hiring more sales personnel (sales were a direct function
of the number of sales personnel), it took less than three months to turn
the company around.  When we sold it 18 months later, the company had 50%
more employees than it had before the previous management had started
wielding the cost cutting axe at the behest of its venture capital partner,
and we made a 12 bag return on our investment.

Fred




- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Spencer48@aol.com
Sent: Wednesday, January 01, 2003 12:57 PM
To: canslim@lists.xmission.com
Subject: Non-CANSLIM question : Re: [CANSLIM] Is the market ready to
rally?


Fred:

     If you have real-time experience in this field (I'm not being snide, I
just forget your resume), do you conclude that firms actually believe that
the bottom-line, when they cut costs, will improve indefinitely?

      As I understand your E-mail, you think that most firms don't believe
that cutting costs is just the necessary precursor strategem to buy them
enough time in order to formulate a plan to increase revenues?

jans


In a message dated 1/1/2003 8:22:21 AM Eastern Standard Time,
ffradrich@attbi.com writes:

<< ...I think that all the discussion about the cost side of the
 equation reminds me of the same mentality that all those CEO's and Board of
 Directors have adopted that cost-savings and employee layoffs are the route
 to improved bottom lines.  Their strategy is nothing but a short-term fix
 and does nothing to solve the long-term problem.

 I guess that I belong to another school . . . innovate to create market and
 product demand, and provide the best service to your customer. >>

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