One of our strongest arguments for fundamental analysis over technical analysis revolves around the board room. A strong leader can create incredible synergies at a company, while a weak leader can take a perfectly good company to the edge of ruin. In this section we look at the role of corporate governance as it directly relates to a company's success or failure going forward.
Palantir CEO excoriates Silicon Valley for its growing "un-American" attitude towards US government work. (23 Jan 2019) It truly is amazing how rapidly a society can change; and not, sadly, always for the better. Palantir is a privately-held data mining company started by Peter Thiel and currently led by CEO Alex Karp. In a brilliant monologue delivered to CNBC's Andrew Ross Sorkin at the World Economic Forum in Davos, Karp unloaded both barrels on Silicon Valley for their refusal to work with government agencies such as the Department of Defense. To his credit, Amazon's Jeffrey Bezos echoed similar sentiments a few months ago. If there was one specific catalyst for the blowback, it was Google's decision to stop working with the DoD on a project after an employee petition was circulated at the company which urged Alphabet's CEO, Sundar Pichai, to shun the agency. Meanwhile, as Karp so eloquently put it, many Silicon Valley companies have no problem selling products which are "adversarial to America." Outstanding and refreshing to hear a few C-suite executives push back against this dangerous new anti-American attitude oozing its way through the Valley, instead of just cowardly hanging their hats on the popular, faux, ginned-up civil movements of the day. There will be a point on the fulcrum at which this madness will backfire. The "for-profit" companies that pay the salaries of these smarmy individuals will eventually say "enough!" Either that, or they will have their lunch eaten by competitors around the world who still understand their reason for being.
If economic conditions are deteriorating, why did American companies just buy back $1.1 trillion worth of their own stock? (19 Dec 2018) The latest was aerospace giant Boeing (BA $293-$327-$394), whose board of directors just approved a whopping $20 billion share buyback and a hefty hike in the dividend. The CFO cited strong aircraft demand for the actions. Before that it was Johnson & Johnson (JNJ $119-$130-$149), which announced a $5 billion buyback after shares got pounded on new (unsubstantiated) claims of asbestos in the company's talc. All told, it has been a record year for buybacks at American firms. To date in 2018, over $1 trillion has been committed, and over $800 billion already spent. There is one universal theme to these massive buybacks: the respective CFOs of the companies see their shares as being grossly undervalued. And who would be in a better position to gauge a company's health than their CFO? The global economy is indeed probably slowing a bit, but that doesn't warrant the big selloff we have seen this quarter. Forget what CEOs and CFOs say in quarterly conference calls for the consumption of the analysts and investors; instead, watch what they actually do for clues on how a stock might perform going forward. Buybacks are one of the metrics we use to gauge a company's probable stock performance, at least in the short run.