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The Definition of Bad Investing

November 2, 2010

Bad Investing… hmmm… maybe you could define it as overspending for a pile of crud and then telling everyone how good the investment is.  It doesn’t hurt the definition if you never make any money back, either.

The U.S. will cut its ownership stake in General Motors Co. below the symbolically important 50% to about 35% when the car maker relists its stock later this month, according to new figures the company plans to disclose Tuesday, but it will be tough for the government to break even on its investment.

Well, color me shocked.

The initial public offering plan envisions the shares would be priced at $26 to $29 each, these people said. The actual price of the stock to be sold in the IPO would be set about Nov. 17, and the sale would take place the following day.

The article further notes that a break-even point for the US would be about $60.  Even at projected IPO price, GM would have a market cap as large or larger than Ford.  You know Ford… the company that didn’t need a bailout, didn’t need any help keeping business, and is still wildly profitable beyond what GM ever has been.  Yea, that Ford.

The Obama administration is seeking to recoup the $49.5 billion that taxpayers poured into GM. Critics refer to the company as “Government Motors,” and the U.S. ownership stake has tainted the company in the eyes of some potential car buyers.

GM last week returned $2.1 billion to the U.S. government, bringing the total amount it has handed back to $9.5 billion, through loan repayments, interest payments and dividends, the Treasury said.

As a taxpayer, I can only say: Woo!  And then dissolve into fits of laughter.  Hey, government!  Thanks for that killer investment.  I guess it was better because we didn’t try to buy Toytoa, too.

The article does go on to note that all this will be done after the election.  Gee, I wonder why?

I hope we learn something from this.  I’m honestly not expecting that we will, but at least we have the numbers to tell us that we’re a long way away from a positive ROI.  I’m sure this reminder is the first of many.

Updated: Jim Cramer thinks that the GM IPO could ignite the stock market.  Ignite, like the Ford Pinto ignite? Sure.

So my thinking is that GM will have terrific growth numbers in China and more market share than we thought it would have when the deal was first discussed. Plus, this GM has a good balance sheet and a management team that I’m told is much tougher than it had been, even under Ed Whitacre — and I thought he was terrific.

 We have all approached this week with the appropriate view that it is fulcrum. But, remember, the market will be open next week at this time, and the week after, and this GM deal is going to excite a lot of people and maybe even entice them back to the casino.

As a feel-good story, I’m sure this will get some play.  And any big company IPO has the potential to move the market for a couple days?  I’m not convinced about the long-term opportunity, other than watching more of my tax money go away.  However, Mr. Cramer is a smart guy, and I’ll at least consider his opinion.

Still thinking Ford Pinto…

One Comment leave one →
  1. November 2, 2010 9:06 am

    well some non PhD idiot MUST have screwed up the model or something. It wasn’t SUPPOSED to work that way.
    Of course, I bought an Acura when car shopping this year because I absolutely refused to buy Chevy/GM. I already invested enough in them as a taxpayer a better ROI for me would be giving me the car….I wasn’t going to invest twice….

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