I have never been a fan-boy of Jack Welch. And the more we learn in retrospect, we see why he is not necessarily a genius to emulate. As a friend used to say, “You got your smoke; you got your mirrors.” It was growth by acquisition and using deft accounting.
Vitaliy Katsenelson is CEO of an investment company. His newsletter is on my list of informative and entertaining reads. (Plus he kicks in as a bonus a selection of classical music.)
This week’s essay—Welch vs Bezos.
Here are a few snippets to whet your appetite.
“Welch built a company with a “beat this quarter” culture. Welch’s GE was not in the business of building moats and investing for the long run; he was in the business of beating quarters. In his book, Welch raved that from the early 2000s GE always beat Wall Street estimates. He was proud of how managers of one division were able to “come up with” a few more cents of earnings if another division fell short of its forecast. I kid you not — reread that sentence, three times. If I was at the SEC I’d investigating GE’s accounting.”
Once upon a time I worked for a division of a conglomerate. For a while before collapsing it was Fortune 50. It had very few corporate staff. Executives wanted steady, reliable income for reporting to Wall Street. It invested in cyclical businesses. Go figure. Anyway, take this comment about GE:
“He was proud of how managers of one division were able to “come up with” a few more cents of earnings if another division fell short of its forecast. I kid you not — reread that sentence, three times. If I was at the SEC I’d be investigating GE’s accounting.“
Contrast with Bezos:
“Welch is on the opposite end of the spectrum from Jeff Bezos, CEO of Amazon.com. Bezos doesn’t even know how to spell quarterly earnings. Amazon’s founder once explained that Amazon makes decisions years out. So the current quarter’s report reflects decisions Amazon made several years ago.”
“There is another lesson here. As an investor, simplicity and transparency from a company is key. If a company’s business is complex and opaque, move on. One of the most important things in investing is what you do in-between buying or selling a stock. After you buy it is just a matter of time before your initial assumptions come under fire. Maintaining rationality throughout your ownership of the company is paramount, and to do that you need to understand the business well. That’s why I have no opinion on GE shares now.”
And your takeaway:
“Above all, never make a decision based solely on someone else’s research; use it as a starting point for your own investigation.”