I should tell you people a story, because you are groupies for stories. I talked recently to a man who shall go nameless. But his company was one of the great growth stocks of America.
And they had armies of PhD’s in there who had mastered very difficult disciplines. And they had patents, and technology, and know how, what have you and hard to replace plants. What they make is difficult to make in a lot of different categories.
And the profits in the business are very mediocre, to put it mildly. And it isn’t that it has been that badly run. It’s just that everybody’s learned how to make these difficult things, and there are too many of them trying to make them. It just gets terrible. And what happens then is, you’re now the CEO of the place and you see it’s getting tough. You view yourself as a guy that knows how to fix things. You never have a category in your mind of, “It’s too tough to fix,” which is a really stupid idea. You can recognize all kinds of things that are too tough to fix.
But if you don’t, then you are a sucker for some narrative to say, maybe there’s some company in your industry that makes something really complicated that other people can’t match. And you say, “Well, I’ll buy that. That solves my problem.” But your friendly investment banker and your friendly management consultant want you to buy it at 30 times’ earnings and 12 times’ book. Of course, at that price, it won’t solve your problems. And you do it anyway. After all, you’ve got consultants, and it gives you hope.
And they had armies of PhD’s in there who had mastered very difficult disciplines. And they had patents, and technology, and know how, what have you and hard to replace plants. What they make is difficult to make in a lot of different categories.
And the profits in the business are very mediocre, to put it mildly. And it isn’t that it has been that badly run. It’s just that everybody’s learned how to make these difficult things, and there are too many of them trying to make them. It just gets terrible. And what happens then is, you’re now the CEO of the place and you see it’s getting tough. You view yourself as a guy that knows how to fix things. You never have a category in your mind of, “It’s too tough to fix,” which is a really stupid idea. You can recognize all kinds of things that are too tough to fix.
But if you don’t, then you are a sucker for some narrative to say, maybe there’s some company in your industry that makes something really complicated that other people can’t match. And you say, “Well, I’ll buy that. That solves my problem.” But your friendly investment banker and your friendly management consultant want you to buy it at 30 times’ earnings and 12 times’ book. Of course, at that price, it won’t solve your problems. And you do it anyway. After all, you’ve got consultants, and it gives you hope.
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