Cart (0)
VIDEOManagement Strategies: McDonald's vs. BP
By
Jeff Macke Jun 09, 2010 3:55 pm
Every company faces potential disasters. These two companies are quintessential good and evil, which should be reflected in investors' portfolios.
 |
|
Corporate good isn’t a function of your product. Phillip Morris -- Okay, “Altria” (MO) -- is a force of corporate good despite poisoning the youth of the world. I trade stocks. All it takes for a CEO to get on my good list is not destroying my capital by maximizing the impact of mishaps. It’s that easy. The tobacco industry denied the addictive nature of their product even as they endeavored to make cigarettes even more addictive. They sold their souls to protect their shareholders. They may go to hell but they pay a good dividend and Altria is up 30% over the last five years compared to a 10% drop for the S&P 500. Nice.
Which brings us back to McDonald's, a company in the business of making the world too fat to fly Southwest (LUV). It does this by making food that tastes both good and the same all over the world. Of every bite of a Quarter Pounder with Cheese you put in your body 5% is digested, 10% is jammed directly into your arteries, and the balance is spread over your arse and gut, depending on your personal physique. Doesn’t matter. I haven’t had one in at least five years but my mouth is literally watering at the idea of eating one. I remember the flavor of a Quarter Pounder the way Keith Richards recalls heroin; quite fondly, if a bit vaguely.
I don’t let my kids eat at Micky D’s but I’ve owned the stock for a couple years. Today’s news tells you why. Part of the kiddie allure of McDonald's are the promotional toys and doodads they sell and give away with purchases of a kid's meal. In that tradition the company was recently selling glasses featuring Dreamworks’ (DWA) Shrek. Two problems. One, the most recent Shrek is lousy even by kid movie standards. Two, and here’s where I get to the point, the company that actually produced the glasses for McDonald's put cadmium in the paint. Cadmium (Cd on your periodic table) happens to be both toxic and a carcinogen. Ooops. There wasn’t enough cadmium on the Shrek glasses to actually poison anyone and, as the good, albeit greasy, people at Altria will tell you, it’s pretty hard to prove exactly how a person gets cancer. McDonald's could have spent weeks denying the glasses were poisonous. It could have blamed whatever sweat shop it hired to put Shrek's adorable face on the glasses. In other words, McDonald's could have made toxic sludge out of the lemons fate handed it. What McDonald's did instead was classic smart management. McDonald's stood up, apologized for the mess, and recalled the glasses last week. But a simple recall of glasses wasn’t the smart part. A recall covered McDonald’s ass in court but still risked damaging the brand. Like the good managers they are, McDonald’s real goal wasn’t getting the company off the legal hook but rather to actually get the glasses back so they could dispose of them properly (most likely by smashing them over the head of the execs at the glass manufacturer).
Having the Shrek glasses in the marketplace damages the McDonald’s brand. Being both good and smart, McDonald's wanted to recover the glasses. As a result, McDonald's did both the right and the smart thing; it paid now rather than later by buying the glasses back at a premium. You bring your $2.49 Shrek glass back to Micky D’s and they give you $3. Simple. Clean. Genius.
Why belabor the contrast between the proven fools running BP and the proactive folks running McDonald's? Because the lesson applies to your career, your portfolio, and your life. Here’s the thing; accidents happen. Mistakes are made by everyone and all the time. But it’s the reaction to the mishaps that determines whether or not an err is fatal. As I’ve said before, being wrong won’t kill you but staying wrong will. If you’ve been fighting the tape on BP since $50 you aren’t losing because the market is stupid or because you have a long-term view. You’re losing because you’re wrong. And that’s okay. What’s not okay is talking yourself into staying long to spite me, because you hope BP’s dividend remains intact or because you figure the well spewing oil into the Gulf will eventually run dry. I can’t be spited as I’m meaner to myself than you could ever be. BP’s dividend is about 80% to be halted entirely. The leaking well could spew until long after we’re in our graves.
Don’t stay long stocks that go down every day because you hope you’ll be able to sell a bounce. Hope is as toxic to your portfolio as a cadmium Quarter Pounder. Be proactive and smart with your stocks. Be McDonald's, not BP. Own your mistakes, take the pain, and move on with your investing life. From my perch atop Mt. Judgment with my robe blowing in the breeze like a plume of oil, any day the market is open is a fantastic day to sell your BP and buy some McDonald's. It’s not a matter of talking my book, though I am, it’s a matter of financial survival before pride.
McDonald's, a merchant of obesity and death which seeks to lure children into its restaurants with cheap toys and cartoon characters, is officially my choice for the the corporate world’s Greatest Force of Good (“G-Fog”). They are the sunny Yin to BP’s Yang. As a general rule I prefer to be long the former and sell the latter.
Position in MCD.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
