[at-l] Ford

[Tom McGinnis]

So back to...

--- On Thu, 3/19/09, Felix J <AThiker at smithville.net> wrote:

> Here's something I don't understand:> 
> How can an article start out like this: (first paragraff) 
> 
> FedEx Corp. said Thursday it plans to cut more jobs and trim wages again, as the company reported its fiscal third-quarter profit tumbled 75 percent on severe weakness in the global economy.
> 
> and, end with this: (last paragraff)> 
> FedEx shares rose $2.25, or 5.1 percent, to $45.25
> in morning trading.

Okay, so, it goes like this:
WHY DO WE BUY STOCK: We expect to profit from our engagement of capital, at a rate commensurate to the expected risk of loss. Big risk? Better be big potential from profit, or low stock price, or both. Little risk? Expect a higher stock price, or little profit, or both.

HOW DO WE PROFIT?
1) Price appreciation -- the stock "goes up."
2) Dividends -- revenues greater than gross expenses, and the difference not plowed back into the company (research or growth).
3) Rental -- You try to get Clyde to sell call options (the right to buy) on his F, and reduce your cost basis in the stock as you "hold" it.

HOW DOES THE MARKET PRICE A STOCK?
Expected future price - costs of ownership [capital not devoted to other uses]. 

Now that last part -- "capital not devoted to other uses" means that the benefit of holding a stock is always done as a "compared to what" proposition. As a particular stock looks better or worse than other choices in the market, that stock will rise or fall. And as stocks in general look better or worse than other choices to hold your capital, ALL stocks will rise or fall.

"I like holding Ford," said Thee Clyde, tootling across windswept Abraham.
"Oh really?" cried SHÜ? "Compared to what?"

So when FedEx announces cuts and trimmings, along with a 75% profit reduction, the market looks at that and sez "Whoa! Unlike the rest of the dolts who've been swept up unawares of economic conditions, FedEx is 
1) still making a profit
2) trimming some corporate fat to control expenses in light of reduced workload, and 
3) REDUCING WAGES RATHER THAN losing their corporate/organizational memory by keeping less people on with full wages.

This means that FedEx will be well-positioned to weather an economic storm in the black, and even better positioned to reliably deliver dividends and well as packages, as the economy turns. Say Hey[!] to thinking ahead. (Which is what the market did, in seeking to buy up shares with that announcement -- people were saying "These people are smart [compared to the rest of the market choices I have for my bucks] -- I'm puttin' my money with them.")

And, as I suspected, the yutzes who shorted my friends at AMD are having to buy back now.... time to sell those call options. (We're on the rise til 4:00pm.)