Dear Mr. Berko: I own 200 shares of AllianceBernstein, a huge mistake of a stock that I bought a few years back, when it was $86. A few years ago, the stock was trading in the $30s, but as the stock market keeps going up, my stock keeps going down. I hoped the new CEO Peter Krauss from Goldman Sachs would push the shares back up, but he seems clueless. Please give me your recommendation.
TE, Wilmington, N.C.
Dear TE: Never, never, never invest in anything that bears a Goldman Sachs imprimatur. John Thain burned Merrill Lynch, and Jon Corzine bankrupted MF Global, and there are more – lots more -- but you get the idea.
Peter Krauss, the top investment banker at Goldman Sachs, followed John Thain to Merrill Lynch in 2008 and got canned three months later with a sweet $25 million bonus. Then this Thain-flavored fruitcake took the CEO-ship of AXA-owned institutional money manager AllianceBernstein (AB-$13.35) with a dandy five-year, $80 million contract.
When you purchased your 200 shares at $86 in 2007, AB was managing $850 billion in pension and mutual fund money and was CEO'd by Lewis Sanders, a highly respected "value investor." But today, there is no such beast as a value investor -- someone who purchases good stocks at low prices and waits for them to appreciate as revenues, earnings, and dividends increase.
The last year that Sanders was CEO, in 2007, AB earned $4.55 and paid a dividend of $4.73, including return of capital. In 2007, the market crashed like a bag of pennies, the stock tumbled 50 percent and when Krauss took the key to the executive washroom in late 2008, AB had only $470 billion under management.
Today Krauss and AB have about $389 billion under management, while earnings and dividends have fallen like a rock from a high alp. And during the past three years under Krauss, the S&P was up 45 percent, AB's share price collapsed another 50 percent, and good ol' Petey-boy is still taking home paychecks of $500,000 a month plus bonuses and fringes. Isn't Wall Street's capitalism wonderful?
When asked about the firm's failure to deliver better results, Krauss was refreshingly candid when he exclaimed, "Put simply, the fundamental rules of prudent, long-term investing aren't working."
So if Krauss continues selecting stocks with low price-to-earnings ratios; low book-value ratios; improving net profit margins; rising revenues, earnings and dividends; plus good management, AB will never be a successful institutional money manager. Instead, the company will continue to lose assets under management, and your 200 shares will continue to move lower.
This value-investing concept does not work. According to Wall Street observers, 90 percent of all money managers had better results than AllianceBernstein's institutional funds during the most recent three- and five-year periods. Not good, that.
Unless AB changes its investment strategy and becomes a high-risk, volatility-conscious, momentum-guided, derivative-driven, highly leveraged portfolio trader, AB may never be in a position to sink an 8-ball. And while the current $1.04 dividend yields a nice 7.8 percent, I recommend that you bite the bullet, sell the stock and take your loss. The Street believes that revenues, earnings, and dividends for 2012 will decline and that AB may lay off some of its 3,900 employees.
Please address your financial to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2011 CREATORS.COM
