Jack Falvey's Investor Education Briefs: Find the story behind downsizingBy JACK FALVEY
April 22. 2018 7:15PM
DOWNSIZING in business and in one’s personal life can be a good strategy. The question is, why is it being done? In business, companies you may have invested in sell product lines, divisions, land and buildings, and anything else that might generate needed operating capital.
Asking why this is being done will alert you to the financial health of the enterprise. Press release explanations that are often run as business news stories are suspect. See if other things are going on that might color the information differently.
Personal downsizing presents itself sooner or later in life, and sometimes both sooner and later. When the kids grow up and move away, the big house with all those bedrooms is no longer needed. Later in life, the summer place might get more use by others. The smaller house might turn into a condo or assisted living. The later the better on much of this, but it is a natural evolution.
The natural evolution in business is sustained growth and wise succession planning. Business and product cycles are natural bumps in the road. Keep your eyes on the road so that your investments don’t become road kill. It is not unusual for a company to have a 100-year history. That does not guarantee a second century, but it indicates an ability to pass a baton, which is a big thing. Diversity for synergy is no excuse for sound managerial focus on the business at hand. Divestiture follows diversity like night follows day, only it takes a while.
Vigilance is rewarded, so keep your eye on your investment ball. Scan the business news daily, and while the day’s business news will seldom be newsworthy, cumulatively it often tells a between-the-lines story that will alert you to coming attractions. Who is buying and selling what to whom is usually public information. See if you can come up with some meanings that somehow didn’t make the news. The sale of assets is an element to warrant a deeper look.
Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org