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If Dixie Could Whistle

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December 04, 2006 – Comments (2)

My son works for Century Management, Inc. (CMI) in Austin, Texas.

Like so many private money managers, CMI is a big lover of Pfizer, Inc. (NYSE: PFE), believing them to be vastly undervalued.

During their 2005 client review, the CMI principals went on and on about how wonderful Pfizer was, and how the company was doing this and the company was doing that and how all of that was moving in a manner that would increase the company’s value, and blah blah blah blah blah.

In 1999 I did a nickel’s worth of research on Pfizer thinking I might add the stock to my portfolio as a way of offsetting some of the risk I felt I had because of all of the tech stocks I owned. I remember coming away from research with a sense that Pfizer was a company to steer clear off.

You know how you just get a sense, a gut feeling, that something isn’t right? That’s what I got with Pfizer. Oh they had good numbers as I recall, it was just something that didn’t feel right.

At any rate I passed on the stock and went on to loose 75% of the value of my portfolio when the markets came apart in 2000.

Several years later an article in Time or Newsweek or some such publication, I came across an article on Pfizer. I remember thinking as I scanned through the article, that even though I had literally lost more than $500K when the bubble burst, I was very glad I had passed on Pfizer…that I had listened to what I had to say.

It wasn’t until I sat listening to Arnold Van Den Berg talking about how wonderful Pfizer was, and how cheap the stock was, and on and on, that I finally realized what it was about the company that I didn’t like…management.

It was the intangible that had sent my read flag up, something I didn’t pay attention to when I was buying all of those tech stocks seven years before.

So as I listened to first one Century Management CFA, and then another, and then another, tell me why Pfizer was such a great company, and all the rest that goes with it. It wasn’t lost on me that it felt like 1999, all over again.

Only this time...I was listening, paying attention, considering.

And based on what I can’t seem to get away from this morning, I’m very glad I was.

Wax

2 Comments – Post Your Own

#1) On December 06, 2006 at 7:02 PM, Steve819 (97.86) wrote:

So, what was it about mgmt that you didn't like?

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#2) On December 07, 2006 at 6:30 AM, wax (97.64) wrote:

Steve;

As I said, it was an intangible thing, something I was never able to put my finger directly on.

Here's an example.

A couple of weeks ago I heard a news story that Pfizer had announced coming layoffs. The reason cited was that the reduction in the work force would save the company lots of money, and allow it to become more competitive, realignment more in tune to the company's business units, etc, etc.

This was apparently a big deal because as I understand it, the industry in general won't do anything until another company does it first, sort of a you show me yours and I'll show you mine, but you gotta show me yours first.

Miracle of miracles, three days later, Pfizer is announcing that their new cholesterol drug which is in late stage trials does indeed seem to be lowering folk’s cholesterol, but it's doing it by lowering those folks into the ground, as in push'n up daisies.

The next thing I hear is that Pfizer is going to be having additional layoffs, and things are looking grim and all of the other crud that the news throws out at us.

But this is what I believe. I believe management has known for good while that the company's new drug was going to be unsuccessful and they also knew because of what they would have to eventually announce, that the stock was going to get slammed.

What happens to the price of a stock when a company announces layoffs? Since investors view an announcement like that has positive news, it generally rises, and such was the case with Pfizer's stock, closing up the day following the announcement and the day after that and the day after that, which brings us to $27.86, an increase of almost $1 since the announcement of layoffs.

It's now the weekend. Not a lot of business activity over a weekend period, so there aren't as many folks...watching.

Pfizer announces it's drug sux and that it's stopping trials of the drug and so forth.

At the end of the first business day after the announcement, the stock is down $2.96.

But wait. The announcement several days earlier had driven the stock up almost a $1, so the net loss to the shareholders was $1.96. Shareholders I might add, that include management.

Don't get me wrong, I'm not saying there is/was a conspiracy or anything even remotely close.

What I am saying is that IF the scenario I laid out were true, I wouldn't be surprised because it all fits with my perception of Pfizer management. I simply don't trust them.

And if you don't trust management to tell the truth, why would you want to give them your money for safekeeping?

Wax

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