In November 2012 I issued a note to our brokers that the one of the most interesting short-term investment was The Boeing Aircraft Company. I outline why the all encompasing drive to maxmize profits was the single most important factor in my recommendation. The second was that Boeing has just announce a massive share buyback program, in total the company was going to spend nearly $20 billion in buying back its own share.
I disclosed that as an investor it was important to differentiate between good companies and good return companies, and Boeing was doing everything to maximze short term stock prices. I suggested a 36 to 48 month hold period, as afterward the shortfall of CAPEX would be felt in the company, especially since Airbus had the new A320 family of aicraft which was due out in late 2016. I was far from the only strategist to recommend the stock, the truth was the company had been clear that its only drive was to see a rise in the price of the stock. As a strategist it sounded a stupid strategy since the company would see no benefits, it would actually suffer from the cuts in capital expenditure, but as a short term market play. It was an easy call.
When I left in 2018, the stock had gone from $70 to nearly $300, market cap had been halved and capital expenditure was hardly larger than it had been five year earlier and they had redeveloped the B737 aicraft, almost like a skunkwork project. By the end of 2017 our brokers were telling their clients to liqidate their Boeing position, the lemon had been squeeze dry.
It is possbily the worse trait of the capital market these days, liquidity changes investor's preception of what is important. If there is limited liquidity investing in a company is a long term decision to create fundamental higher earnings and profit.
I wrote it black on white that this strategy would harm Boeing's long term earning capacity, but that was not our decision, that was the management, and guess what the management's incentive was entirely driven by share price outpreformance, and not by the quality of their product. So it took a decade for the damage to be done. Is it fatal, maybe especially now that Space X is killing it in space.
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