Monday, December 04, 2006

Lincoln Would Be Nervous

News traveled slowly during our Civil War, especially if the telegraph wires had been cut, which frequently was the case during that all-out conflagration between the well-equipped, poorly led Northern troops, and the poorly-equipped, well led Southerners.

And that was unfortunate for President Lincoln, because the telegraph was his main source of news and information about events in fields ranging from central Virginia to the bluffs above the Mississippi River at Vicksburg.

Lincoln retreated to the telegraph office frequently, both to get away from the hangers-on looking for jobs and to read first-hand the reports that clicked off the wires. (In fact there is a new book on precisely this topic, "Lincoln in the Telegraph Office.")

Lincoln learned the hard way that bluster and over-confidence from his commanders always—always—preceded disaster.

It happened so frequently under McClellan, Pope and especially “Fighting Joe” Hooker in the Wilderness surrounding Chancellorsville that Lincoln began to predict imminent defeat whenever a telegram predicting imminent victory from anybody but U.S. Grant crossed the desk from the telegraph operator.

And he was, in nearly every case, right.

It depressed him mightily—both the expectation of impending defeat, as well as the fact that the generals never seemed to learn that overconfidence left them blind to the dangers in their front, which is why they always got whipped.

And I think Lincoln would have had the same visceral reaction to the ultra-confident words from the Ralph Lauren flak in this weekend’s Barron’s, who was responding to a skeptical question about insider stock sales:

Polo senior vice president Nancy Murray says most of the transactions are programmed and tax-related selling. "We think the stock is just beginning to enter its appropriate valuation level," she says. "And I stress 'beginning.' "

That kind of ultra-confident spin, however justified based on the track record of one of the best-run consumer product franchises in the world, might well have given Lincoln one of his famous bouts of depression, were he running the company today.

After all, he would know, Pfizer’s entire management team hosted Wall Street’s Finest in Groton Connecticut on the last day of November...i.e. last Thursday.

And the result was a batch of optimistic assessments of Pfizer’s ability to renew its cholesterol-drug franchise, as well as increased earnings forecasts...both of which came to grief Saturday afternoon.

Almost as fast as “Fighting Joe” Hooker in the Wilderness.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


MyDailySlice said...

Wow! Great segue.

You are the master!,


Dave Livingston said...

Jeff - interesting observation and comparison. Obviously we're pointing at confronting realities and forthright leadership. Best read on that I've ever had is "Team of Rivals". Aside from it's own merits it's a great study in leadership, communication and integrity and their criticalities in achieving difficult goals.

Pfizer, along with the other major pharmas, is struggling to cope with the increased barreness of their research and science models along with the scelortic nature of their bureaucracies. The industry as a whole is in transition - a very difficult one - from chemically-based drug development to biologically-based. Now have you heard anybody say that, discuss it or otherwise explain how it affects futures ? More generally how many companies go to an effort to explain where they're at today, why & how, what their doing to position for tomorrow, etc. etc. Some of that's in the 10-Ks & Qs if you know how to read between the lines and know the industry. And company experience (i'm on that side) is that many analysts don't get how things work.

That said I'm aware of only a few companies who've been forthright and let the stocks cycle as they will. Two examples that come to mind are Fedex and Expeditor's Int'l. I wonder what would be necessary, on both sides, for reasonably accurate assessments (w/o giving away secrets and strategies) to be provided ? Certainly over the long-term neither of my two examples has been hurt by focusing on their lasts and delivering value. Hmmm..perhaps an emphasis on quarterly spin-doctoring is a warning sign itself ?

whydibuy said...

Hey, I actually called one right...kind of. When a certain someone, who shall be nameless, speculated on a lbo for PFE, I recall mentioning that drug development is anything but sure and not a solid foundation for heavy debt servicing and second that PFE was the single most recommended stock among newsletters Mark Hulbert follows. So not exactly a overlooked sleeper as it was portrayed in the blog.

Aaron Koral said...

Jeff: Let me see if I can devise a formula for your observation on RL:

1) Take one stock buyback - click here for details; click on Press Releases and look for the date 08-15-2006;

2) Add some insider selling by both the CFO and the CEO - click here for further details; and

3) You get...something amiss? Click here for an excellent article in CFO Magazine on why such an anomaly might be bad for shareholders.

And for you home-gamers with a quantitative bent, here's a study from the Wharton School of Business which shows whether there's a relationship between manager trading decisions and trading strategies as suggested by operating accruals.

One question for Sam Antar: Why are high accruals a not-so-good thing for earnings quality? Just wondering...and thanks!

Sam E. Antar said...


At least you were not writing blogs at the same time I was writing financial fairy tales.

With great respect:

Former Crazy Eddie CFO & ex-felon

russell120 said...

I doubt many of todays corporate CEOs would do very well if they were faced with the difficulties of the Civil War Generals. By a rough count 69 Union General Officers, and 73 Confederate General Officers lost their lives in battle or shortly thereafter due to injuries sustained in battle. Our modern corporate commanders as a group look like a pretty tame bunch by comparison.

The South also had some pretty awful generals. They were mostly fighting out west where there was not as much press attention. The west is essentially were the Confederacy lost the war.

Apparently the two campaigns studied in the war colleges of non-US armies are Jackson's Valley Campaign, and Grant's Vicksburg campaign.

Those two campaigns make for a good quick and dirty summation of the war until Grant comes east, and Sherman starts his march through Georgia.