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Irony?

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An interesting bit from the Freakanomics blog at the NY Times, which pointed out some of the companies mentioned in the book Good to Great:

[…] I began reading the book on the very same day that one of the eleven “good to great” companies, Fannie Mae, made the headlines of the business pages. It looks like Fannie Mae is going to need to be bailed out by the federal government. If you had bought Fannie Mae stock around the time Good to Great was published, you would have lost over 80 percent of your initial investment.

Another one of the “good to great” companies is Circuit City. You would have lost your shirt investing in Circuit City as well, which is also down 80 percent or more. Best Buy has cleaned Circuit City’s clock for the last seven or eight years.

It seems the lesson that should be drawn from this is twofold: the stock price does not necessarily reflect a good (if high/rising) or bad (if low/falling) company and it depends on which time period is observed. Maybe Good to Great needs a second volume for co’s dealing successfully with this period. Maybe these companies indicate a systemic problem.

At the base of it, Fannie Mae (details on the scandal are near the bottom of the Wikipedia entry) should have been cut from the book when the company’s leadership (Raines, Howard and Spencer) were accused of 101 counts of manipulating earnings for the sake of their bonuses. Surrounding this was also a $6.3 billion earning restatement.

Also, this may be a lesson that serves to discourage people from buying best-seller management books.

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Written by walonline

July 29, 2008 at 7:15 pm

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