A Winner And A Loser

Rarely in a transaction do both sides get equal value.  There is typically someone who gets the better end of the deal and someone who is on the losing end.  Our job is to make sure we’re the ones on the right side.  Remember all those people selling stock in early March?  They lost and the ones who bought from them won.  How about those institutions that paid pennies on the dollar for “toxic assets” which really aren’t toxic.  How about the people buying foreclosures?  There are always deals around us but the last few months have presented many more than usual.

This morning we see the top story on page 1 of the Wall Street Journal is “China Firm to Buy Hummer.”  Sichuan Tengzhong Heavy Industrial Machinery Co. is buying Hummer from GM for what is expected to be less than $500 million.  Just a few years ago it was an outrage than a foreign company would be buying American assets (remember CNOOC tried to buy Unocal).  Now, it’s going to be a normal part of life.  Morgan Stanley & Blackstone Group both sold some various assets to China Investment Corp. in late 2007.

A few months ago I wrote about the fact that there would be plenty of mergers & acquisitions in 2009 not out of need but out of necessity.  That’s now what we’re seeing on a regular basis.  GM isn’t selling Hummer because they want to.  They are selling Hummer because they have to just as Centex & Pulte had to merge a couple of months ago.  There are assets in the U.S. that will continue to be sold to the highest bidder, and many of those bidders will be coming from countries like China. 

As investors, we need to continue to own assets that are appreciating and avoid those that are depreciating.  Going forward, that will mean opening up our minds to companies and assets outside the U.S.  We’re now officially in a global marketplace and our portfolios should reflect that fact.  Instead of complaining about who’s manufacturing what and which foreign company is buying which American company, let’s embrace it.  I’m as American as they come, but it’s a new world with new opportunities to make America stronger in the long run.  Let’s take advantage of it.  We’ll all be better off for it.

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