One of the more legendary phrases from sports history came in the wake of a scandal by members of the Chicago White Sox baseball team who were accused of throwing the 1919 World Series to the Cincinnati Reds. The phrase “Say it ain’t so, Joe. Say it ain’t so.” was in reference to the team’s most popular player, Shoeless Joe Jackson, and reflected the disbelief of White Sox fans who were crushed to learn their baseball idols might have sold out for $5,000 each. At that point fans could only hope it wasn’t true.
Although the accused players were later acquitted by a Chicago jury, the damage was done as they were banned for life from Major League Baseball and, as a result, from possible induction into the Baseball Hall of Fame. Jackson, who still holds the third-highest batting average in Major League history, never again played in the big leagues and to this day has not been admitted to the Cooperstown shrine. The penalty for just being aware of the attempt by others to fix a game and not reporting it haunted the players for the rest of their days.
Late last year Volkswagen, at the time the largest and one of the most respected automobile companies in the world, admitted that its engineers had installed devices on many of its automobiles to trick random emissions tests conducted on its diesel engines. In an incredible act of arrogance or stupidity those involved in this cockamamie scandal put at risk the careers of 600,000 employees worldwide, the reputation of one of Germany’s most beloved companies and the nest eggs of many of its shareholders. To be expected, sales have weakened as many customers take a wait and see attitude. As of this writing, the company has lost approximately half of its market value and most of its credibility. Volkswagen still makes great cars and owns some of the industry’s most cherished brands including Porsche, Lamborghini, Bentley and Audi among others. The problem is not the quality of its cars but the character of its management and the unknown billions this scandal will cost over the next several years.
Imagine if you, like many investors, had built a large position in Volkswagen’s shares, and now on the eve of retiring, see half of your beloved company’s stock value wiped out almost overnight. What do you do? Do you sell, buy more or sit tight paralyzed with indecision and hope against hope that the company can recover its reputation, profitability and share price in time to help fund your retirement? You might be like those fans in Chicago, shaking your head in disbelief and pleading “Say it ain’t so, Vo. Say it ain’t so.”
It is unlikely any of the readers of this blog own a significant stake in Volkswagen, but you may have concentrated positions in other companies, the loss of which could negatively impact your ability to fund your life’s goals. People with large positions often refuse to diversify because of an emotional attachment to the company while others simply don’t want to pay taxes on the gains. I’m guessing owners of VW have lost some of the love and now wish they had diversified and paid their taxes. How confident are you that nothing will ever happen to your beloved company? If you are over-concentrated in any investment it won’t matter until something goes wrong and, by that time it will be too late to act. Part of Wealthview’s planning process is to stress tests our clients’ ability to fund their goals should something happen to a concentrated position. It’s what we do. No matter how much you may like your favorite company, there is no substitute for a broadly diversified portfolio.