Financial Myths: It’s As Plain As the Nose on Your Face – Part I

Michael McTague |

Sometimes companies and individuals are unable or unwilling to recognize what everyone else sees. Sellers of poor products should act accordingly. On the other end of the bell-shaped curve, product leaders should think and act like leaders. Companies that are spread across page one because of ethical issues or product-defects should come clean with the public. Hang on; the investigation of this myth will reveal much.

The Myth Buster once visited a Toyota (TM) dealership. Before saying hello, the sales  representative took a large bundle of stapled articles from Consumer Reports off the top of a stack sitting on his desk anchored by a Toyota paperweight. When asked about brakes, the same dealer said nothing but handed over another stack of stapled Consumer Reports articles. The next visit was to a Mitsubishi (MTU) dealer. The Myth Buster brought the Consumer Reports articles from Toyota and asked how Mitsubishi compared to Toyota. The sales representative said he had never heard of Consumer Reports, which also ranked Mitsubishi dealers dead last. In both cases, the awful truth seemed as plain as the noses on their faces.

Shopping for shoes can elicit similar startling reactions. Every American mall seems to have a Payless ShoeSource. Look carefully at the merchandise. Are they really shoes? Do they have any leather? They look like pieces of rubber with a space carved out for feet. According to their website, dress shoes include Men’s Freebord Driver Moc for $29.99. Isn’t Moc short for Moccasin? The description says, “It features a faux suede upper with traditional moc details, canvas lining, cushiony memory foam insole for all-day comfort, and a ribbed outsole.” See, no leather; no shoe either!           

Is Florida Overbuilt?

As RE/MAX (RMAX) and Century 21 (RLGY) , the real estate giants, know, financial experts used to proclaim that your home is your best investment. The time has passed when home prices appreciated rapidly and people were paying off their mortgages expeditiously. A few years later, they had quite a nest egg. The Myth Buster was on the beach in West Palm Beach – on business, of course – and noticed that all the lights were out in the new condos. Isn’t it as plain as the nose on your face that Florida’s 900 miles of shoreline are overbuilt? According to The Free Library, Florida has 12.6 months worth of unfinished vacant inventory and “it takes roughly 189 days to sell a home in Palm Beach, Broward and Miami-Dade counties, making South Florida the hardest place in the country to sell a single-family home”.

Are You Sure That’s Times Square?

Movie makers have a few crafty camera angles. One is to rent Toronto locations and pretend they are New York City. This leads to hiring extras to cross the street at the same time so that it looks like a busy New York street. Sound bizarre? How about this: movies and TV shows filmed in Canada try to make you think it is warm outside. Even during winter filming, actors wear unbuttoned spring/fall coats. They must also hire extras to shovel snow. Not sure how they prevent the actors’ breath from showing, though.

Toronto and Vancouver are the leading locations. Pinewood Toronto Studios and Vancouver Film Studios, which is owned by McLean Group, are among the largest film production centers in Canada. While they may have trouble masking the quiet streets of Toronto, they have not hidden from Hollywood their cost effectiveness, which approaches 30% on labor and film editing.

Martha Stewart’s detergent, Clean, was panned by Consumer Reports and Good Housekeeping, who rated it as no better than plain water. Imagine how many times the home and living expert and overseer of Living Omnipedia (MSO) has been asked if her detergent is “real.” Isn’t it obvious she simply put her name on it? Macy’s (M) is suing. Procter & Gamble (PG) , makers of Downy, Cheer, Daz, Bold and eighteen types of Tide, must be laughing.

To Smoke or Not To Smoke

The public image of cigarettes continues to slide. Advertisements against smoking and the brutal notices posted on cigarette packages have slashed the percent of people smoking -- but not cigarette profits. Philip Morris (PM) has amassed over $29 billion in retained earnings through 2014. Last year’s revenue was about $80 billion and gross profit over $19 billion. Cigarette companies give every appearance of accepting the dire messages they must print on their packs and accepting tax add ons of more than 50% of the total price. The tax supplement is revealing. Current legislation allows 17 mg. of tar per cigarette. The range of brands on the US market runs from 1 mg. to 15. By contrast, the range of taxes from state to state is very small.

An interesting myth. Consider what we are supposed to believe:

  • Profits skyrocket along with taxes (cigarette add ons and corporate taxes from net profit), but the government really believes smoking is bad.
  • Empty Florida beachfront homes are really worth millions.
  • Mitsubishi dealers are really great. Who ever heard of Consumer Reports!
  • Look at Toyota’s sales and market share not its brakes.
  • Shoes don’t need leather or soles or heels.
  • The gentleman crossing the street with the snow boots, gloves, scarf and Toronto Maple Leaf jacket is really in New York, and is actually a Star Trek fan hoping to get an autograph from William Shatner while he makes a Priceline (PCLN) commercial at Grand Central.

Next month, we continue our search for evidence about this myth, which is proving to be very insightful.

**********************

Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.    

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TM Toyota Motor Corporation 116.83 -0.94 -0.80 190,881
PG Procter & Gamble Company (The) 82.40 0.54 0.66 9,079,412
MTU Mitsubishi UFJ Financial Group Inc. 6.31 0.29 4.82 2,195,018
RMAX RE/MAX Holdings Inc. Class A 52.35 1.40 2.75 160,020
M Macys Inc. 42.48 0.06 0.14 3,662,473
MSO Martha Stewart Living Omnimedia Inc. n/a n/a n/a 0
RLGY Realogy Holdings Corp. 23.93 -0.01 -0.04 1,617,834
PM Philip Morris International Inc 88.08 0.31 0.35 4,818,431

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