Lesson 1: Corporate Buy Backs
As a public company General Electric (GE) used the "corporate buy back" stock strategy. They would make money from GE Capital via bonds/loans and they would use the interest earned to buy back GE stock from the public. This would reduce the supply of shares to the public and in-turn increase the GE stock price.
History proved this to be a very risky and questionable strategy. With hindsight bias the "corporate buy back" is only advisable if a company has excess cash and if the stock is undervalued compared to a companies true intrinsic value. If other companies ever use the "corporate buy back" tactic they should be mindful of the market sentiment and let a third party non bias expert determine the public companies true intrinsic value.
Lesson 2: Locking in Longterm Contracts and Manufactured Hype affect Stick Prices. But the Truth Prevails.
GE sold expensive hardware at low margins. Then they made their true profits from maintenance contracts. Sometimes they even sold their hardware at a discount in exchange for absurdly long maintenance contracts. After they had these long contracts locked in they exaggerated the upcoming market affects of their corporate research advancements and how hardware maintenance would become more efficient upon time for contract renewal. They used these assumptions to lie on quarterly statements and trick investors into over valuing the stock.
Lesson 3: Company Culture and CEO Correlations are Different for Larger Organizations
All these schemes and market manipulation tactics caught up with GE and their stock eventually plummeted. They tried to replace the CEO and save their company perception a few times. The GE story exemplified how changing CEO's can be misleading. Just because a CEO is replaced does not mean that company culture will change. If the Board of Directors who are in charge of a CEO are largely influenced by the past, then the new CEO will typically be fighting an uphill battle.
.png)