If you'e unfamiliar with the fable "The Emperor's New Clothes" its an old tale about an Emperor who engages a couple of new tailors who promise to outfit him in the most exquisite outfit imaginable.
They tell the monarch that the fabrics they are using will be totally invisible to those who are not fit to be in their positions, that or totally stupid. Of course there is no fabric, but when they pantomime dressing the Emperor in his new outfit he praises the skill of the tailors and the beauty of the rainment because he doesn't want anyone to think he is unfit for the position of Emperor. Likewise his ministers, advisers and other members of the court, they too praise the outfit, falling over each other to describe how incredible it is.
Word spreads throughut the kingdom that anyone unable to see the Emperor's wonderful new clothes, that they will be judged unfit for the position they hold. And so the King leaves the palace and marches among his people with everyone applauding and cheering, until a young boy proclaims that the Emperor is naked.
Sometimes I feel like that young boy.
With public companies there are those that are clothed wonderfully with profits and dividends that get distributed to shareholders. Others are not so well attired, but they perhaps have robust revenues and its just that expenses are greater than what is coming in. Bring expenses down or increase revenues sufficiently and they too will get an upgrade in their wardrobes.
And some companies have nothing. Little or no revenue and zero profits, only losses. All they have on are the rags of an accumulated deficit. But they have a story, a wonderful story. It might be a miracle drug that's going to cure cancer or some other disease, or a potential mine that will overflow with precious metals, or a new technology or application which will revolutionize the world or at least an industry, a new clothing line, an incredible new beverage....the list is almost endless.
And some will succeed. Some will develop that drug, or that mine, or that killer application....but many more will fail.
In my opinion the fable about the Emperor's New Clothes comes into play when there's an abundance of: Promotion, News and Hype. When too much effort is employed to make shareholders and prospective investors believe that the Emperor is wearing the most exquisite outfit imaginable, its time to be cynical. If social media pundits attack anyone who doesn't declare the outfit to be the finest they've ever seen, calling them stupid or unfit to be investing in public companies....My advice would be to run.
There are lots of Investor Relations Rumpelstiltskins out there trying to spin worthless straw into gold so be careful and suspicious. And pull out a book of old children's fables like those by Aesop and Hans Christian Anderson, you might find some lessons that still apply today.
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