Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five head-spinningly dumb financial events from the past seven days.
1. Palm in search of branches
Shares of Blockbuster (NYSE: BBI ) and Redbox parent Coinstar (Nasdaq: CSTR ) soared 8% and 7%, respectively, on Monday, after news broke that bankrupt rival Movie Gallery would be liquidating its remaining stores.
Really? Optical-disc rentals are on a death spiral, so we applaud those left standing?
Ummm, no. This isn't like when Circuit City disappeared last year. Consumer-electronics retailing isn't on any endangered species list, so it was only natural for the remaining heavies to drool over the newly available market share of a leveraged failure. The fact that Movie Gallery's creditors had no problem shuttering the chain does not bode well for debt-saddled Blockbuster's lifeline. Things could get equally hairy for Redbox, since it totally lacks a digital strategy for the inevitable death of the DVD.
2. You can't spell Nokia without an "N" and an "O"
At its annual shareholder meeting yesterday, Finland's Nokia (NYSE: NOK ) announced that it would buy back 360 million shares.
Stock repurchases are usually positive events, indicating confidence that a stock has bottomed out. Unfortunately, that may not necessarily apply here. Shares of the struggling wireless handset maker hit a new 52-week low yesterday, and there are no assurances that it has bottomed out. Analysts see earnings falling this year, and Nokia doesn't seem to have an answer to the high-end popularity of iPhone and BlackBerry smartphones. In other words, spending company money to buy shares that may very well be cheaper several months from now is not encouraging.
However, a dumb operation gets even dumber when one considers that Nokia also plans to issue 740 million shares over the next three years to raise money. In a nutshell, it wants to spend money to buy its own stock, but will then turn around and issue more than twice as many shares to raise money later.
3. Sirius skidmarks
You would think that Sirius XM Radio (Nasdaq: SIRI ) would learn from its mistakes. The stock has shed 17% of its value over the past three trading days, after posting its quarterly results.
There was nothing wrong with Sirius XM's report. The satellite radio giant is now profitable. It has tacked on more new subscribers than cancellations in each of the three previous quarters. However, it had already leaked the healthy subscriber news a month ago. Why is there no Howard Stern update? Why is the guidance for all of 2010 unchanged?
Sirius XM did the same thing earlier this year, preannouncing the best parts of its fourth-quarter report. When the actual report didn't offer any new positive gems, the stock got pounded.
Let's hope Sirius XM saves some nuggets for the second-quarter report, should it decide to preannounce any favorable subscriber or cash flow trends.
4. Cheap trades
Mutual fund darling Vanguard became the latest financial-services company to raise the bar by lowering brokerage fees.
Vanguard is hacking away at its commission table, charging $2 to $7 for stock trades depending on account size and waiving commissions altogether on its own line of ETFs.
This may be great news for individual investors like you and me, but it will mean more pain for the discount brokerage industry. Market leader Charles Schwab (Nasdaq: SCHW ) already slashed its rates. It's also taking a hit on the pittance that money market funds are earning in interest these days, because it has to waive a good chunk of its management fees to keep the yields positive and competitive.
Trading activity has also stalled, though that is likely to change given yesterday's volatile session. However, the prospects of the sector as an investment continue to be threatened with every cutthroat move.
5. Welcome to the chopping mall
A strong March didn't bleed into April for the retail industry. Thomson Reuters is reporting that total April sales rose by a mere 0.5%, barely bouncing back from a 2.7% slide a year earlier. Analysts were expecting a 1.7% bounce.
There were some surprising stinkers in the list, including 6% decline in comps for both Target (NYSE: TGT ) and Buckle (NYSE: BKE ) .
Cheap chic discounter Target seemed like a logical winner, giving shoppers the one-two punch of bargains and reasonable fashion sense. Buckle is also a surprise, since its comps were healthy through most of the recession.
Mauled at the mall? How sad.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
RSS Headlines
Fool UK