Quick: Name a major American company with an uncertain future and a lot of recent troubles. There's a good chance you thought of General Motors
So why did the stock recently jump 8% in a single day? Because Merrill Lynch
The apparent reason for the new optimism about the company is that its employees seem to be responding well to early retirement and buyout offers, which could help the company trim its costs. That's good news indeed for the company, but the final numbers aren't in yet, so those buying now are doing so more on hope than on conclusive evidence.
Check out what Warren Buffett and Charlie Munger had to say about General Motors at the 2005 Berkshire Hathaway
Buffett: [GM boss] Rick Wagoner and [Ford chairman] Bill Ford have both been handed, by past managers, extremely difficult hands to play. They're not the consequences of their own doing, but they have inherited a legacy cost structure, with contracts put in place decades ago, that make it very difficult for them to be competitive in today's world . [At GM, you've got] a $90 billion pension fund, $20 billion set aside for health-care liabilities, and the whole equity value of the company is $14 billion. That's not sustainable. ... Something will have to give.
Munger: Warren gave a very optimistic prognosis. Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now. They'd better face it.
[Buffett does wish the company well, though. He did his part by buying a Cadillac recently.]
No matter what the big brokers say, there are surely other investments we can make with our hard-earned money that offer better risk-reward trade-offs than GM. Right now, for example, Dell
So should you listen to your broker? If you use a full-service brokerage like Merrill Lynch, Citigroup's Smith Barney division, or Morgan Stanley
Note that even discount brokerages such as Scottrade, TD Ameritrade
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