Guest “WTF?” by David Middleton
A couple of days ago Charles forwarded me a reader request for commentary on the recent decision to dump ExxonMobil from the Dow Jones Industrial Average. The reader specifically mentioned me, possibly because I’ve been a geophysicist/geologist in the oil & gas industry since 1981.
I replied that it’ll either be a very brief, “This sucks!” Or a longer diatribe about the idiocy of ESG “investing”… I was preparing to go the latter route, particularly after Charles forwarded me a peer-reviewed paper, outlining the idiocy of ESG “investing”… Then I decided that the best way to ridicule The Wall Street Journal was to simply explain what they did.
First: A Few Questions Answered
WTF is ESG “Investing”?
What Are Environmental, Social, and Governance (ESG) Criteria?
Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Investopedia
ESG “investing” is virtue signalling with your own money… Or, virtue signalling with OPM (other people’s money) that you manage (See Larry Fink & Blackrock).
What is the Dow Jones Industrial Average?
What Is the Dow Jones Industrial Average (DJIA)?
The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The Dow Jones is named after Charles Dow, who created the index back in 1896 along with his business partner Edward Jones.1 When reporters on television networks say the phrase “The market is up today,” they are generally referring to the Dow.
The DJIA is the second oldest U.S. market index; it is second to the Dow Jones Transportation Average.1 The DJIA was designed to serve as a proxy for the health of the broader U.S. economy.
[…]
When the index initially launched in 1896, it included only 12 companies. Those companies were primarily part of the industrial sector,1 including companies in the railroad, cotton, gas, sugar, tobacco, and oil industry and was in fact a spin-off of the Dow Jones Transportation Average, making the DJIA the second oldest stock market index in the United States. In the early 20th century, the performance of industrial companies was typically tied to the overall growth rate in the economy. As a result, the relationship between the Dow’s performance and that of the economy was cemented. Even today, for many investors a strong-performing Dow equals a strong economy (while a weak-performing Dow likely indicates a slowing economy).
As the economy changes over time, so does the composition of the index. The Dow typically makes changes when a company becomes less relevant to the current trends of the economy, or when a broader economic shift occurs and a change in the composition of the index needs to be made to reflect it.
[…]
Investopedia
The DJIA is based on stock prices rather than market capitalization. So, stock splits tend to force lineup changes.
The DJIA was supposed to be representative of the industrial sector of the US economy. This is why it used to be referred to as the “30 industrials.” There was a time when The Nightly Business Report would report on all of the indices (industrials, utilities, transportation).
Who decides what companies make up the DJIA?
Today, the DJIA is a benchmark that tracks American stocks that are considered to be the leaders of the economy and are on the Nasdaq and NYSE. The DJIA covers 30 large-cap companies, which are subjectively picked by the editors of The Wall Street Journal.
Over the years, companies in the index have been changed to ensure the index stays current in its measure of the U.S. economy. In fact, none of the initial companies included in the average remain, with General Electric holding the longest tenure, 110 years.
Investopedia
The people who decide what news gets published decide which companies are on the DJIA,
What did The Wall Street Journal Do?
Gratuitous pop culture reference
They basically traded Babe Ruth to the New York Yankees in order to fund a Broadway musical production.
In all, Ruth had played six seasons with the Red Sox, leading them to three World Series victories. On the mound, Ruth pitched a total of 29 2/3 scoreless World Series innings, setting a new league record that would stand for 43 years. He was fresh off a sensational 1919 season, having broken the major league home run record with 29 and led the American League with 114 runs-batted-in and 103 runs. In addition to playing more than 100 games in left field, he also went 9-5 as a pitcher. With his prodigious hitting, pitching and fielding skills, Ruth had surpassed the great Ty Cobb as baseball’s biggest attraction.
Despite Ruth’s performance, the Red Sox stumbled to a 66-71 record in 1919, finishing at sixth place in the American League. New ownership took control of the club, and in early January, owner Harry Frazee made the decision to sell Ruth to the Yankees for $125,000 in cash and some $300,000 in loans (which Frazee reportedly used to finance his Broadway production interests).
[…]
The deal paid off–in spades–for New York, as Ruth went on to smash his own home run record in 1920, hitting 54 home runs. He connected for 59 homers in 1921, dominating the game and increasing Yankee revenues to the point that the team was able to leave the Polo Grounds (shared with the New York Giants baseball team) and build Yankee Stadium, which opened in 1923 and became known as “the house that Ruth built.” Throughout the rest of the 20th century, the legacy of Frazee’s lopsided trade continued to hover over major league baseball, as the Yankees won 39 AL pennants and 26 World Series titles and the Red Sox went 86 years without a World Series win. In 2004, the Sox finally shook the “Curse of the Bambino,” coming from behind to beat the Yankees in the AL Championship and beating the St. Louis Cardinals to win their first Series since 1918.
History.com
What actually happened?
Apple recently announced a four for one stock split. This effectively reduced the tech sector’s representation on the DJIA, necessitating the replacement of some industrial companies with tech companies.
Apple’s 4-1 stock split, will reduce the DJIA’s tech representation, as a result, the team at S&P Dow Jones Indices announced late Monday, noting the new members will help “offset that reduction” and better reflect modern industries.
Fox Business
In one of the worst trades in DJIA history, Pfizer (a company that actually makes things) was traded for AmGen (a biotechnology company), Raytheon (a company that helps keep us free) was swapped for Honeywell (I think they make air filters and thermostats) and ExxonMobil (produces the energy that is needed to do everything) was effectively traded for a player to be named later (Salesforce ???).
What does Salesforce do?
Company Description
salesforce.com, inc. engages in the design and development of cloud-based enterprise software for customer relationship management. Its solutions include sales force automation, customer service and support, marketing automation, digital commerce, community management, collaboration, industry-specific solutions, and salesforce platform. The firm also provides guidance, support, training, and advisory services. The company was founded by Marc Russell Benioff, Parker Harris, David Moellenhoff, and Frank Dominguez in February 1999 and is headquartered in San Francisco, CA.
Marketwatch
Allow me to rephrase the question: WTF is Salesforce? That was as helpful as reading the plot synopsis of The Matrix. At this point, I’m getting a 1999 déjà vu feeling… all over again.
This move left Chevron as the only oil company in the DJIA.
Why pick Chevron over ExxonMobil?
ExxonMobil (XOM) had been a component of the DJIA for 98 years, going back to when it was Standard Oil of New Jersey. From 1999-2008, ExxonMobil was the only oil company in the DJIA. Chevron, which was dropped in 1999 and added back in in 2008, will now be the only oil company in the DJIA. 1999 was the height of the dot.com bubble… A bubble that began to burst in 2000. At the time, we used to joke that if we announced that instead of drilling actual oil & gas wells, we would drill virtual oil & gas wells, our stock price would go through the roof… And the DJIA is all about stock price. This is why Chevron stays in, and ExxonMobil gets the boot.
Chevron has arguably been more fiscally disciplined than ExxonMobil since the 2014-2016 crash. Although, if not for Occidental breaking up Chevron’s acquisition of Anadarko Petroleum last year, things would be different. Chevron was set to acquire Anadarko for $33 billion last year, when Occidental made a $38 billion offer to Anadarko. Chevron refused to increase its offer and received a $1 billion break-up fee. Occidental paid a premium for Anadarko about a year before oil prices crashed. Chevron’s initial offer to Anadarko would have been cash flow positive within 1 year at $65/bbl. Chevron clearly won by losing. Chevron was then able to acquire Noble Energy at a discount after oil prices crashed in a deal that will be cash flow positive at current prices.
Predictably, CNN had a whacked out take on this…
Exxon was the world’s largest company in 2013. Now it’s being kicked out of the Dow
Updated 3:01 PM ET, Tue August 25, 2020
[…]
Exxon’s Tesla problem
Yet even if Guyana turns out to be a win for Exxon, the company faces an uphill battle because of the climate crisis.Exxon is the best-known company in the fossil fuels industry at a time when investors would prefer to bet on solar, wind and Tesla (TSLA).Although European oil companies including BP (BP) and Total (TOT) have aggressively invested on renewable energy and set bold emissions targets, Exxon’s efforts have been far more muted.”It’s a PR problem for energy companies,” said Ben Cook, portfolio manager at Hennessey BP Energy Fund. “You can either part of the solution or be seen as part of the problem.”
[…]
CNN Business
Note to Matt: There is no “climate crisis”… Even if there was a “climate crisis,” Chevron would be facing the same “uphill battle.”
So… If The Wall Street Journal editors needed to keep one oil company in the DJIA, Chevron was probably the right choice… But… NOT “because of the climate crisis.”
What does Babe Ruth have to do with this?
By now, I’m hoping that a tech-savvy commentator has already explained to me what it is that Salesforce actually does… Because this really is looking like trading Babe Ruth to fund a stage production of No,No, Nanette.
ExxonMobil closed at $39.94 on Monday. The current quarterly dividend is $0.87/share (a nearly 9% yield). Salesforce closed at $272.65 and pays no dividend. Let’s look at what the DJIA is supposed to be again:
The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange (NYSE) and the NASDAQ.
Investopedia
What does “blue chip” mean?
What Is a Blue Chip?
A blue chip is a nationally recognized, well-established, and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
Investopedia
Granted, ExxonMobil’s (XOM) stock price has taken a beating since it was the largest company in the world in 2013; while Salesforce’s (CRM) stock price is booming (or bubbling)… But the stock price doesn’t really tell you much about the actual businesses.
XOM Income and Cash Flow vs CRM Income and Cash Flow
| Income/Cash Flow | ExxonMobil | Salesforce | |
| 2019 (billions) | XOM | CRM | XOM/CRM |
| Sales Revenue | $ 256.00 | $ 13.28 | 19.3 |
| Gross Income | $ 54.92 | $ 8.86 | 6.2 |
| Pre-tax Income | $ 20.06 | $ 0.98 | 20.4 |
| Net Income | $ 14.36 | $ 1.11 | 12.9 |
| EBITDA | $ 30.76 | $ 2.16 | 14.2 |
| Net Operating Cash Flow | $ 29.72 | $ 3.40 | 8.7 |
| Free Cash Flow | $ 5.36 | $ 2.80 | 1.9 |
XOM Profitability vs CRM Profitability
| Profitability | XOM | CRM | XOM/CRM |
| Gross Margin | 21.45 | 68.05 | 0.32 |
| Operating Margin | 4.6 | 2.94 | 1.56 |
| Pretax Margin | 7.83 | 4.13 | 1.90 |
| Net Margin | 5.6 | 0.74 | 7.57 |
| Return on Assets | 4.05 | 0.29 | 13.97 |
| Return on Equity | 7.48 | 0.51 | 14.67 |
| Return on Total Capital | 4.82 | 1.7 | 2.84 |
| Return on Invested Capital | 6.59 | 0.43 | 15.33 |
ExxonMobil clobbers Salesforce in every income, cash flow and profitability metric except “gross margin” and “free cash flow.” Salesforce’s gross margin is about three times that of ExxonMobil because it apparently doesn’t cost very much to make whatever is made in the “cloud.” However, ExxonMobil’s operating, pretax and net margins are all much higher than Salesforce. This is due to Salesforce having a much higher SG&A expense (63% of revenue) than ExxonMobil (5% of revenue).
What Is Selling, General & Administrative Expense (SG&A)?
Selling, general and administrative expense (SG&A) is reported on the income statement as the sum of all direct and indirect selling expenses and all general and administrative expenses (G&A) of a company. SG&A, also known as SGA, includes all the costs not directly tied to making a product or performing a service. That is, SG&A includes the costs to sell and deliver products and services and the costs to manage the company.
Investopedia
In the oil & gas industry, companies with high SG&A’s are generally considered poorly managed.
ExxonMobil’s operating cash flow is about 9 times that of Salesforce, but their free cash flow is only twice as large. My guess is that whatever Salesforce pays its people to make in the “cloud” doesn’t require much capital. Free cash flow can be simplistically defined as operating cash flow minus capital expenditures. If ExxonMobil drilled wells in the cloud instead of the Earth, they could practically eliminate capital expenditures.
XOM Valuation vs CRM Valuation
| Valuation | XOM | CRM |
| P/E Current | 12.12 | 1,828.79 |
| P/E Ratio (with extraordinary items) | 24.24 | 105.6 |
| P/E Ratio (without extraordinary items) | 20.78 | 1,230.16 |
| Price to Sales Ratio | 1.16 | 9.06 |
| Price to Book Ratio | 1.54 | 4.8 |
| Price to Cash Flow Ratio | 10.03 | 30.63 |
| Enterprise Value to EBITDA | 11.35 | 57.15 |
| Enterprise Value to Sales | 1.39 | 8.96 |
| Total Debt to Enterprise Value | 0.15 | 0.04 |
Basically, lower valuations indicate that a company’s stock price is under-valued and higher valuations indicate that a company’s stock price is over-valued.
XOM Efficiency vs CRM Efficiency
| Efficiency | XOM | CRM | XOM/CRM |
| Revenue/Employee | $ 3,417,824 | $ 348,939 | 9.79 |
| Income Per Employee | $ 191,455 | $ 2,571 | 74.47 |
| Receivables Turnover | 9.91 | 2.96 | 3.35 |
| Total Asset Turnover | 0.72 | 0.4 | 1.80 |
When it comes to the bottom line, the typical ExxonMobil employee is about 75 times as productive as the typical Salesforce employee… Maybe Salesforce is into renewable energy?
To make a long story, short
ExxonMobil was dumped from the DJIA… Because climate change… Because Apple’s four for one stock split.
Disclaimer
The author has a vested interest in the oil & gas industry. He has been employed for nearly 40 years by oil companies you probably never heard of. The opinions expressed in this post are solely those of the author and in no way meant to be taken as the editorial opinion of Watts Up With That? This post should not be construed as investment advice… I don’t do that. I do not currently directly own stock in ExxonMobil or Salesforce. I have owned ExxonMobil stock in the past, but I still don’t know what Salesforce does. Any and all sarcasm was purely intentional.
Salesforce develops and provides enterprise software applications (that are use to manage the sales activity) as a service (in the cloud) to its clients – themselves typically large enterprises.
This doesn’t help… 😎
You are right. Salesforce does not help. My company uses it and nobody likes it except management.
My last company used it in Europe for “just about everything” but in the US only our actual sales force used it.
Until we got a European CEO and he then implemented it across the whole company. It was… decidedly non-optimal.
But as you say… the management folks loved it. Everyone else, not so much.
Like SAP ? A cashflow blackhole !
They basically make and sell customer tracking software.
Ever get too many emails from some company trying to sell you something and unsubscribe doesn’t seem to work? Salesforce helps them do that to you.
Below is the Company Profile from TD Ameritrade:
“Salesforce.com, Inc. is a provider of enterprise software, delivered through the cloud, with a focus on customer relationship management (CRM). The Company focuses on cloud, mobile, social, Internet of Things (IoT) and artificial intelligence technologies. The Company’s service offerings are configured and integrated with other platforms and enterprise applications. The Company delivers its service offerings via Internet browsers and on mobile devices. Its Customer Success Platform is a portfolio of service offerings providing sales force automation, customer service and support, marketing automation, digital commerce, community management, analytics, application development, IoT integration, collaborative productivity tools and its professional cloud services. Its cloud service offerings include Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, Community Cloud, Analytics Cloud, Salesforce Quip and Salesforce Platform.”
I got this far… “Salesforce.com, Inc. is a provider of enterprise software, delivered through the cloud, with a focus on customer relationship management…” before I felt like my brain was leaking out of my ear… 😉
I feel the same way when you start talking about the differences between differing types of shale.
Every industry has it’s own lingo.
And, as a person that is forced to use it, it sucks.
Salesforce provides services, Exxon provides products. The SG&A isn’t remotely comparable.
A better comparison for Salesforce would be Microsoft whose SG&A / Gross Income is somewhere around 50%.
When Al Gore was casting around for companies with a small ‘carbon footprint’ an advisor pointed him at service companies like Microsoft. link Charlie Munger, Warren Buffett’s right hand man / partner, points out that Gore was a lot more lucky than smart.
Banks and financial services companies also have YUGE SG&A expenses.
This is the one that kills me…
Revenue/Employee XOM $3,417,82 CRM $348,939 XOM/CRM 9.79
Income Per Employee XOM $191,455 CRM $2,571 XOM/CRM 74.47
Companies with high SG&A and high R&D are vulnerable when sales revenue drops. If they are not able to reduce those expenses during lower revenue periods, they are on shaky ground.
Microsoft wouldn’t have nearly such a small carbon footprint if you took into consideration the carbon produced to power the hardware that utilizes their software
So they do spreadsheets on the cloud?
sounds like SAP
… and equally as useless 😉
I had to use it a few years ago, nothing worked as claimed … didn’t integrate very well and output was like GIGO !
And STEORN, creators of over-unity magnetic generators, developed and provided the tools necessary to test their over-unity generators to prove they worked and produced more energy than was put into them.
Much like SALESFARCE
Originally the DOW covered companies that accounted for about 75% of the total trade in the US economy. The Transports moved those goods. Robert Rea and Hamilton took that information and over a number of years developed what became known as the Dow Theory. If transportation and manufacturing were in sync on the upside, things were generally good. If they got in sync on the downside, there was trouble ahead. Bear markets, downside sync, generally retraced 1/3 to 1/2 of the previous high. There tended to be periods of consolidation, followed by the averages climbing a wall of worry, followed by irrational exuberance. A downturn started by non-confirmation of the two averages (one or the other would make a new high, the other wouldn’t), and the early decline would have numerous rallies followed by further declines. In the end a capitulation would occur with fire sale prices. As an example at the bottom of the 1974 bear market CAT had a PE < 8, Boeing < 10, the Dow PE was about 6 IIRC.
To answer DM, Salesfore tries to tie the Company closer to their customers. This is of great value for companies selling almost any kind of wigit. Yes, programming is expensive, even when done offshore or with H1C visas. Personally I prefer to invest in companies where the primary assets don’t walk out the door every night. But that’s just me bb
This is what comes of paying attention to the DJIA. Why does anyone care about the Dow? Like David, when they dropped Exxon, I was interested, but as an investor. The Dow Jones “industrial” average? As opposed to their “utility” average? Or their transportation average? Thirty changing stocks detached from reality when it comes to the universe of stocks.
As an investor the Dow is a picture of almost exactly what David perceives – the trend. Taken as a whole hydrocarbon extraction has not been popular with investors since 2014, when shale oil truly began to affect supply. It depressed oil & gas prices. Which depressed stock prices of oil companies. So in the world of stock valuations the ratio of value in oil stocks compared to other stocks dropped precipitously. It is counter-intuitive, but the reason they dropped ExxonMobil instead Chevron from the Dow is precisely because it is so big. Oil itself is not representative of what investors are buying. They want less Oil and more Tesla because Oil is in the stock toilet.
But that is exactly where value investors fish. Anybody who reads what David wrote ought to be inspired to go buy some XON. I did – when the Dow dropped Exxon. Friendly advice, don’t buy Tesla.
Maybe climate activists are a little too hung up on the “EXXON KNEW” thing. There is a lot of Exxon hatred in the climate change movement. Bill McKibben of course and now AOC.
https://tambonthongchai.com/2020/06/23/exxon-knew/
Never interrupt an enemy while they are making a mistake.
Originally the DOW covered companies that accounted for about 75% of the total trade in the US economy. The Transports moved those goods. Robert Rea and Hamilton took that information and over a number of years developed what became known as the Dow Theory. If transportation and manufacturing were in sync on the upside, things were generally good. If they got in sync on the downside, there was trouble ahead. Bear markets, downside sync, generally retraced 1/3 to 1/2 of the previous high. There tended to be periods of consolidation, followed by the averages climbing a wall of worry, followed by irrational exuberance. A downturn started by non-confirmation of the two averages (one or the other would make a new high, the other wouldn’t), and the early decline would have numerous rallies followed by further declines. In the end a capitulation would occur with fire sale prices. As an example at the bottom of the 1974 bear market CAT had a PE < 8, Boeing < 10, the Dow PE was about 6 IIRC.
To answer DM, Salesfore tries to tie the Company closer to their customers. This is of great value for companies selling almost any kind of wigit. Yes, programming is expensive, even when done offshore or with H1C visas. Personally I prefer to invest in companies where the primary assets don’t walk out the door every night. But that’s just me.
+42×1042 for a very snappy answer to a sarcastic question… 👍👍
So… Salesforce is the love child of IT & marketing? 😉
Just me but I’d go more with “lust” child . . .
it wan’t even consensual … at first.
One of the MO’s of the Obama era of Chicago-style politics was to create political conditions that greatly devalue a company into bankruptcy level. Then swoop in like a vulture to capitalize on the carcass, which in the long run is quite valuable and its bankruptcy makes it a very lucrative buy opportunity. “Buy them on the cheap” after a polical hit job is what the Green Slime is bankrolling Democrats for, along with the crony capitalism of wind and solar scams to fleece electricity customers.
Higher Education -University of Phoenix.
https://www.politico.com/story/2016/06/former-obama-insiders-seek-administrations-blessing-of-for-profit-college-takeover-224917
(Note: in the corrupt deal highlighted above, Barack Obama’s pal Nesbitt is now renovating the Oahu Magnum PI property for the former President as his kick-back reward for using the DoE to make his investment pay off handsomely)
https://www.staradvertiser.com/2020/08/15/hawaii-news/obama-and-the-beach-house-loopholes/
And more here on how corrupt Democrats use polical levers to devalue companies so their investor friends can swoop in:
https://www.investors.com/politics/editorials/think-obama-administration-wasnt-corrupt-think-again/
Coal industry:
“Wow! Obama drives down coal company stocks, and Soros buys them on the cheap”
By Thomas Lifson
https://www.americanthinker.com/blog/2015/08/wow_obama_drives_down_coal_company_stocks_and_soros_buys_them_on_the_cheap.html
They are simply now trying to do this to the Big Oil companies, that is, bankrupt them, then buy them on the cheap because what they provide is absolutely essential to our economy. They can become the gazillionaire JP Rockefellers of the 21st Century that way.
And Obama and his cronies are getting their piece of the action. And they need to control Joe Biden/kammie Harris to keep the hustle going.
Joel,
Don’t forget the widespread reports of Obama officials using the NSA data base to acquire blackmail material on opponents, and information for insider trading schemes! You add in the Ukraine foreign aid ATM that was utilized by the Biden crime family and many others in Congress and the Senate and you’ve got the real reason that President Trump is so constantly and viciously attacked; he puts ALL their criminal enterprises in jeopardy if Lt. Gen. Flynn is free to audit the intelligence agencies!
The notion that this action will prevent people from fueling up their gas powered cars , from Exxon or any other oil company indicates an ignorance that deserves to relegate the decision makers to the dustbin of history. Adding solar or wind companies to the index indicates energy production ignorance as well.
Salesforce is easy enough to explain: they build and operate a software system for customer relationship management. Contacts, appointments, callbacks, marketing emails, calendars, workflows, etc. It is very configurable and so can be tailored to suit a client’s business vs. the client having to adapt to the software. You don’t buy it, you rent it, so the revenue from a sale is recurring for the period of the license. You don’t install it on your premises it is cloud based, which means that Salesforce owns and runs the servers it lives on and you access it over the internet, kinda like WUWT.
It’s as easy to explain as the plot of The Matrix… Explaining it in a way that doesn’t cause my eyeballs to roll might not be possible… 😎
they build software other companies can use to piss you the f*** off.
Now… This, I understand…
So,
The general public needs a good e-mail address for these guys so we can forward all ‘spam’ to them….
So does that mean that much of the company’s most precious commercial information is now in one convenient place, overseen by a third party company?
Yes
What could possibly go wrong?
🙂
I would guess that many American companies would think it not worth the risk in hacking such a juicy fruit. However, the Chinese Government is not so easily embarrassed.
Yes… and this, increasingly, is the model for all applications. “Software as a Service, aka “the Cloud”. Google is one of the major forces driving this, but the other players are climbing on too. Mee too Microsoft, Oracle, And a host of smaller players. Assuming you keep your retirement money in a bank, You’d be shocked to know how much of that processing is outsourced to other banks and service providers. Not only the software but operations as well. Even the bricks and mortar world has become virtual.
Basically this in a nutshell:
https://www.youtube.com/watch?v=hNuu9CpdjIo
And with all that free cash flow they can buy more underpants to use in phase to in order to make more profit.
Maybe I’m misinterpreting David but, if you are, I can’t understand why you’re dissing Amgen. This Company was a massive driving force of the early biotechnology industry, primarily due to their great decision to do the manufacturing work (i.e. making things) necessary to get erythropoietin (EPO, Epogen, etc) to market. They even outran the other massive driving force of the industry, Genentech at the time. Now they are a biopharmaceutical Company with a very large market cap.
(NB I don’t work for Amgen, nor have I ever)
I’m mostly just being a smart @$$ about AmGen… I’m a big fan of the Jurassic Park movies… Damn! That should have been my sarcastic remark about AmGen… 😎
Michael Chrichton’s heir Apparent
Thanks for the review, David. I will go out of my way to fill up at an ExxonMobil station when I can. Governor Newsome in Kalifornia might have some new views on ESG investing, due to green failure at time of crisis (heatwave), and has just announced a $ 1 B investment in forest and grassland improvement (managed for fire control). The upcoming election cycle will have dramatic consequences in the stock markets in that the markets will show if the right or wrong person won.
The markets seem to be indicating who is going to win.
The polls showed that Hillary won the last election. Still waiting for her state of the union address.
I used to own XOM until I found out that they are getting into renewables. Stay in your lane bro.
I sold.
Good decision.
The following was quoted from Investopedia …
“Today, the DJIA is a benchmark that tracks American stocks that are considered to be the leaders of the economy and are on the Nasdaq and NYSE. The DJIA covers 30 large-cap companies, which are subjectively picked by the editors of The Wall Street Journal.”
Wikipedia tells us …
“The index is maintained by S&P Dow Jones Indices, an entity majority-owned by S&P Global. Its components are selected by a committee.”
https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
An article in the Wall Street Journal said this …
Changes to the Dow are approved by a committee which includes editors of The Wall Street Journal, which is published by Dow Jones & Co.
https://www.wsj.com/articles/dow-inc-to-replace-dowdupont-in-djia-11553638776
So … while some editors of The Wall Street Journal are involved it is not correct to say that the companies are “subjectively picked by the editors of The Wall Street Journal.”
The companies are subjectively picked by two Wall Street Journal editors and three other people who worked for the same company before it was sold to CME…
https://money.usnews.com/investing/investing-101/articles/djia-what-is-the-dow-index
Key word is “subjectively”.
It was all about percentages. Exxon not only counted as an “Oil” company, it also counts as a chemicals company. So Dow plus Exxon gvies too much weight to chemicals.
Chevron sort of fixes that. They are also less vertically integrated than ExxonMobil.
Hmmm…. I always thought that if something didn’t pay you back, it’s not worth buying.
Well, if XOM’s share price is down – and the price of gas at the pump is also down – but it still pays a dividend, it pays you back. Therefore, it’s worth buying. I’m not so archaic that I think the horse-and-buggy days are returning, but more efficient engines do make a difference in vehicle ownership.
Cloud computing/storage isn’t exactly a fad. It takes into account that data, an intangible, requires a place to stay, and preferably a ‘”safe place”, meaning hacker-free. And as you may recall, someone (Norks?) hacked the Bank of Bangladesh’s account at the NYC Fed and ripped off with $81 million, but some mistakes in coding kept them from ripping off with $1 billion before the thieves were blocked. The real problem is that if someone hacks the power source, or Mother Nature has a fit and sits in it, the power shuts down.
Therefore, in view of that kind of security issue – hacking and stealing information for the sole purpose of theft and other criminal activity, plus vulnerability – I’ll stick with Exxon.
Thanks for the analysis. Pay no attention to the idiots behind the curtain.
Sara
It depends on whether one is looking for an investment that will provide a better return than banks, which is nearly as safe, or if one is gambling that the stock price will rise enough that you can ‘flip’ it and make money that way.
….;. and it was announced that the Apple Inc, American multinational technology company, has value greater than the top 100 UK’s companies (all put together) constituting FTSE100 .
I think I must be the only person on Earth who’s never purchased an Apple product… 😎
I’m the second!
Third.
Fourth
Last time I used one was Apple II desktop, with external floppy drives. It was used as a diagnostic machine for more complex electronic devices after building suitable interfaces and manually writing programs to run the combined system.
Our first computer was an Apple IIGS. It cost a cool $3800.00 Canadian. It helped our son beat the other students in assignments. He did get a computer degree.
I had a bunch of Apple computers – until they started going down the Microsoft route, with updates every six months or so, at, of course, a cost. Then I switched to Linux. Aah, bliss.
You and I; I was involved with the lawsuits, Apple vs Microsoft, to stop Microsoft’s GUI. The lawsuit killed GEM (Digital Research GUI) and prevented MS from entering the market for years, mean while my children entered and left high school without computers. All from Apple stealing Xeron’s GUI and getting away with it. Apples has continued to use lawfare as a business tool (independent repair centers) as well as built in obsolescence.
Apple didn’t “steal” Xerox’s GUI. The Xerox Palo Alto Research Center (PARC) had no concept of merchandising their intellectual property. Jobs had a tour of the place, and they proudly showed off their cool stuff. Jobs had a pretty good grasp of what he saw, and was able to replicate it, license-free. Didn’t PARC also develop the mouse?
They were caught in manufactured obsolescence of the battery and quickly fixed the issue with a software update. Now they rely on the uncovered lightning jack wearing out, even better because it’s even harder to resell the phones than before.
Not the only person. Never bought/owned one, don’t ever plan to either. Only time I ever used an Apple Computer was in High School. was not impressed.
I never have either….many years ago I had a friend who asked me why didn’t I have a MAC and not a PC since I did a lot of computer art. Well, my reply to him was something like this: “Why would I pay almost twice as much for something that doesn’t so any better than what I already have?” And yes, I have used MACs before – I took classes in graphic arts and the school only had MACs. Personally I found that PhotoShop ran just as well on my PC as it did on the MAC I used in school.
And here I am 20+ years later and I find that my Android based smartphone does pretty much everything I need it to do, as does my PC laptop. IMO Apple fans (like my old friend) were/are paying for a name.
I got one as a door prize once. After it died and ignoble death, I was so disgusted with the design implementation and non-consumer friendly maintenance, I never considered buying an Apple product.
So like you I have never purchased an Apple product but have personal experience to determine why not to buy.
Fourth
However, I’m pretty unhappy with the forced upgrades for Windows 10. I’ve had to retire two perfectly functioning name-brand printers because they stopped working. I currently have several other minor issues that I can live with. I have a Dell laptop that quit providing sound and I had to revert back to an earlier state and disable updates.
I may have to explore Linux again and see how much it has matured in the last 20 years.
Solus Linux and Wine.
RoboLinux and Wine.
Both of these are pretty close, interface-wise, to Windows, and will run most Windows programs under Wine. RoboLinux can even use your existing C:\ drive Windows installation to set it all up automagically.
ReactOS is Linux that directly runs Windows programs and drivers.
Or just download the desktop version of Ubuntu Linux. The server version ‘runs’ the internet at the moment!
My one gripe with Windows 10 has to do with my Microsoft Bluetooth mouse. My Dell laptop originally had Windows 7, I bought a Microsoft Bluetooth mouse so as not to tie up one of the two USB ports (either with a wired mouse or an ir receiver that the other wireless mice use). It worked great, no problems and both USB ports were free to use when needed. Windows 10 comes along and I give in and “upgrade” to it. Now the Bluetooth mouse doesn’t work when I boot up. To get it to work I have to uninstall it and reinstall it. Every single time I boot up. Every bloody time!!!! It’s not like it’s a third party product, where you would expect possible incompatibilities, this is Microsoft’s own product that windows 10 “broke”. I gave up on the Bluetooth mouse, keeping the USB port open wasn’t worth the hassle, and now use a regular wireless mouse with one of those ir dongles taking up a USB port. Other than that, no real complaints with how Win 10 has worked for me.
@Dave – for an imperfect analogy, consider a hardware store. There are companies that sell them the bolts, nuts, hinges, nails, etc – and then there are the companies that sell and service their cash registers, print their sales flyers, etc. SalesForce is the latter. Both necessary to run the hardware store, but the first is accounted for in cost of goods sold, while the second is overhead.
In any case, the DJIA is a very poor measure of market health. When instituted, it was the best that could be done for a statistical sample of the market, but laughably simplistic now. When I want to see market health, I go for broad market indexes (S&P 500, NASDAQ, etc.) or all in sector indexes (S&P Energy, etc.).
They’re descendants of the passengers on the Golgafrincham Ark Fleet Ship B?
The hardware store analogy is good… I think Home Depot replaced Chevron in 1999.
I especially liked the segment where the marketing manager demonstrates her concept of the wheel (after crashing on the primitive Earth), and then being insulted, says, “Well, if you’re so smart, what color would you paint it?”
As someone above pointed out, when first instituted, the companies in the DJIA covered about 75% of the then market.
Another thing to remember is that prior to computers, the index had to be calculated by hand, every night, in time to be printed in the papers the next morning. A 500 stock index just wasn’t doable.
I’ve been a professional in the investment business since 1963.
And have long considered that those who administer the Dow have always been trying to pick “winners”.
This also involves weeding out the losers,
David’s review is balanced,
However, a quote from the WSJ is not accurate.
The one that states that the index was created to represent the economy.
It was intended to represent the stock market.
Which typically leads the economy.
It usually leads by peaking some ten to twelve months before the economy does.
Which is why “they” include the stock market in the list of Leading Indicators.
However, this does not work during great financial manias.
When the stock market fails it takes the economy down with it.
As seen this year, in 2007 and in 1929 and in 1873.
Damn! I really wasn’t going for “balanced”… 😉
Nothing to do with market value or performance, but if I had to pick between Exxon and Chevron I’d pick Chevron — simply because they stood up to Steven Donziger’s eco-extortion fraud in Ecuador. Pity Steven still has not yet been invited to enjoy sustainable accommodations for an extended stay in Club Fed.
ExxonMobil deserves this for promoting mainstream climate “science”.
What does WTF stand for again? Why This Foolishness? Where To, Father? Wash Thy Face? We use too many acronyms around here, if you ask me.
WTF = What The F***
(do I really need to point on what the F*** word is? Hint: it’s only 4 letters long)
Good thing I didn’t use alpha mike foxtrot.
Adios My Friends?
I doubt he really needed the explanation.
True, but where’s the fun in that.
Where I live it’s ‘Where’s the ferry’.
Does that fairy wear boots and dance with dwarves?
fairies and dwarves don’t usually along. Always arguing and trying to one-up each other.
The first day on the internet is the hardest but it gets better from here.
Whisky Tango Foxtrot
WTAF
fyi honeywell (honeywell aerospace) makes a ton of stuff used in aviation, defense industry, etc.
If I have to tell people when I’m being sarcastic, there’s no point in being sarcastic.
That said, when I think of Raytheon, I think missiles… When I think of Honeywell, I think thermostat.
To me Honeywell means mainframe and mini-computers, way back in the day.
OMG, that was a long time ago. Reminds me of Tracy Kidder’s “The Soul of the New Machine”.
You must be pretty young, David. When I think of Raytheon I think of vacuum tubes. Triodes, tetrodes, pentodes….
yeah it may have slipped past me, sorry. I need to retune my sarcasm filter, thats on me 🙂
but I know many do not know how huge they are in the avionics field.
iirc they build FADECS used on military and civilian a/c. been a long time since I dealt with certification of parts in aviation so cannot remember for sure if they were OEM on the FADECS we used on EMBRAER 135/140/145.
God help whomever needs to fix the software on the Boeing 737’s.
Agree. GE Aircraft Engines was looking into buying Honeywell back when I worked there. I think the European Union stopped the deal, but certainly not because they made filters and thermostats.
In the latest trial attemp by alarmist against Oil Industry in California, Chevron lawyers bought all the way down the IPCC story about Climate Change. They won their case since the trial have been dismissed, but it was almost indecent to read their speech of defense witch swallow the main IPCC falsehood.
https://www.documentcloud.org/documents/4435400-SF-Oakland-Transcript-of-Alsup-Tutorial-032118.html
DJIA
Only 30 companies
Strike 1
Not all are industrials
Strike 2
Company influence on average changes as stock price changes, even price changes from splits
Strike 3
Doesn’t adjust for dividend distributions.
Strike 4
The world goes crazy, and Dow Jones follows it.
Good back grounder and summary, David!
Is it possible the Griff/Simon creature works for CNN? The eco-partisan drivel that CNN wrote about Exxon’s Tesla problem sounds strikingly similar to mud brain comments from the Griffter/Simple Simon thing…
The NPCs are all running the same program, it’s hard to tell.
LOL +10
Thanks David. I always learn something from you posts.
First, I pay less attention to the DJIA than to the broader indexes,
such as DJ Total Mkt and the S&P500.
_ _ _ _
Regarding Salesforce
Two years ago I was to be on a hiking trails work day (Washington Trails Association) with a group from the Seattle office of Salesforce, so I searched for information.
I had the same problem you have. I couldn’t figure out what they were describing. After a day on the trail with the group of 15 or so, I still don’t know.
I’ve read material on Quantum Mechanics and String Theory and those things make more sense. I guess my mind (too old) isn’t wired for the modern world.
Exxon’s stock will take a hit as index funds which track the DJIA sell it. It will be a temporary blip, however, without long-term effects.
I haven’t taken the DJIA seriously for a long time. It made sense 100 years ago, but by today’s standards it’s weird.
Exxon endeavors to deliver energy to retail customers at the greatest value.
Salesforce intervenes to extract higher prices from retail customers.
So, basically, I should buy more Chevron and ExonMobil and never, under any circumstances, buy into Salesforce. Got it!
No.
You should buy broad based mutual funds, both stocks and bonds.
Use low cost funds, hold, rebalance, and adjust with age.
Start by selling your hotels.
Yes.
Hehehe, I don’t got hotels, only flophouses. All on St Charles, States and Virginia.
S & P 500 index fund. Vanguard is low cost. I get all your ways of valuing something. But the market does that. There are no stock oracles. Lots of people who claim to be one.
The irony is that pre-merger, both Exxon and Mobil had PV manufacturing subsidaries for many years, especially during the 80s and 90s: Solarex and Mobil Solar. Solarex was sold and merged in BP Solar, and Mobil Solar was liquidated.
Cloud services and Internet based services in general are ultra competitive, and old actors can be wiped out. Remember Lycos search engine? Remember MySpace?
Oh my ESG score is 41%, looks like I will need to work on lowering that.
And speaking of Pfizer, a company that makes useful drugs, sells them at a profit, and pays a nice dividend, they are a Yhuge bargain right now.
Pfizer is trading at 10% off the 52 week high, so not a huge bargain. Dividend is 4%. Institutional holdings 69%. Short interest 0.9%.
To be clear, I am not an investment advisor, I hold no license to do such and I am not advocating buying or selling any security.
Tesla showed a P/E Ratio of 1151 when I googled it today. Then again, a few stock splits and that goes away. Got to say they are overvalued as well. Stock darlings v. economic reality.
They split the same day as Apple, 5:1.
Thanks everyone for a fun read.
BTW David, I have a box of cocktail napkins with a cork-popping champagne bottle image and the message “Frackin’ Rocks.” Some folks are offended. Some folks don’t get the double meaning(s).
Frackin’ A Bubba! LOL!
Thanks for the Babe Ruth history, David. I had forgotten that he was a pretty good pitcher, too.
David:
The business problem addressed by Salesforce.com is simple to describe. Their customers are companies that sell products and services to other companies. Those companies have a problem tracking and retaining the sales-related opportunity information. In the past, this information was retained in manual systems, notebooks, daytimers, even the memories of employees, so it was ephemeral. Unless correctly reported to the employing company, the information maintained by a successful salesperson or manager would travel with them to the next employer.
In a sense, a CRM system is a software package that provides places to store, organize and leverage all the information learned during the sales cycle between the supplier company and their aggregated clients. Further, by having defined ‘buckets’ for categories of information developed during the sales process, the consistency of sales work can be enhanced and deals made more predictable.
In a software company, the development of a ‘version’ or a ‘release’ is an amortizable expense, and amortization begins when the ‘release’ is delivered. I imagine something analogous happens in oil/gas well drilling… there is an accounting difference between expenses to drill, and expenses when in production. In the case of software which can be ‘delivered’ (on media, or ‘downloaded’), the cost of delivery is just that of making the medium delivered, usually quite small when compared to the license price of the software. So, the ‘gross margin’ of a software sale is very large, because the up-front development costs are not bundled in, and neither is the cost-of-sales.
‘The phrase ‘In the cloud’ means a timeshared implementation, accessible over the internet. The vendor of a ‘cloud’ app bundles the cost of hardware, support and the software license into an ‘SaaS’ business contract. SaaS means ‘Software as a Service’, and is a method used by vendors to simplify the perceived complexity of an implementation during the sales cycle: No hardware to scope out, no data center to electrify, no staff fees for operations, no upgrades to directly manage… none of the ‘fun’ of classic app hosting/care/feeding. The SaaS application supplier does all that work, and bundles the expense into the price of the Service. When pitch the application benefits, its pretty compelling: ‘You do not have to worry about all those details… we take care of all of them’, at $XYZ/month subscription fee. Its a Bobby McFerrin sale: “Don’t worry! Be Happy!’
Salesforce.com is a good business, but fundamentally different than Exxon. IMO, Salesforce.com is not industrial at all. They are a business intelligence service company, that happens to use technology to deliver the service.
I hope this is helpful.
Can’t imagine Chevron is well managed when you look at the financials for Gorgon ($160B investment) vs. USA fracking and sub $2 at Henry Hub. Did I miss something?