Chrysler, investing, entrepreneurism and common sense.

Many, many years ago I went on a course on starting your own business.  It was held in London and caught my eye because just a few months previously I had resigned my sales job with IBM UK Ltd and commenced a journey of being self-employed, in the sense of being responsible for my own income. A 31-year journey that has provided so many riches in a non-financial sense.

Since we are talking about an event so long ago, it is not surprising that few memories are intact about that single day in a smart hotel in the centre of London.

BUT, one thing has stayed with me, and served me well.

Never get involved in a business where you don’t really know the marketplace.

So a recent article in the New York Times (Saturday, 8th August) about Cerebus, the private capital investment company that purchased Chrysler two years ago wasn’t short on lessons for us more down-to-earth guys.  Here’s a extract from the interview that Louise Story with the NYT (cool surname, by the way, for a journalist!) did with Steve Feinberg, co-founder of Cerebus, in his smart office on Park Avenue.

“I don’t know what we could have done differently,” he says, crossing his arms on his chest. “From the day we bought it, we worked hard to improve it.” He pauses, pondering, as the clock ticks away. Then he shakes his head. “We were too optimistic on timing,” he says. “Maybe what we should have done was not

bought it.”

Here’s thought #1.

If Feinberg and all his cohorts with their ample resources can so badly read the state of the auto industry, the overall state of the US economy, the over-leveraged state of domestic housing and the huge, potential, down-side risks of their intended investment, then what hope is there for us ordinary folks.

In other words, if something you are thinking of doing has a potential risk to your wealth, health and happiness, and you are being influenced by others then BEWARE THE HERD!  Just because everyone says this or that doesn’t mean that they know anything.  As Taleb alludes to in his book, The Black Swan, sometimes being a contrarian is much safer.

You have as much, if not better, chance of being smarter than Feinberg if you work it out yourself.

Louise Story:

Cerberus and its co-investors ultimately invested $7.4 billion in Chrysler, a sum now worth an estimated $1.4 billion.

and,

“This will go down as one of the investments made at the very top of the credit bubble,” Josh Lerner, a professor who studies private equity at the Harvard Business School.

Smart people at Cerebus, eh!

So on to thought #2. Don’t touch things you don’t understand.

Here’s Louise again:

DON JOHNSON, a former Chrysler employee, says he worked on initial production of the Jeep Liberty at a plant in Toledo, Ohio, in summer 2007, when Cerberus won the right to buy Chrysler from Daimler of Germany.

….. Mr. Johnson says he was always skeptical about the carmaker’s new owners. “Cerberus did not have a clue about the automotive industry,” he says. “I don’t think anything could have been worse.”

Let’s end with a favourite saying of mine that can be applied to so many things in life:

Think three times,

Measure twice,

Cut once.

By Paul Handover

• Business
• Finance
• History