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Business/Finance See other Business/Finance Articles Title: VW ‘Endlessly Sorry,’ Plus Poisoned Peanuts & Prison Time VW ‘Endlessly Sorry,’ Plus Poisoned Peanuts & Prison Time Posted on September 22, 2015 by Brad Hoppmann If I were to ask you what the most important component in any successful relationship is, there’s a good chance you would say "trust." When you trust a person, an organization or a company, you have accepted that they are representing the facts as they are. You’ve also integrated that acceptance into your thought matrix, and this allows you to base decisions on what you perceive to be true premises. Trust is paramount to functioning relationships, both personal and business. So, when a trust is breached — and especially if a trust is breached intentionally — it hits us in our very core. Case in point: German auto giant Volkswagen AG (VLKAY), and U.S. food seller Peanut Company of America. Let’s start with Volkswagen, as its breach is more significant in terms of financial damage to the investing public. *** Last Friday, U.S. environmental authorities alleged that Volkswagen had installed software in its diesel-engine equipped cars that made them appear to run cleaner in emissions tests than they actually do on the road. Rather than contest the allegations, Volkswagen responded by acknowledging that some 11 million vehicles worldwide contain the software allegedly used to cheat emissions tests. Volkswagen also said it would take a €6.5 billion ($7.27 billion) charge to earnings. It cut its full-year outlook as a result of the breach of the public’s trust. Volkswagen Chief Executive Martin Winterkorn apologized to the world in a video message, saying: Millions of people in the world trust our brand, our cars and our technology … I am endlessly sorry that we have betrayed that trust. Yes, even those who breach trust in an effort to skirt regulations realize the significance of betraying that trust — albeit in this case only after they were caught. It’s also after Volkswagen’s shares have plummeted more than 30% over the past two trading sessions. According to a recent Reuters report, the U.S. Environmental Protection Agency (EPA) said Volkswagen could face penalties of up to $18 billion for cheating emissions tests. The German auto giant is also likely to face lawsuits, as well as suffer incalculable damage to its reputation that’s almost certain to seriously hurt future sales. So, was it worth it, Volkswagen? I think the answer is an unequivocal "no." *** Another, and much more egregious, breach of trust by a company actually resulted in hundreds of people becoming sick — and nine people dying — as a result of a deliberate decision by a corporate executive. On Monday, Stewart Parnell, the former owner of Peanut Corp. of America, was sentenced to 28 years in prison for his role in a cover-up that led to the ongoing release of peanuts and peanut products containing salmonella. Last year, a jury found Parnell guilty on dozens of felony counts, including conspiracy to conceal that a lot of the company’s products had knowingly been contaminated with the deadly bacteria. The criminal, and deadly, breach of trust in this case is horrifying. And it shows just how breaching the trust factor can impair society. We expect that when we purchase food, we aren’t going to eat a product tainted with deadly bacteria that will kill us. Most of the time, this trust is justified. However, in the case of Parnell and Peanut Corp., the ultimate breach of trust was made. Hopefully, the sentencing of 61-year-old Parnell to nearly three decades in prison (essentially the remainder of his life), will help deter any questionable future decisions by other food manufacturers willing to "take a chance" with the public’s safety. *** The Volkswagen case and the Peanut Corp. of America case should serve as two big reminders of the importance of trust. While I think the world is generally filled with trustworthy people, there are plenty of untrustworthy people who ruin things for us all. The presence of the untrustworthy among us makes it incumbent on every thinking person to do our best to thoroughly vet those we interact with — both on a personal level as well as a professional level. While a completely detailed vetting is nearly impossible in most circumstances, that doesn’t mean we shouldn’t perform our due diligence. This is especially true when we put our money to work in investments. Whenever you commit your hard-earned capital to a stock, you are putting trust in that the company that they can deliver on the top- and bottom-line. You also trust that management will act in the best interest of shareholders. One of the primary goals of my Cash Flow Kings newsletter is to find trustworthy companies that consistently deliver on key financial metrics (like free cash flow, return on equity, return on investment, etc.). I’m planning on making a new recommendation in the coming days — click here to make sure your name is on the list to receive it. By putting our trust in objective metrics like these, we can help ensure that our money is aligned with a trustworthy entity. *** How important is trust in your life? How does trust (or lack thereof) comport with your investment decisions? Share your thoughts with me by leaving a comment on our website or by sending me an e-mail. *** U.S. stocks fell sharply Tuesday, falling more than 1% across the board. Traders reacted to a sell-off in global equities, another decline in oil prices, and China growth fears. • The SEC voted to propose new rules that would force most mutual funds, outside of money market funds, to have sufficient liquid assets to meet the legal requirement for daily redemptions and access to funds within seven days. • "Selfies" are deadlier than sharks, according to a new report by travel publisher Conde Nast. There have been eight shark-related deaths this summer, and 10 selfie-related deaths. • Pope Francis arrived in Washington, D.C., today. The pontiff will also visit New York City and Philadelphia as part of his first-ever trip to the U.S., a six-day, five-night trip. • Gold futures fell for a second day on increased strength in the U.S. dollar. The yellow metal fell $8 to $1,124.80. • Oil futures declined Tuesday on continued fears of slowing global demand. WTI crude ended the day at $46.36 a barrel. Good Luck and Happy Investing, Brad Hoppmann Publisher Uncommon Wisdom Daily Post Comment Private Reply Ignore Thread
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