Friday, November 07, 2014

2346 Hedge Sticks

A core reason our economy doesn't get traction is we pay way too much attention to the folks on Wall Street. And I'm all for Wall Street. But we have to remember, they're driven by one motive. Short Term Gains. That's not enough to make a whole economy boom.

It's like if I were to go out and twist someone's arm to make a sale. Cheat, tell a bunch of lies, and other snake oil salesman tricks. You can bet I'd get the sale. But would I get a repeat customer I could build a business on? Nope. Snake oil salesmen only survived because they moved from town to town looking for fresh victims. 

Wall Street is currently run by snake oil salesmen. Slash budgets, get rid of retirement benefits, stop giving away free breadsticks... 

What? Yep, stop giving away free breadsticks. That's the advice an activist hedge fund gave Olive Garden. Hedge funds, by the way, have under-performed the market and boring old index funds for the last ten years. 

Starboard Value, the hedge fund in question, told Olive Garden to improve its bottom line by not giving out endless breadsticks. And that's just bottom line blind stupid. Why do you think Olive Garden got the customer base it did? It certainly wasn't because of gourmet foodie offerings. 

It was because it had passably and reliably tasty food that was full of bulk. Pasta and breadsticks. You left feeling full. And better yet, you came back for more. The key here is come back. You became a repeat (albeit larger) customer. They grew their customer base. Literally.

Olive Garden said no to Starboard. Said limiting breadsticks would diminish the brand. And they just wouldn't hedge on that. Good for them. 

Olive more breadsticks, please. 

America, ya gotta love it. 

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