The lovely kind of mayhem that is currently engulfing VW together with it’s 40% share price decline over the last two days makes it a relatively unpopular large company.
The other day I had an interesting tweet in response to Monday’s article titled How To Invest In Stocks Like Benjamin Graham.
Basically – sadly as is normal with the Twittersphere – the tweet suggested that an approach to stock market investing as taught by Benjamin Graham is an invalid approach to the markets simply because it is ‘old’:
— David Thomas (@djthomas) September 21, 2015
But I can tell you straight: VW’s price decline is right out of The Intelligent Investor in so far as it is a large company, going through a period of unpopularity as evidenced by it’s massive price decline.
There will be old school value guys with vast assets under management looking at VW right now thinking to themselves ‘this is a great opportunity’.
Heck some of them will already have bought in and will have done so for their own reasons.
I haven’t bought any myself although VW remains very much on my radar as a potential addition to The Value Investor Report and Model Portfolio and would by default be a long term holding, not because off some obsequious obsession with a fundamental tenet of Graham’s approach but because regaining the public’s trust after engaging in such a blatantly criminal act (see below) will take Volkswagen a very long time.
Volkswagen’s Naughty Behavior
Essentially what has happened is that last Friday, the U.S. Environmental Protection Agency said that Volkswagen had used software that deceived regulators measuring toxic emissions and could face up to $18 billion in fines as a result.
Since Friday there has been speculation that the U.S. Department of Justice has begun it’s own criminal investigation into the matter.
All this comes on the back of a savage leadership battle culminating in a supervisory board meeting on Friday to discuss a new company structure and management line-up.
According to press reports VW only admitted that it had designed and installed a ‘defeat device’ to purposefully lower emissions whilst a vehicle is being inspected after authorities threatened to withhold certification for it’s 2016 models.
During a normal driving scenario, emissions are reported to be as high as 40 times the level of allowable pollutants.
But get this: VW’s biggest problem in my opinion is the damage to it’s reputation not only among US and EU regulators (who will no doubt undertake their own investigations) but among the buying public. VW’s trust and reputation built up over decades has been severely damaged and this is what makes it a relatively unpopular large company today.
What say you? Will you be buying stock?