Eastman Kodak….now quoting @ US $ 3.50…..was US $ 80+ in late 1990s….. Colour Blind Faith Blinds Shareholders for years…It was not a Value Play but a Value Trap !
Bill Miller’s Legg Mason Value Fund lost US $ 551 million in Kodak,selling out in 2010/11 after marrying it in 2000
Instantly recall the famous song ‘Tragedy’ by the Bee Gees and a famous quote from Monetary Economist the late Milton Friedman ” We learn from History that we don’t learn from History !”
Kodak has been a legendary company promoted by George Eastman in 1901…..we all have fond memories of it…in fact Kodak Film Rolls and Kodak Photo Prints have been the medium which has preserved all our fond memories…..
The name ‘Kodak’ does not really mean anything….it is neither a family name nor a descriptive word…..George Eastman simply loved the letter ‘K’ and wanted a company name that began with ‘K’ and ended with ‘K’
….and Kodak has simply been sliding the past decade…..As early as 2002,the operating margins began declining…..finally Kodak recognised in 2004 that the Digital Camera will make extinct Film Roll Cameras…so it stopped manufacturing the latter….however it’s major segment of Consumer Digital ,along with the other two segments of Graphic Communications and Film,Photofinishing and Entertainment saw operating margins continue to decline for several years…..from 2008,the company has bled and cash flows have been negative
From a Blue Chip Share ,Kodak has now been relegated to the ‘Blues’…In the late 1990s the share was quoted in the US $ 70 and 80s….as the Millenium began the quotes dropped to US $ 50 levels…and have been dropping ever since…in fact from 2004 for several years they moved in the US $ 20s and 30s…then in 2008 when the bleeding became horribly evident the slide began to single digit quotes….today it is struggling at US $ 3.50 levels with a market cap that has dropped below a Billion Dollars
…and yesterday I read,with great interest,and “I told you so” attitude, that a well known shareholder Bill Miller of Legg Mason Value Fund finally let go of Kodak,selling off millions of shares at @ US $ 3.80 levels in 2010/11 and taking a loss of US $ 551 million…he was so bullish on Kodak and had been acquiring this stock from 2000 and had held 25% of the Equity by 2005….and he had a huge fan following who followed him in buying Kodak….he had the reputation of being the man who for 15 straight years had beat the S & P
….so this should serve as a lesson in Value Investing….one must stand back and look at the whole picture…..Miller was focussed and obsessed that Kodak was yet generating strong cash flows year after year as the millenium began…he ignored warning signals that rang stronger alarm bells year after year of declining operating and profit margins and falling Return on Equity…..in simple words it was putting Good Money in declining Value that had signs of declining strongly even further…Miller committed a cardinal Investing mistake of ‘Bias’ and ‘Anchoring’….he focussed on just a few critical evaluation parameters….and concentrated and chose selective data that justified his conviction for Kodak….he was blind to other negative and critical data that was strongly emerging that would destroy shareholder wealth in Kodak
So now at US $ 3.50 levels is Kodak a Value Buy !…that’s an interesting question….
Just don’t ask Miller !…it’s not a ‘Kodak’ Moment for him !