Have You Been Suckered by the Stock Market?

Editor's note: Do the CEOs of your investments have your best interests in mind?

Or are they just trying to make a quick buck for themselves?

Today's Masters Series essay is adapted from the June issue of Income Intelligence. In it, editor Dr. David "Doc" Eifrig explains why management teams so often don't do what's best for their shareholders...


Have You Been Suckered by the Stock Market?

By Dr. David Eifrig, editor, Income Intelligence

What better way to get rich than owning part of a profitable company?

Almost all of the rich people you know probably built their fortunes by owning a business. Some have high-end salaried jobs, like doctors and lawyers. But the richest doctors and lawyers did it by owning their own practices.

And buying a stock entitles you to a fractional ownership in a business.

Stocks have generated great wealth for their owners. According to professor Jeremy Siegel's long-run, inflation-adjusted numbers, $1 invested in stocks over 204 years turned into $755,163. The next best performer, bonds, grew to only $1,083.

But the ideal version of investing that you may have in your head – you buy shares, management boosts earnings, the share price goes up, and everyone gets rich – is often wrong.

The gulf between stockholder and management is vast. Management usually simply won't do what you want... or even what is in your best interest.

CEOs and their cronies should work to maximize shareholder value. But they often have many other concerns and goals... So much so that it's rare to find a management team that would truly do what you would do were you the full owner of the business.

In fact, it's not hard to find management teams that have made suckers out of their investors. We're talking about stories like...

Last year, legendary activist investor Carl Icahn hosted Jeff Jacobson, CEO of Xerox (XRX), for dinner. Icahn owned about 7% of the company. Icahn announced his disappointment in Jacobson and told him he planned to fire him. "Thanks for the wine, but it's not going to change my opinion no matter how much I drink," Icahn told him, reported Bloomberg Businessweek.

Rather than get fired, Jacobson went out to find a buyer for the company. Fujifilm made an offer. And as part of the deal, Fujifilm agreed to make Jacobson CEO of the new, bigger company.

Could Jacobson have found a better offer? One that got a higher price for shareholders but didn't have a backroom deal to keep his job? Possibly. A flurry of shareholder lawsuits aim to find out and the deal has been called off.

Or take Wells Fargo (WFC)... If you personally owned all of this major bank, would you have built such an aggressive sales culture that employees opened 3.5 million fake accounts for customers – accounts that didn't make Wells Fargo money?

A full owner would never do such a stupid thing for fake growth. What would be the point? But the accounts helped executives hit quarterly numbers and earn bonuses.

Or take electric carmaker Tesla (TSLA)... CEO Elon Musk has designed an extremely narrow path of success. The company needs to solve tough production challenges in a small window before it goes bust.

The future of the company has been gambled on what may happen in the next six months. That's fun for an already-billionaire CEO. As an owner, I suspect you'd never do any such thing.

Most management perversion is more run-of-the-mill... CEOs take on big, expensive acquisitions so they can rule over a larger company – known as "empire building." They buy back stock when it's expensive simply to boost short-term earnings. And they take on risks that may backfire years down the road when it's another guy's problem.

We work hard to study each business and decipher the quality and motivations of each management team for the businesses we recommend here at Income Intelligence.

Of course, it's nearly impossible to find a leader with perfectly aligned goals. Even the most honest and intelligent CEO will diverge from shareholders on some measures. But you can find signs to align your interests.

We look for companies whose management takes care of its shareholders and treats them like the business owners they are. Often, this means the CEO and management teams have a large ownership stake and a long track record of success.

In the case of Income Intelligence, we often find investment with unique corporate structures that pay investors the same income as company management and employees.

When you pair those things with an underlying business that makes real money, you can find the sort of investments that deliver returns that beat the typical S&P 500 company. That's because they've been built to do so from the ground up. (In fact, we've just released a report revealing a company that does just that.)

Don't settle for investments that make money for the CEO and not for you. You can find better opportunities and you'll be paid well for your time.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig


Editor's note: Doc has found an income investment that yields a safe 6%, whose shares he says could potentially rise 100% over the next year. He just put together a brand-new presentation detailing this opportunity. And right now, you can get a LIFETIME membership to Doc's Income Intelligence newsletter for less than the price of a single year. Learn about this incredible offer here.

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