Famous Last Words: Trillion$ Might Have Been Saved
All business is the business of redlining—avoiding customers who cannot pay their bills. I immediately remembered two other takeaways that could have protected investors from losing trillions of dollars:
The Dot-Com Bust
When the Internet came onto the horizon, few people besides Amazon.com's Jeff Bezos understood it. It was fueled by two mantras: 1) Everything on the Internet must be free, and 2) the object is to attract eyeballs and somehow the money will follow.
In 1997, I wrote a cover story for Target Marketing on William Bonner, founder of the sprawling Agora Publishing. Over dinner in Baltimore, I mentioned to Bonner what I thought was a Nutsy Fagan business model—attracting eyeballs.
"The only bank that takes eyeballs is the eye bank," Bonner said.
Subprime Mortgage Funds, Collateralized Debt Obligations, Credit Default Swaps
The business model was pinned to slicing, dicing and selling off loans made by greedy bankers to sad sack homebuyers who ultimately could not pay their bills. Lucy Kellaway rightly called these "incomprehensible and ruinous financial instruments."
Etched in my brain was a takeaway by the great guru of Fidelity Investments, Peter Lynch. If memorized and heeded by the entire financial community, the great meltdown of 2008 could have been avoided.
"Never invest in any idea that you can't illustrate with a crayon."
Lynch's corollary: "Go for a business that any idiot can run—because sooner or later, any idiot probably is going to run it."
Denny Hatch is a freelance direct marketing consultant and copywriter, and author of the e-newsletter Denny Hatch's Business Common Sense. Visit him at www.businesscommonsense.com or www.dennyhatch.com, or contact him via email at email@example.com.