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The Story of Hertz Going Bust

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Re: The Story of Hertz Going Bust

#11

Post by eru »

xapata wrote: post #9
ramraj07 wrote: post #8

Earlier quoted context omitted.

So by that logic the shareholders and board members _were_ idiots then.

Making a bet and losing doesn't imply idiocy. What were the odds? What was the potential payoff?

Yes, exactly.

Though it's not just odds and payoff, but also risk appetite. There's something like risk-aversion, and a corresponding risk-return-tradeoff.

But unless we have evidence to the contrary, we can assume that the shareholders are broadly risk-neutral. Especially since lots of shareholding these days is via widely diversified index funds, who don't need to care whether a any single company they hold goes bankrupt as long as the expected value of gambles they take are positive.

Re: The Story of Hertz Going Bust

#12

Post by tankenmate »

eru wrote: post #11
xapata wrote: post #9

Earlier quoted context omitted.

Making a bet and losing doesn't imply idiocy. What were the odds? What was the potential payoff?

Yes, exactly. Though it's not just odds and payoff, but also risk appetite. There's something like risk-aversion, and a corresponding risk-return-tradeoff. But unless we have evidence to the contrary, we can assume that the shareholders are broadly risk-neutral. Especially since lots of shareholding these days is via widely diversified index funds, who don't need to care whether a any single company they hold goes ba…

Indeed, so the correct question is "was / is Icahn's risk margin (since he had the largest shareholding and he's a known activist) too small?" Was there an implied direction of getting new management in turning the ship around and then flipping it? Would this lead to good long term decisions being traded off for short term ones?

Re: The Story of Hertz Going Bust

#13

Post by 082349872349872 »

eru wrote: post #7
wolco wrote: post #2

In the end Kathryn Marinello failed. She was at the helm for years where she could have positioned the company better. Blaming it on a 2014 misfilling and the wasted years cleaning it up only gives false cover. She didn't pay back debit when times were better because it would have affected her compension.

Why do you say Kathryn Marinello failed? Compensation incentives are there for a reason. Acting according to them just means fulfilling the shareholders wishes. (Unless the shareholders are idiots or impotent and the board set the wrong incentives.) Running a riskier strategy that fails under a pandemic is a perfectly cromulent business decision to make. Shareholders and creditors knew what they were in for. Not all…

Shareholders also diversify over several firms — so the individual parts of a portfolio should run at riskier positions on the efficient frontier than shareholders (already the investors with the highest risk appetite) wish to have for themselves.

Re: The Story of Hertz Going Bust

#14

Post by oarsinsync »

eru wrote: post #11
xapata wrote: post #9

Earlier quoted context omitted.

Making a bet and losing doesn't imply idiocy. What were the odds? What was the potential payoff?

Yes, exactly. Though it's not just odds and payoff, but also risk appetite. There's something like risk-aversion, and a corresponding risk-return-tradeoff. But unless we have evidence to the contrary, we can assume that the shareholders are broadly risk-neutral. Especially since lots of shareholding these days is via widely diversified index funds, who don't need to care whether a any single company they hold goes ba…

> But unless we have evidence to the contrary, we can assume that the shareholders are broadly risk-neutral. Especially since lots of shareholding these days is via widely diversified index funds

Except there are low and high risk index funds as well. Just because you're invested through a passive index fund, doesn't mean you're risk-neutral.

Re: The Story of Hertz Going Bust

#15

Post by blargmaster33 »

wolco wrote: post #2

In the end Kathryn Marinello failed. She was at the helm for years where she could have positioned the company better. Blaming it on a 2014 misfilling and the wasted years cleaning it up only gives false cover. She didn't pay back debit when times were better because it would have affected her compension.

Wamen CEOs can do no wrong! Must be a man's fault!

Re: The Story of Hertz Going Bust

#16

Post by 082349872349872 »

eru wrote: post #6
082349872349872 wrote: post #4

Earlier quoted context omitted.

US companies aren't supposed to pay back debt (in Hertz's case, how did 2005 affect the balance sheet?) because that would be an inefficient use of capital. US consumers are supposed to spend, not save, to stimulate the economy. US government is supposed to run a deficit, not a surplus. And yet the aggregate US net worth is positive: about 5x its GDP. What sector have I missed?

Despite the snark, you are partially right. Having debt in your capital structure indefinitely is a perfectly fine decision to make. If there's a political will to favour equity over debt, the lawmakers should first remove the tax benefits of debt over equity. See https://en.wikipedia.org/wiki/Tax_benefits_of_debt

That wasn't snark. As an undergrad, I was taught that households should be positive, corporations negative, and public sector balanced on average, which would balance out.

Either I'm missing a sector in the original analysis above (please tell me what it is), or the "common wisdoms" expressed there are false (and I should be more cynical), or...?

Re: The Story of Hertz Going Bust

#17

Post by ninkendo »

082349872349872 wrote: post #16
eru wrote: post #6

Earlier quoted context omitted.

Despite the snark, you are partially right. Having debt in your capital structure indefinitely is a perfectly fine decision to make. If there's a political will to favour equity over debt, the lawmakers should first remove the tax benefits of debt over equity. See https://en.wikipedia.org/wiki/Tax_benefits_of_debt

That wasn't snark. As an undergrad, I was taught that households should be positive, corporations negative, and public sector balanced on average, which would balance out. Either I'm missing a sector in the original analysis above (please tell me what it is), or the "common wisdoms" expressed there are false (and I should be more cynical), or...?

Your tone is snarky despite your words being more or less correct. Correcting someone by saying you’re not using snark is just digging yourself a bit deeper I’m afraid.

Re: The Story of Hertz Going Bust

#18

Post by 082349872349872 »

ninkendo wrote: post #17
082349872349872 wrote: post #16

Earlier quoted context omitted.

That wasn't snark. As an undergrad, I was taught that households should be positive, corporations negative, and public sector balanced on average, which would balance out. Either I'm missing a sector in the original analysis above (please tell me what it is), or the "common wisdoms" expressed there are false (and I should be more cynical), or...?

Your tone is snarky despite your words being more or less correct. Correcting someone by saying you’re not using snark is just digging yourself a bit deeper I’m afraid.

Thank you.

Re: The Story of Hertz Going Bust

#19

Post by eganist »

xapata wrote: post #9
ramraj07 wrote: post #8

Earlier quoted context omitted.

So by that logic the shareholders and board members _were_ idiots then.

Making a bet and losing doesn't imply idiocy. What were the odds? What was the potential payoff?

The odds, according to more than a few scientists (but citing just one here: https://cmr.asm.org/content/20/4/660), were 100% in not too much time.

I don't know if that makes shareholders and board members "idiots," just that it's something the firm probably should've worked to mitigate a bit more effectively.

Example: EHI is still holding on, and they (from my understanding based on employees I've spoken with) had continuity planning in place for situations that might've significantly impaired travel.

Re: The Story of Hertz Going Bust

#20

Post by virgilp »

eru wrote: post #7
wolco wrote: post #2

In the end Kathryn Marinello failed. She was at the helm for years where she could have positioned the company better. Blaming it on a 2014 misfilling and the wasted years cleaning it up only gives false cover. She didn't pay back debit when times were better because it would have affected her compension.

Why do you say Kathryn Marinello failed? Compensation incentives are there for a reason. Acting according to them just means fulfilling the shareholders wishes. (Unless the shareholders are idiots or impotent and the board set the wrong incentives.) Running a riskier strategy that fails under a pandemic is a perfectly cromulent business decision to make. Shareholders and creditors knew what they were in for. Not all…

> Unless the shareholders are idiots or impotent and the board set the wrong incentives.

That's quite a big leap. Humans are exceptionally good at gaming objective metrics if that's all that matters... setting the right incentives is by no means something any non-idiot can do; it's in fact exceptionally rare to find people able to set right incentives for an entire organization (or for it's leadership; if the leadership doesn't inherently have the right motivation, I don't actually think you can fix that via a set of incentives; probably the best you can do is constantly-modifying incentives, tracking aggressively any sign of misaligned motivation etc)

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