Earnings season will soon come to a close, and after reading balance sheet after balance sheet, cash is obviously king in this environment. But doing the right thing with your cash is far more important.
If a company is sitting on a heap of cash, chances are analysts are going to ask whether management is mulling a share buyback or has an appetite for an acquisition of some sort. The latter is often a scarier prospect, particularly in the midst of an economy that, perhaps, is just starting to turn the corner.
Regardless, it may be wise to consider a move Kellogg (the cereal company) made during the Great Depression.
Kellogg and its rival Post were duking it out for top cereal dog for years, and then, suddenly, Kellogg made a rather gutsy move.
In the darkest hour of the Depression, Kellogg decided to spend a whole bunch of money and develop Rice Krispies, those little puffed rice pods of joy that snap, crackle and pop. And lo and behold, Kellogg swam past Post, becoming the dominant cereal force in the market.
The lesson: Guarding gobs of cash in a relatively unstable economic environment may seem like the right approach, but without taking risks, you’re bottom line could very well become soggy.
— Evan Pondel, firstname.lastname@example.org