Picking out the next stock market success story is like looking for a needle in the proverbial haystack. No wonder then that so many investors stick religiously to the big brands, the likes of Barclays, Sainsburys and Vodafone. They are established global businesses after all, making millions if not billions in profit every year, and will surely continue to return annual dividends forever more, right? Don’t bet on it. Some of the biggest, seemingly impenetrable, businesses in the UK and even around the world have gone bust, leaving investors’ portfolios in tatters.
At the start of 2001 Enron was sitting proud as the seventh largest business in America, with annual revenues of more than $100 billion. Fortune magazine proclaimed Enron “America’s Most Innovative Company” six years in a row. Soon after, revelations of accounting fraud on an unprecedented scale, and secret recordings of employees conspiring to keep the power off during power cuts – to boost electricity prices and thus Enron profits – brought the company to its knees.
Enron filed for bankruptcy in November 2001, which also triggered the collapse of accounting giant Arthur Andersen.
Ah, the darling of the British high street for so many years. When Woolworths was liquidated in the early part of 2009, it had to close 807 stores and more than 27,000 people lost their jobs. Woolworths’ main issue was that it was a generalist store that catered to no particular niche. Add to this its failure to compete on low-price terms with the likes of Lidl and Primark and consumers’ increasing reliance on internet shopping, and you had a recipe for failure.
The pace of change in online retailing has been the undoing of many a successful business. Blockbusters is one of the most high-profile examples. With the emergence of the online Amazon model, there were suddenly cheap DVDs on sale everywhere and the video rental market was seriously under threat. Blockbuster was the emblem of that sector and it failed miserably to react.
Similarly, on-demand services like Netflix ate further into their market share. Ironically, Netflix approached Blockbuster way back in 2000 with a business proposal, which was turned down point-blank. Since then Netflix has gone from strength to strength. Blockbuster fell into administration for the second time earlier this year with 264 stores and 2,000 staff put at risk.
One of America’s most successful and well-known companies of all time, General Motors was founded at the start of the 20th century and led the post-war automobile revolution for many decades to come.
But global car manufacturing changed. Overseas production and design came in to its own, particularly in Japan, and the likes of General Motors quickly became out-dated, inefficient and ultimately loss-making. GM went bankrupt in 2009. Thankfully, the American government stepped in to help them out and the company returned to the stock market in 2010 but with big challenges ahead in order to restructure and build a competitive framework for the future.
The Lehman bankruptcy in 2008 remains the largest in US history. At the time, Lehmans was the fourth largest investment bank in the States but its billions in assets had been mis-managed to astonishing lengths. Clients deserted on mass and the incident was so big that it seriously shook stock markets and economies the world over. A total credit market collapse was feared – and with good reason.
Hedging your bets
There is no such thing as a guarantee or even a safe bet as far individual stock picking is concerned. Spreading your cash across an index of big companies, like the FTSE 100 or the S&P 500, can dramatically help reduce the risk on your investment.