Why chief executives invest stupidly

Chief executives have embarked on a spending spree as takeover fever grips global stock markets. But this is no time for celebrating, says Bedlam Asset Management. Most takeovers and mergers destroy value - and company bosses frequently buy at the top of the market.

Let the church bells be muffled, flags be flown at half mast, and children's parties cancelled; for we are entering a time of financial mourning. The last day of October, and the subsequent two weeks, witnessed the commencement of an equity value destruction cycle to a degree not seen since the late 1990s.

Corporate executives in Britain and elsewhere have developed a collective masshysteria. After two and a half years of generally rising equity market indices, valuations apparently have never looked so cheap, if only to these Captains of Industry. Each will readily admit individually that they understand the facts; these are that in every land, three quarters of all takeovers and mergers destroy value yet each also clearly believes in his own corporate acumen; for many have now decided to bet their entire balance sheet on a single deal at odds of 41. Collectively they have embarked on such a spending spree that M&A' activity in the second half of 2005 will prove to be one of the best six months ever. So why do Chief Executives (and their experienced' directors) persist in their "buy high, sell low" strategy?

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.