Thoughts on Kodak, Bankruptcy, and Investing

Thoughts on Kodak,  Bankruptcy,  and Investing

Over the past couple of weeks, there have been rumors swirling about Eastman Kodak’s financial (in)solvency. And then it happened. They filed for Chapter 11 bankruptcy protection yesterday. Not surprisingly, their stock dropped 35%. But really, that’s just the tip of the iceberg.

Kodak actually traded at an all-time high of just under $93/share in February 1997. And now? It closed last night at $0.36/share. That’s a stunning decline of 99.99% over the past 14 years. Yikes!

As of right now, they owe a total of $6.75B (yes, billion) to more than 100k creditors. At the same time, they have around $5.1B in assets. Thus, even if they liquidated everything, they’d still be in a $1.75B hole. Not good. Not good at all.

And guess what? Back when we first started getting interested in our finances, we almost invested in Kodak. This was back in the mid-90s, and their stock (like many others) had been on a tear. They were also seemingly well-positioned to take advantage of the transition to digital photography. What could go wrong?

Well… They wound up struggling to make the digital transition and their business suffered.

This was before we had discovered the wonders of broad-based index funds — and before we had enough money for the then-steep investment minimums in most mutual funds. Thus, we were busy filtering through blue chip companies in search of dividend reinvestment plans (DRIPs) that would allow us to directly invest our hard-earned dollars.

We were enamored with such household names as 3M (MMM), Campbell’s Soup (CPB), Coca-Cola (K), Intel (INTC), Merck (MRK), Procter and Gamble (PG), and yes, Eastman Kodak (EK). Over the years, some of these have performed reasonably well and others haven’t. But none have imploded like Kodak.

Truth be told, our DRIP investing phase didn’t last very long. We soon discovered the wonders of indexing, and built up enough cash to get over the minimum investment barrier. We ultimately liquidated our individual stock positions and haven’t looked back since.

If nothing else, our near miss with Kodak should be taken as a cautionary tale about diversification. At the time, we were only holding five or six companies — in part due to a lack of capital — so taking a major hit on any one company would have really hurt.

Of course, it’s not like they lost that 99.99% overnight, but still… I certainly sleep better at night knowing that we own literally thousands of companies. Yes, we still have market risk, but there’s little in the way of company-specific risk.

7 Responses to “Thoughts on Kodak, Bankruptcy, and Investing”

  1. Anonymous

    This is a classic case of a company who didnt act on its innovations. Kodak was the first company to come up with the digital camera. But since they were making money off their films, they didnt act too much on innovation. Now they are struggling to keep up wit the market.

  2. Anonymous

    There is no reason you cant diversify but still oick and choose stocks.

    Sure, you would not want 100%, 50%, or even 5% in any one company. But especially if you already invested in ETFs or Index funds, you can also place you money in stocks of companies your believe in, in hopes of greater returns.

    And, instead of DRIPs, why not collect the dividends and reinvest them in other companies to.further diversify yourself?

    If you want to try and extend yourself and make above average returns, you have to take chances.

    Most billionaires made there money without diversification. They started or invested in a company or two and rode that to great wealth. Then, they diversified.

    It all depends on your situation. But there are opportunities in the market if you are willing to take risks.

  3. Anonymous

    Haha, I like it Kurt!

    Very sobering reminders here that no company is 100% safe, even the household names. Sad to see Kodak like this.
    Since I’m only just getting started with investing, I’m taking the valuable lesson of diversification out of this one.

  4. Anonymous

    Investing in individual stocks is like swinging for the fences, to use a baseball metaphor. There’s the possibility of a home run, but strike outs are also far more likely.

    In contrast, you’re not likely to get a grand slam with ‘boring’ index investing, but you get consistent wood on the ball, and I think in the end you’re more likely to win the game.

  5. Anonymous

    Nickel, your message rings true. Kodak, like Coca-Cola, IBM, P&G, etc, must once have seemed to be a “can’t-miss” all-American company that would be around forever. It probably seemed like common sense to pick such a large company, invest, and watch your investment grow through the years. Luckily you didn’t learn the hard way about the need for diversification in this one particular example, but many probably aren’t so lucky, particularly those Kodak employees who may have invested quite a bit in their own company out of pride through the years. A lesson to us all, especially people like me trying to figure out where and how to invest retirement accounts.

  6. Anonymous

    I just started DRIPs again this year, primarily for reinvesting the dividends, the low costs and the low rate environment. Unfortunately my experience with DRIPs has been very positive and that sets me up for a big fall. The DRIPs started twenty years ago for the kids have netted them an emergency fund and a house down payment. They have cashed them to take advantage of current capital gains tax rates.

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