Wednesday, May 16, 2007

No such thing as obscene profits

I've often received nasty comments from people critical of my posts on oil companies. As I mentioned in my post on random thoughts, people will scream about the profits of big companies but don't say much about the wealth of the Kennedy's, movie stars or athletes. Today I read a great article called No Such Thing as Obscene Profits.

As far as I am concerned profits are what motivates me to work long hours after my regular job. Will my profits be big? I sure hope so, but I have taken lots of personal and financial risk to achieve any profits and I risk all of that if I lose money. Big companies do the same thing. It can cost a billion dollars to build an oil refinery. Drilling for oil is not a sure thing. There is lots of risk involved, so companies deserve to be rewarded when they take a chance and win.

Big loses also happen to companies. There was an article in the WSJ today that talked about all the layoffs and salary cuts that employees have had to take due to excessive losses by the industry. Daimler had to pay to have someone take over Chrysler this week. In a capitalist society there is no guarantee that you will make a profit. Those who scream about obscene profits are, in my opinion, either naive Marxists or too damn lazy to work. Jealousy is one of the seven deadly sins and the critics have it in spades.


limeade said...

Nice post. There is too much complaining. Those who own stock in these companies aren't complaining. There's always two sides.


Paul said...

I'll bet not many people try to sell their homes at the price they paid for them. If the house appreciates do they give up their "obscene profits"?

Paul said...

Consider the following:

Gas stations post the price of their product to the tenth of a cent on a huge sign in the front of their parking lot.

Consumers will often drive miles to reduce the price of a fill-up by less than $1.

Virtually all oil majors have divested ownership of almost all gas stations in the US and Western Europe because the return on invested capital is below their cost of capital. These are almost all franchises now (though regulated under a specialized franchise-like law).

The vast majority of new gas retailing capacity that is being built in the US is not traditional gas stations, but either putting pumps in front of Wal-Marts / grocery stores or QuikTrip / WaWa / Sheetz-type locations that use fuel purchases as a way to get consumers onto their lot so that they can buy higher margin items in the store.

Does this sound like an industry that has the ability to price-gouge at the level of retail gas, or does it sound more like one that is so bad at marketing that they’ve trained consumers to shop on nothing but price?