My Opinion

Never underestimate the power of a penny, it is important to you, be kind to pennies

I never pass a penny on the ground, I pick it up, put it in my pocket and later in a bank. I figure I’ve accumulated enough wealth picking up pennies to bail out a street vendor in Washington, DC.

However, my obsession with accumulating such wealth is not why a penny is important to you. A penny is important to you because it can mean loss of your next raise, your 401k match, your employee benefits or even your job.  The next time you are squeezed into an uncomfortable airline seat, forced to cope with a carry on bag because of the high fees for a checked bag, think of a penny or two. It’s not just poor design that causes you to nearly be guillotined when the person in front of you puts their set back while you have your tray down, it’s pennies.

Have you figured out that a gallon of ice cream is no longer a gallon of ice cream, yup it’s that darn penny again.

You don't want to mess with me!

A penny can sink your investments and leave you at the mercy of people who obsess over a penny or two because those pennies mean big bucks to them, really big bucks.

How can this be you say, it’s just a penny. In reality a penny is much more than a hundredth of a dollar when it is part of earnings per share (EPS).

Somewhere an analyst estimates a company will earn fifty-two cents per share. Woe be it if earnings are fifty-one cents. The stock drops, the CFO is apoplectic and the CEO must explain to his wife that his bonus is kaput and her winter in Fiji is history.

And what does it all mean? Not much beyond the perception of traders whose expectations are not met. And who is to say the analyst wasn’t wrong in his projections? If the weatherman says it will be sunny tomorrow and it rains who was wrong?

What possible importance does a penny have to the shareholders of a company? As long as my dividend is paid do I care if the EPS for this quarter or this year is off a penny or two? I do not in the least, but somebody does so the value of my stock drops. I want to know that the company is doing all the right things to make money so it can pay dividends for years to come, and can withstand periodic adversity. Beyond that it is all gambling.  Higher earnings are a good thing over time because they should mean my dividends go up as well.  However,  earnings should come from higher sales and real growth, not from cutting jobs, freezing wages or eliminating retiree medical coverage to meet a short-term EPS goal. 

So you see, in many ways a penny controls your life, be nice to pennies. The next time you see a lowly penny on the sidewalk pick it up, you may need it someday.  And if you work for a company where bonuses are based on an annual earnings per share target, make sure you know the address of the nearest unemployment office.

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