Some general questions that are worth a short seller’s consideration include asking what happens to a company when its primary product has a precipitous decline in sales within a short time frame, and how robust and resilient can a company be in that situation. One of the few historical examples of such a company is Anheuser-Busch, and it is worth studying.
This example is designed to humble the short seller, because companies, especially if they are well capitalized, can be very resilient. It’s difficult to find what’s known as an existential short, meaning a company that will ultimately destroy itself and descend to zero. The outcome is less certain for a company that is simply overvalued. Nor is it certain for a company that has previously overstated its earnings and then has its share price decline after it states them properly. In the case of Anheuser-Busch, the challenge facing it in 1919 was that the Volstead Act made all alcoholic beverages illegal, including beer.
Anheuser-Busch was founded in 1852 by Eberhard Anheuser in partnership with his son-in-law, Adolphus Busch, which is why it’s called Anheuser-Busch. It’s amazing how long the product life cycles are for some of its popular products. For example, I was astonished to learn that Michelob was introduced in 1901. I thought it was a much more recent product, but it certainly wasn’t.
One of Anheuser-Busch Corporation’s problems, although not the most grievous one, was that it was founded by German immigrants and was, thereby, identified with Germany in the minds of the American public. As a result, during the First World War, the company had a serious customer relations problem, because it was deemed by some to be unpatriotic to drink Anheuser-Busch beer. Fortunately for the company, it was a problem that was fairly easy to remedy. It was decided that a small portion of its revenue would be used to buy Liberty Bonds during the First World War, and the public accepted that gesture.
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