Emotions Get the Best of Ruthless Gun Investor Amid Newtown Tragedy

December 18, 2012 1:28 PM EST
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One of the first rules in trading and investing is that you should never trade or invest on emotion. In light of the tragic events in Newtown, Connecticut on Friday, however, this is proving hard for some, even the most fierce and cunning of investors.

Cerberus Capital Management, one of the world's leading private equity firm, announced Tuesday that it will be selling its stake in firearms maker Freedom Group, the maker of the Bushmaster rifle used by 20-year old gunman Adam Lanza.

Cerberus claims it is now selling the stake as it views the Sandy Hook tragedy as "a watershed event that has raised the national debate on gun control to an unprecedented level." Further, the firm noted that its clients are comprised of the pension plans of firemen, teachers, policemen and other municipal workers and unions, endowments, and other institutions and individuals, suggesting pressure from them was also to blame.

In addition, it was revealed separately today that the father of Cerberus founder Stephen Feinberg lives in Newtown, Connecticut, making the killings that much more personal.

Today's announcement by the private equity firm was very rare. Usually private equity firms don't make public announcements when they plan to make a sale. Also, they don't talk down a business they are about to sell. Cerberus did both, and likely cost themselves and their investors millions.

Using the the stocks of publicly traded Smith & Wesson Holding Corporation (NASDAQ: SWHC) and Sturm, Ruger & Co. Inc. (NYSE: RGR) as a benchmark, the firm cost clients 10 percent today. This is in addition to the 10 percent slide in value since Friday.

Ironically, all this comes despite the fact that just the talk of tougher regulations on guns will likely boost sales of guns over the short-term, as gun enthusiasts race to get their fill ahead of any potential policy changes. Fundamentally, the business could be stronger after the tragic event.

In this case, it appears Cerberus let emotions get in the way of profits - noble, but not the wisest of investment moves.

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Is it all about money?
Iqbal on 2012-12-21 13:01:08
Mark as Spam | Reply to this comment

I beg to differ. I would like to applaud Cerberus on this bold move. It is a step in the right direction. Yes, investors would take a hit. But is it all about money for us humans, then? The author presents an extremely materialistic viewpoint which lacks something very basic and core to us all - humanity.

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