Disrupting the Disruptor

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Samsung Is Too Scattered and Spooky to Last

The eye-tracking Galaxy S4 from Samsung (PINK:SSNLF) is making waves, the bears continue to should down Apple (NASDAQ:AAPL) with price targets as low as $274 and everyone is talking about how the Galaxy family of gadgets is taking over the world.

Sure, Samsung stock has doubled since early 2011. But don’t look now … because all this hype might be sign of a top.

Sure, Google (NASDAQ:GOOG) and its Android OS dominate global smartphone market share, and Samsung is one of the biggest brands on this open-source platform. But any investor who has been around the block should know that gadgets that are red-hot can fall out of favor fast — and that companies with their fingers in too many pies can often make costly mistakes.

For all the cult-like appeal of Apple — with interest in its iconic co-founder Steve Jobs and a burning desire to know more about how the company fosters innovation — the Western fanboys of Samsung often have little knowledge of just how scattered and downright spooky the Korean conglomerate is.

SamsungNewsstandThis week’s Bloomberg BusinessWeek cover story is “Samsung’s Secret” — a deep dive into the ascendant Korean conglomerate by senior writer Sam Grobart.

It’s a fascinating package — not just in regards to the company’s electronics division that creates products like the new Galaxy S 4, but also because of Grobat’s visit to the Samsung’s “Creativity Institute” and exploration of the monolithic and mysterious Chairman Lee Kun Hee, who has been at the helm since 1987.

Samsung is known in America for its electronics, but it is also a powerhouse in shipbuilding, life insurance, advertising and even theme park operation with its Everland resort that welcomes more than 6 million tourists annually.

Take this particularly telling excerpt from Grobart’s great BusinessWeek report:

“A Seoul resident may have been born at the Samsung Medical Center and brought home to an apartment complex built by Samsung’s construction division (which also built the Petronas Twin Towers and the Burj Khalifa). Her crib may have come from overseas, which means it could have been aboard a cargo ship built by Samsung Heavy Industries. When she gets older, she’ll probably see an ad for Samsung Life Insurance that was created by Cheil Worldwide, a Samsung-owned ad agency, while wearing clothes made by Bean Pole, a brand of Samsung’s textile division. When relatives come to visit, they can stay at The Shilla hotel or shop at The Shilla Duty Free, which are also owned by Samsung.”

It’s all well and good, therefore, to love what Samsung smartphones and tablets can do. But keep in mind this disparate nature before you start chasing a share in Samsung stock, which trades on the pink sheets and is highly illiquid, or jump into overweight ETFs like the iShares MSCI South Korea Index Fund (NYSE:EWY).

I’m not saying Samsung is going bankrupt or is run by evil overlords hell bent on world domination. But the company produces 20% of South Korean GDP, remains a mystery to the Western public beyond their Galaxy line of devices and has a management style that many investors would equate to cult-like … in a bad way.

Before you think of investing Samsung just because you like its smartphones, take a good look at what you’re getting into.

The in-depth look at the company from BusinessWeek will hit newsstands in print Friday, March 29.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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