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Every time a telephone company has been privatized, in whatever country—the Philippines, Mexico, Spain—the shareholders have reaped once-in-a-lifetime rewards. Politicians around the world are dedicated to improving phone service, and in the developing countries there is such a hunger for phones that these companies are growing at 20–30 percent a year.
The story keeps changing, for either better or worse, and you have to follow those changes and act accordingly.
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there was a market for the mortgage-backed securities, and they could be traded instantly, like a stock or a bond or a bottle of vodka in Moscow. Mortgages by the thousands, and later by the millions, were converted into packages. This little invention, if you could even call it that, was destined to become a $300-billion-a-year industry, bigger than Big Steel or Big Coal or Big Oil.
McDonald’s has been one of the most rewarding stock-market performers in modern history, due to its refusal to rest on its laurels and its constant restructuring of its menu with new McDishes, as well as its practice of exporting its golden arches.
When a company tries to open more than 100 new units a year, it’s likely to run into problems. In its rush to glory it can pick the wrong sites or the wrong managers, pay too much for the real estate, and fail to properly train the employees.
The key elements are growth rate, debt, and same-store sales. You’d like to see the same-store sales increasing every quarter. The growth rate should not be too fast—above 100 new outlets a year, the company is in a potential danger zone. Debt should be low to nonexistent, if possible.
How to evaluate if growth is gonna be successful or not.
As long as Americans continue to eat 50 percent of their meals outside the home, there will be new 20-baggers showing up in the food courts at the malls and in our neighborhoods, and the observant diner will be able to spot them.
Any time you can find a 25 percent grower selling for 20 times earnings, it’s a buy. If the price dropped any further, I’d back up the truck. This company is doing well in a recession and can grow for a long time without running into itself. It has a lot of potential overseas as well.
A healthy portfolio requires a regular checkup—perhaps every six months or so.
The six-month checkup is not simply a matter of looking up the stock price in the newspaper, an exercise that often passes for Wall Street research. As a stockpicker, you can’t assume anything. You’ve got to follow the stories. You are trying to get answers to two basic questions: (1) is the stock still attractively priced relative to earnings, and (2) what is happening in the company to make the earnings go up? Here you can reach one of three conclusions: (1) the story has gotten better, in which case you might want to increase your investment, (2) the story has gotten worse, in which case
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This is an example of Wall Street’s being deaf to good news.
Pier 1 had cut debt, reduced inventory, and continued to expand. Its major competitors, the department stores, were getting out of the home furnishings business. The longer this recession lasted, the more competitors would drop by the wayside. When the recovery comes, Pier 1 may have a virtual monopoly on wicker side tables, Scandinavian place settings, and Oriental room dividers.
Still, General Host had a strong cash flow, its dividend had been raised for the 14th year in a row, the stock was selling for less than book value, and the expansion was proceeding according to plan.
When the best company in an industry is selling at a bargain price, it often pays to buy that one, as opposed to investing in a lesser competitor that may be selling at a lower price.
I remember what attracted me to Tenera in the first place—the company had no debt and a valuable consulting business, even though the software division was in shambles, and the stock was $2. If Tenera can make just $40 million in annual revenues, which seems more likely now than it did in January, the company could earn 40 cents a share.
What stopped me from recommending Cedar Fair at the beginning of 1992 was that I couldn’t see how the company was going to boost its earnings.
You can’t hold on to a cyclical stock the way you hold on to a retailer in the midst of expansion.
Rejecting a stock because the price has doubled, tripled, or even quadrupled in the recent past can be a big mistake.
I try to treat each potential investment as if it had no history—the “be here now” approach. Whatever occurred earlier is irrelevant. The important thing is whether the stock is cheap or expensive today at $21-$22, based on its earnings potential of $5 to $7 a share.
it has managed to amass $3.6 billion in cash, enough to pay off its long-term debt of $3.7 billion.
Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock.
The part-time stockpicker probably has time to follow 8–12 companies, and to buy and sell shares as conditions warrant. There don’t have to be more than 5 companies in the portfolio at any one time.
The biggest losses in stocks come from companies with poor balance sheets.
Avoid hot stocks in hot industries.
With small companies, you’re better off to wait until they turn a profit before you invest.
If you’re thinking about investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival.
The average person can concentrate on a few good companies, while the fund manager is forced to diversify.
It only takes a handful of big winners to make a lifetime of investing worthwhile.
In every industry and every region of the country, the observant amateur can find great growth companies long before the ...
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Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.
If you study 10 companies, you’ll find 1 for which the story is better than expected. If you study 50, you’ll find 5. There are always pleasant surprises to be found in the stock market—companies whose achievements are being overlooked on Wall Street.
a portfolio of poorly chosen stocks won’t outperform the money left under the mattress.
My routine is always the same. I search for companies that are undervalued, and I usually find them in sectors or industries that are out of favor.
In my experience, the price of a stock, the “p” in the p/e equation, cannot run too far ahead of the earnings, the “e” in the equation, without something having to give.
Fannie Mae has only 3,000 employees and it makes $2 billion in profits. Few businesses are more predictable or measurable. Wall Street is always looking for predictable, consistent growers—what’s
