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Strategies & Market Trends : Tang's school of business management for serious investors

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To: Arthur Tang who wrote (19)	8/21/2001 1:16:18 PM
From: Clement	Read Replies (1) of 57

> Many business has management that did not understand > pricing and profits; and tries to run deficit spending to > build a business. Avoid them like a plague if you are > wise in investment principles. What about quality of earnings? What of cable companies who are valued largely on EBITDA because of past capital investments with positive current cash flow? What of cash flow? Companies are valued based on cash flow -- not earnings as you might suggest. The two are related but not always -- it would do you well to recognize this especially since you claim to specialize in turnarounds. As to your commentary of Dell's strategy -- you are unfortunately wrong. Dell has capitalized significantly by grabbing market share. In poor economic times, it is easiest for large strong companies to grab market share -- this is classic management theory. Dell has the lowest level of fixed costs of its competitors so to start a price war makes absolute sense to grab market share. Dell is also a low cost producer. Incidentally, most people know that companies must eventually make a profit to survive. Many successful companies also do not start earning right away when they start out. As a matter of solely investment styles, it certainly does make sense to focus on companies that generate profits -- but positive cash flow is also important. There are many a company who have gone bankrupt while reporting a profit. Incidentally, there are many very good investors who have made a lot of money in turnaround plays, start ups and using venture capital to do one or both of the aforementioned. In addition, if you believe profitability is so important as a "wise" investor, why did you invest in Fruit of the Loom and Ames even after they were bankrupt?

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