Thanks. The following is excerpted from an article that appeared in Washington Post dated June 1, 1997 titled, "Keys to Picking Stocks : Sense, Alertness, a Plan" The person being interviewed is Sam Mitchell, Managing Director of Marshfield Associates :
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Marshfield has no interest in reports from
analysts, who, M&N said in a newsletter last
year, have difficulty distinguishing "ants --
masses of trivia -- from elephants -- what is
really important to the long-term evolution of
an investment." Specifically, analysts focus on
short-term profits (as the Nike decline shows),
while Marshfield tries to look at the bigger
picture. That's good advice for small
investors, too -- and a relief, since amateurs
can't predict short-term profits anyway (though
neither can pros).
One example of the elephant approach is
McDonald's Corp., another holding both of
Berkshire and Marshfield. Profits right now are
not particularly impressive for a company that
trades at a P/E of 21. And McDonald's has been
running price-cutting promotions on Big Macs
and other staples -- not a good sign for any
firm.
But Mitchell discerns a pleasing long-term
strategy -- one that small investors can figure
out as well. McDonald's is making life
extremely difficult for its competitors at
home, pinning them down in a kind of hellish
trench warfare, so that, in the meantime, it
can expand its own markets freely abroad, which
is where the sales growth and the profits will
be for the future. Already, about 60 percent of
McDonald's operating income comes from foreign
sales in 101 countries, and, as Marshfield
notes, "its working capital requirements are
negative." In other words, it gets other people
-- franchisees -- to pay for its expansion.
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