| | | Graham's response to me on the value thread is so good I'm posting it here on the market Lab.
Message 31144127
my response that prompted his on 6/12/17
Message 31143413
He wrote it on June 12th and he talks about AMZN and comments that - as a retailer it's you eat their lunch or they eat yours.
Graham does talk about AMZN in the context of what THE STANDARD -- the standard oil trust company
which gloriously was throwing off $180 a year and $200 a year in dividends in the 1880's...what the stock was worth.... each year..... a veritable "black gold " mine that controlled 90% of the refining industry in 1900
Royal Dutch Shell with European investment banking capital coming out of europe especially some Rothschild money to help create global competition
However, the Standard Oil Trust was broken up in the landmark Antitrust case in of 1911
en.wikipedia.org
Standard Oil Co. Inc. was an American oil producing, transporting, refining, and marketing company. Established in 1870 by John D. Rockefeller as a corporation in Ohio, it was the largest oil refinery in the world of its time. [7] Its controversial history as one of the world's first and largest multinational corporations ended in 1911, when the United States Supreme Court ruled that Standard Oil was an illegal monopoly.
Standard Oil dominated the oil products market initially through horizontal integration in the refining sector, then, in later years vertical integration; the company was an innovator in the development of the business trust. The Standard Oil trust streamlined production and logistics, lowered costs, and undercut competitors. " Trust-busting" critics accused Standard Oil of using aggressive pricing to destroy competitors and form a monopoly that threatened other businesses.
John D. Rockefeller was a founder, chairman and a major shareholder. With the dissolution of the Standard Oil trust into 34 smaller companies, Rockefeller became the richest man in the world, as the initial income of these individual enterprises proved to be much bigger than that of a single larger company. Its successors such as ExxonMobil, BP, and Chevron are still among the companies with the largest income worldwide. By 1882, his top aide was John Dustin Archbold. After 1896, Rockefeller disengaged from business to concentrate on his philanthropy, leaving Archbold in control. Other notable Standard Oil principals include Henry Flagler, developer of the Florida East Coast Railway and resort cities, and Henry H. Rogers, who built the Virginian Railway.
| To: John P who wrote (59556) | 6/12/2017 4:01:35 PM | | From: Graham Osborn | of 59576 | | | Hi John, good to hear from you! As you may know I abandoned technical analysis last fall. I still hold certain macroeconomic views but they don't much influence the way I think about companies or valuations. So I may not be a source of much interesting conversation on these topics, simply because I don't read what the ECB is doing every day. I guess when the market is going down everyone is a macroeconomist and when the market is going up everyone is a fundamentalist - but in my case the latter is probably here to stay.
As a fundamentalist, what I see are my favorite companies (mostly tech stocks) at modestly overvalued levels. I don't look much outside this area these days since only a handful of nontech companies are growing their tangible book on a nonlevered basis at above single digits. If anyone has one, please send it my way.
GOOG is a stock I still like OK at the current price, but I like other things more. AMZN is a company I have never understood as a value investor, and I don't expect that to clear up anytime soon. Google is a natural monopoly with no meaningful competition in its core operation. Amazon is a retailer - and in retail either you are eating someone else's lunch or they are eating yours. 30 years ago WMT was eating everyone else's lunch - now their lunch is being eaten. This doesn't mean retailers are bad businesses to own - Berkshire owned Walmart - but it does mean that Amazon's future profit margins are by no means guaranteed, a potential problem when almost all of the present valuation is based on those future margins. Like Standard Oil, their margins depend on killing everyone, and such a sterile environment is hard to maintain. I don't feel the need to soul-search about why I missed the Amazon joyride - there were a lot of other companies where success was easier to predict, and I'm much happier owning those. To date no one has given me a succinct explanation of why Amazon was a sure thing 10 years ago, although maybe Bezos knew.
The current market environment reminds me a lot of the mid-90s, although there is no particular reason for it to pan out the same way. Commodities were tanking, growth was unimpressive in a lot of other sectors of the economy, and tech was the one light in the dark so everyone jumped on the bandwagon.
Rather than make predictions when I know I can't, my approach has become essentially: (1) arrange your affairs in such a way that you always have steady cash flow to invest regardless of market action (2) look for companies growing at a steady clip and retaining their earnings, regardless of what the general market is doing (3) restrict purchases to companies selling at or below intrinsic value. It is quite alright to build up cash when valuations are high - but it is an unforgivable sin to run out of cash when valuations are low. A portfolio like that will decline in a downturn - but over 10 years, the results are likely to be far from unsatisfactory. |
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