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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (15188)	8/14/2002 4:13:49 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78568

Paul, While I agree with your arguments - though as I said, I do not practice value investing - the Buffett argument for high ROE is not only that high ROE indicates a great business. The other reason is that business should be earning more than the risk free alternatives and more than it pays for loans. Otherwise, it is not a sustainable business and should be liquidated. In these times when risk free alternatives earn <4% and corporate loans are around 8% depending on company, these requirements are not so important. But they were in earlier times when bonds earned >10%. Buffett himself said that buying treasuries when the yield was above 14% was a much better investment than buying stocks at the same time. The annual return was higher than the yield, since prices rose as new issue yields dropped. Even now, if a company has ROE around 5%, the question is: why does this company exist? Unless there is some hope for the ROE improvement, the company should sell itself and invest the capital in bonds. It would make much more sense for the shareholders. Jurgis

To: Paul Senior who wrote (15188)	8/15/2002 2:17:39 AM
From: Seeker of Truth	Respond to of 78568

Others on this thread have answered you better than I could. It does seem unwise to buy stock in a company that earns less on its invested capital that you would if you bought a bond. In the case of DOV, the return on assets is pitiful. Even if it doubled, at the top of its cycle it still wouldn't be satisfactory. I agree with Fitch's downgrade. As for a value stock, I like a small company called Nedcom which is listed in Amsterdam, sells for 11 times most recent years earnings and and the earnings and equity are growing at faster than 20% a year. Like DOV they make machinery; it happens to be machinery for automating warehouses. Long term I think UCBH is a great value but it looks overvalued at the minute. It's a NASDAQ stock.