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

To: Paul Senior who wrote (15192)	8/14/2002 5:38:14 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78595

Paul, >Very seldom does one see companies selling themselves > because of low ROE. Because insiders are not interested in the best interests of shareholders. And shareholders most of the time do not have enough power. BTW, even Buffett did not avoid this trap. He got into it out of sentimentality with original Berkshire and again with Dexter Shoes. Business wise he should have sold both much earlier. However, he cares about his companies and their employees, so he did not sell... and I cannot blame him. >They may be buyable though, depending on price (and risk tolerance). Agreed. That's what Graham says too. Regarding the AMR example, couple of points: 1. As I said, hope for change is one of the factors why investors buy these companies and why these companies do not sell themselves. 2. At 5% ROE AMR is still not a viable business long term. One can value invest in it at a price much below liquidation value (I DON'T KNOW IF THEY SELL AT SUCH PRICE) so that investor ROI is much higher than 5% company's ROE. But if it was possible to sell the whole AMR for its book value, it would be more worthwhile to invest the money obtained from the sale into bonds than into AMR's 5% ROE business. 3. One has to be extra careful in case of highly leveraged companies. If company is paying 8% to earn 5%, it will go bankrupt sooner or later. In this case, even the expected investor's ROI should probably be ignored, unless much more dd is done. 4. Economically, there will always be companies earning low ROEs because of various reasons. It is quite different question of whether to invest in them. Jurgis - as I said: Graham is cool, but I'm no Graham ;-)