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

To: Tomato who wrote (17393)	7/10/2003 4:31:53 PM
From: Paul Senior	Respond to of 78957

Let's talk about the $25Million. If it was in a public company that I control, and my intent was to increase shareholder value, then for me there are several factors I'd consider: 1. Can I buy a discounted cash flow stream cheap enough and maybe steady enough to where my stockholders can see a bottom line benefit? And that would be reflected in my company's stock appreciating? 2. Can I, as new controlling management, add any additional value to the purchased operation? Can I manage the purchase better than the current managers? Or, maybe more importantly does the purchase serve some strategic fit or plan of my business? A fit/plan that the market will recognize as a positive? 3. How will stockholders view my purchase? What's my record with prior purchases, if any? If I've got a ton of cash to spend because I went public in the dot.com craze with some cockamamie idea that'll never bring profits to the bottom line, what makes anyone (besides me) believe I could now manage a presumed real business that I'd be spending $25M on? And manage it better than its current management? I relate your question to the cash-in-search-of-business plays. My preference is that the cash-rich company distribute the cash to stockholders (me)and let us decide how to allocate this money. My inclination is to sell my shares when I see managements of these cash-rich companies try to acquire other assets with cash. Sometimes the purchase is in a totally unrelated business. That seems self-serving (job protection) by management and dangerous to stockholders. Sometimes the purchase is in related business and analysts/media indicate it's a good fit. I still want to sell out because those businesses are usually small biotechs or small dot.com/info tech. companies with not much (if any) profit history and where I have no idea and no confidence that management/analysts/media are right in their assessments. Sometimes if the cash purchase is relatively small (e.g if the cash hoard is $125M and 'only' $25M is being spent), I'll maybe stick around to see how the purchase seems to work out. jmo, and I have made the wrong buy/sell decisions with many of these cash-rich companies.