A small percentage of individual investors have a lot of money in their own selection of events. The others will be much better off when you seek the help of an index fund.
Eligible purchases were not shares of the same fixed assets
During the fall in prices in 1970, the situation changed and at low prices prevailing this year was mono at prices lower than the value of the working capital did not have a number of actions. It has always seemed, and still seems, a simple simple way that relatively satisfactory investment results can be achieved only by subjecting a diversified portfolio of ordinary shares at prices that are less than the value of certain company assets, ie the net asset value of the company. , I consider the value of fixed and other non – fixed assets to be zero. However, according to experience, these investments were satisfactory for more than 30 years in 1923 and 1957, except for the periods 1930 and 1932, when the stock market and the whole economy were subjected to a real arrest test.
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Was this approach significant at the meeting of 1971? The answer is: “Yes, but with a damn.” A quick flick of the Equity Guide would reveal about 50 titles that could be obtained at prices below the value of certain current assets. It can be expected that many of these companies did not show satisfactory financial results in the complex year 1970. If we eliminate companies from the selection, they have reported a negative result in the last twelve months, we should still be given a number of actions to create a diversified portfolio.
In the table HERE we give some data about 5 shares, they were traded at the lowest prices of 1970 at lower prices, not the value of the working capital.
These data provide some incentive to reflect on the nature of price fluctuations. How can the company, which can be found in all households throughout the United States, be valued at such low prices at the same time that other businesses (with better profit growth rates, of course) are trading for billions of dollars above the national value? stated in their balance sheets? Going back to the “old times”, the notion of goodwill as an element of intangible assets was usually associated with a “trademark”.
Names such as Lady Pepperell in last year’s ass, Jantzen in swimming pools or Parker in writing utensils would be considered assets of real value. However, now that the company is “blamed”, then not only reputable brands, but also land, buildings and halls, machinery and everything else, the company’s value is zero. Pascal said that “the heart has its motives, reason cannot understand them”. The city of “heart” tte “Wall Street”.
There is one interesting contrast, just a layer of mind. If the market works for a while and new stock issues can be placed in time, there will be quotes of poor quality action. The dog will always quickly find its buyers; immediately after the issue, their price is driven to the point of such fault due to profit or ethical values that shares of a company such as IBM, Xerox or Polaroid may be ashamed. Wall Street is playing with these memberships, without which there are obvious forces to end this heat before the inevitable price collapse. (The SEC doesn’t have much room for maneuver, I can only insist on the publication of all essential information; bloated business completely or just completely out of sight, it’s all brno philosophically as a “bite of the game”. Everybody subscribe that they will never or at least do not engage in such inexcusable extravagances.
Thanks for the Friday, please. But what about your “appropriate purchases”? Did the hunter actually pay me pensions, or would he take a big risk? Indeed, yes, if they can find enough to form a diversified group, and if they do not lose patience, unless their value rises immediately after the purchase. Sometimes the need for two patience may prove to be very well known, we would say a basket. In the previous edition of books, we allowed ourselves one example (p. 188), it was only current at the time when we wrote the edition. It was a Burton-Dixie company, its shares sold for $ 20, the total assets were 30 and the value was about $ 50. The profit from this investment was far from instant. However, in August 1967, all shares were offered to repurchase their stock for $ 53.75, which was equal in value. The patient owner, just bought the shares in the year 1964 for $ 20 per share, generated a profit of a cumulative 165% for three and a half years, which is (simply) a year at 47%. Most suitable stock purchases from experience did not need so much time to report the sun, but they also did not show such great results. A similar situation, currently written at the time of this publication, is described on page 152, where we deal with the case of National Presto Industries.
Special situations or “workouts”
We will touch on these areas as well, or so they belong to the program of activities of a business investor. We talked to her about two special situations. Here are a few examples from this num and a few more remarks about what this area offers to an unbiased and vigilant investor.
“The Smart Investor” is by far the best book ever written about investing. It is one of the thinnest publications of its kind, but so paradoxically perhaps most ignored in practice. Such is human nature. We just want to put everything together.
At the meeting of 1971, three such situations were active, which can be summarized as follows:
Acquisition of Kayser-Roth by Borden. In January 1971, Borden announced its intention to take control of Kayser-Roth (“diversified garments”) by exchanging one-thirds of its shares for one share of Kayser-Roth. The day after intense trading, Borden shares closed at $ 26 and Kayser-Roth shares at $ 28. If the “entrepreneur” bought 300 shares of Kayser-Roth and sold 400 shares of Borden at these prices, and if the acquisition was announced to be completed (and published), a profit of some 24% of the cost of the share would be minus the commission and dalch vdaj. Assuming that the acquisition of the transaction would take place within six months, its profit could initially be around 40%.
In November 1970, National Biscuit acquired a controlling stake in Aurora Plastics for $ 11 per share in cash. The shares sold for $ 8.5 at the time, reaching $ 9 at the time, which traded until the end of the year. In this case, the gross profit was around 25%, but was exposed to the risk of incomplete acquisition and also to the risk of time.
The company Universal-Marion, is terminating its business activities, filed a general meeting to approve the liquidation of the company. The financial manager and liquidator of the company stated that the net worth of the company’s shares was $ 28.5, the direct assets were in the form of a liquid form. At the end of 1970, the shares sold for $ 21.5, indicating a single profit and 30% if the liquidation of the company reached the indicated ethnic value.
If transactions of this kind can be carried out on a diversified basis for the spread of risks, it is reasonable to expect a return of about 20% or more, then it is undoubtedly worth much more than just outside. Since this book does not deal with “special situations”, we will not go into detail about this business or it is a real business. Let’s highlight only two incompatible development trends, they have been emerging in recent years.
On the one hand, there has been a dramatic increase in the number of transactions, from which it is possible to choose, if we compare it with the situation ten years ago. This is the result of what we can call the maniacal desire of corporations to diversify their activities through various forms of acquisitions, etc. In 1970, the number of bent “fz” was about 5,000, which was 1,000 mn not a year two, when this number exceeded 6,000 The total money value of all these transactions was many, many billions of dollars. Perhaps only a fraction of these 5,000 announcements could mean a clear complexity for a special situation specialist to buy, but this fraction was large enough to keep him busy analyzing and selecting.
The other side of this trend was the fact that the growth according to these announced phenomena and acquisitions was not finally completed. In these cases, of course, there was no realization of members’ profits, on the contrary, there were often more or less called losses. The reasons for poor completion can be found in many factors, from confusing antitrust decisions to shareholder disapproval, changes in “market conditions”, negative twists of detailed analysis, inability to agree on details, and much more. In this area, a good barrel is supported, supported by a certain amount of experience, not only for the identification of such transactions, which have great hope for haste, that goes without saying, but also such transactions, they will eventually mean only a small loss in case of their failure.
He commented on the above examples
The board of directors of this company rejected (in January 1971) the proposal of Borden (at the time we wrote this chapter). If the share transactions were to be rejected as “canceled” immediately after the announcement, the total loss of the commission would amount to approximately 12% of the value of the Kayser-Roth share.
As the company reported very poor results in 1970, the company’s valuation was revalued and the share price was reduced to $ 10.5. The shares were bought back at the end of May. Ron’s income from this transaction was about 25%.
The company immediately distributed the company’s cash and assets of approximately $ 7 per share to the stock, reducing its investment to $ 14.5. However, the market price subsequently fell to $ 13, which cast doubt on the final outcome of the liquidation of the company’s assets.
Assuming that these three treasures are obtained by a representative sample of “arbitrary” complexities in 1971, it is clear that this is not a particularly attractive area if we approach the foundation of a random selection. This area is especially designed for professionals who have the necessary level of experience and good judgment.
A side note to our Kayser-Roth floor
At the end of 1971, the price of their shares fell to $ 20, with Borden shares sold for $ 25, the equivalent of $ 33 per Kayser-Roth share under the terms of the share exchange. It would seem that either Kayser-Roth’s board of directors made a big mistake in rejecting this baldness, or Kayser-Roth shares were undervalued in the market at this time. It’s something a financial analyst should look forward to.
The purpose of this revised edition of The Smart Investor is to apply Graham’s ideas to the conditions of the current financial market, and still leave its original text intact (with the exception of notes under the explanatory note). Each Graham chapter is followed by a commentary. In these original shadows after the original text, there are also current examples, on which it is best to observe how current and how liberating remain Graham’s principles even today.
from the book: The Intelligent Investor
1. dl: Even a cautious investor will make time for it
ryvek is from the book
vydan publishing houseCity Publishing,
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