Whitney Tilson Talks About Charlie Munger With Phil Terry
Posted using ShareThis
Sep 30, 2009
Sep 29, 2009
Visit my New Blog on Indian Companies
Hi,
For all who are interested in Indian companies and are looking for Value Investing, i have started new blog focusing on Indian companies. I will be focusing on Annual Report Key points, My Views, Value Investment Ideas, Screens on value investment for Indian stocks on periodical basis. I shall try to make it more informative and with my inputs and would like my readers to share their view on also.
Check the Link below
Value Investing
For all who are interested in Indian companies and are looking for Value Investing, i have started new blog focusing on Indian companies. I will be focusing on Annual Report Key points, My Views, Value Investment Ideas, Screens on value investment for Indian stocks on periodical basis. I shall try to make it more informative and with my inputs and would like my readers to share their view on also.
Check the Link below
Value Investing
Sep 28, 2009
Sep 27, 2009
Sep 25, 2009
Bharat Forge : Next Big Leap
Baba Kalyani - man behind Bharat Forge Ltd great success is now plotting new steps to take the company to a New Leap in the Non Automotive Space. The link below covers an interesting article on the Next Big Picture which Mr. Baba Kalyani & his son Mr. Amit Kalyani are drawing for Bharat Forge Ltd.
Key Takeways:
Big Picture:
To get more insight on Bharat Forge - Article
Key Takeways:
- Betting Big on Energy with entering into JV's with Giants to address the Thermal, Wind and Nuclear energy business in coming decade.
- Entered into 3 JV's each with NTPC for thermal, Alsthom for Wind and Areva for Nuclear. All of which are likely to come on stream by 2012.
- Taken baby steps to foray into Aerospace segment in manufacturing strucutral components.Similar steps are taken in transportation segment (Railways and Marine). Still early to comment on the potential of this segments on Bharat Forge Balance Sheet.
- The company can generate Revenue close to Rs.15000 to 20000 cr per year in the energy segment itself once all its 3 JV's come on stream.
- Currently the Consolidated Rev is close to Rs.4800 cr. The management looks at 3 to 4 times revenue from current levels.
Big Picture:
- Company is entering into critical components business with Strong players, which is difficult for any other player to compete.
- Margins would be higher than the one enjoyed in the Auto Ancillary business.
- External Opportunity is much larger than the current business which it is addressing.
- Credible records in the past to manage critical business and capable of generating Higher ROCE% on long term.
- JV's with strong partners NTPC, Alsthom and Areva in their respective field.
- Low Cost Manufacturing Base.
To get more insight on Bharat Forge - Article
Sep 22, 2009
Book Review: Applied Value Investing
I came across this Book reivew from my friends blog who was lucky enough to listen to Mohnish Pabrai in Chicago. I came to know about this book from there. After the reading the abstracts, it sounded interesting for all value investors.
Link to the same
Link to the same
Sep 19, 2009
Sep 18, 2009
Sep 15, 2009
Sep 14, 2009
Sep 12, 2009
Sep 11, 2009
Sep 10, 2009
Benjamin Graham on Investing
I have just come across this book review and eager to BUY the same and read it.
Most famous for his investing classic Security Analysis, first published by McGraw-Hill in 1934, Benjamin Graham wrote for The Magazine of Wall Street between 1917 and 1927. It was in these early articles that Graham began fleshing out what would eventually become some of the most influential investment theories in history.
please click the link below
Enduring lessons form the Father of Investing:
Most famous for his investing classic Security Analysis, first published by McGraw-Hill in 1934, Benjamin Graham wrote for The Magazine of Wall Street between 1917 and 1927. It was in these early articles that Graham began fleshing out what would eventually become some of the most influential investment theories in history.
please click the link below
Enduring lessons form the Father of Investing:
Q & A with Mr. Warren E Buffet
Dear Investors,
I came across these interesting questions that were addressed to the Legendary Investor "Mr. Warren E Buffet" in his AGM(2008).
Its an interesting set off questions and answers, which reflects the simplicity of a Worlds one of the richest man and an Investor. What clues as an investor he throws in his answers are actaully his efforts to reach these levels. I recommend to read these and share with more and more investors.
Warren Buffet's speech
THE FOLLOWING IS A MAIL SENT TO ME BY A GENTLEMAN WHO HAD THE PLEASURE OF LISTENING TO WARREN BUFFET RECENTLY.
I had the good fortune to attend the 2008- Berkshire Hathaway Shareholders meeting at Omaha, Nebraska .It was a wonderful experience listening to and learning from the Master Investor- Warren Buffett himself and all I can say is that he stands alone as the reigning deity of financial world's Mt Olympus !The degree of humility and composure he exhibited, although he is the richest and most well respected human is stunning!
I tried to take some notes and would like to share with you some of the best questions and answers which came across during the conversation between we mortals and God.
Having read about him, observed him and worshipped him for a few years now, I think it is reasonable to believe that this guy is exactly what he seems: a plain-speaking, tee totaling man of uncrackable integrity who works really, really hard and sticks to his investing and management principles through boom and bust which makes him a freak of nature since he is above normal human tendencies. He is like a comet streaking through the heavens every 75 years or so.
The questions the shareholders threw at him for 7 continuous hours ranged from finances, life, religion, career, politics, sports and several other streams. And he answered everything with a Zen like calm and confidence.
Even if you are least bothered about investments and finances, I insist, Pl read on.
=========================================================================
What does it take to become a successful investor? Brilliance or Smartness?
Neither, Success in investing doesn't correlate with I.Q. Once you have ordinary intelligence, what you need is the temperament to control the urges that gets other people into trouble in investing.
When do you deicide to invest in a firm?
The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they're on the operating table. (Mr. Buffett bought Coke when it had its biggest fiasco after launching New Coke; he bought American Express when it went through a loss making phase in the early 60's)
What do you look for in people when they come to sell their firms to you?
I don't look for the usual credentials such as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap of their firm. What I look for is just a passion in their eyes; I think that's the key. A person who is hungry will always do well. I prefer it when people even after selling stay on and work for the firm; they are people who can't wait to get off their bed to get to work. Passion is everything; there is no replacement for innate interest.
Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in cash. Why aren't you investing?
Up until a few years back I had more ideas than money. Now I have more money than ideas.
When do you plan to retire?
I love my job; I love it so much that I tap dance to work. Mrs. B, the founder of Nebraska Furniture Mark worked until she was 104, she died within 6 months of her retirement, that's a lesson to all my managers, don't retire! I personally am going to work 6-7 years after I die, probably that's what they mean when they say- "Thinking out of the Box"!!
Why do stock market crashes happen?
Because of human nature for greed and insecurity. The 1970s were unbelievable. The world wasn't going to end, but businesses were being given away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you."
What are the things that are taught wrong in Business school and the corporate world?
I like such open ended questions, I think Business schools should refrain from teaching their wards about profit making and profit making alone, it gives a sense of 1 dimensional outlook to the young students that loss is a curse. In reality, in the corporate world, failure and loss making are inevitable. The capital market without loss is like Christianity without hell. I think they should teach the student on how to buy a business, how to value a business? Not just on how to determine the price of a business. Because price is what you pay, value is what you get.
Do you still hate Technology stocks?
With Coke I can come up with a very rational figure for the cash it will generate in the future. But with the top 10 Internet companies, how much cash will they produce over the next 25 years? If you say you don't know, then you don't know what it is worth and you are speculating, not investing. All I know is that I don't know, and if I don't know, I don't invest."
How to think about Investing?
The first investment primer was written by Aesop in 600 B.C. He said, 'A bird in the hand is worth two in the bush.' Aesop forgot to say when you get the two in the bush and what interest rates are; investing is simply figuring out your cash outlay (the bird in the hand) and comparing it to how many birds are in the bush and when you get them."
How do you feel after donating $ 40 Billion to the Bill and Melinda Gates foundation? You are a hero to us!
I feel nothing. I haven't sacrificed anything in life. I have had a good life. I donated after I turned 75. I think I admire those people who sacrifice their time, share their food and home, as the people to be emulated not me. Besides, what is money before a man's life?
What do you think are the pitfalls in donation?
I have never donated a dime to churches or other such organizations; I need to believe in something before I end up doing that. I have been observing the Bill & Melinda Gates foundation for years now and I am confident they will do a fantastic job of making use of the money. I am a big believer in Outsourcing, others believed in me as an Investor and gave their hard earned money to invest. I believe in Bill Gates, he is a better donor than me.
Why do you work from Omaha and not Wall Street, New York?
Wall Street is the only place where people alight from Rolls Royce to get advised by people who use the Public transportation system.
You seem to be so well read, tell us how it all started.
My father was a stock broker, so we had all these financial books in our library. He introduced me to those classics and I got into them. I am lucky that my father was not a fan of Playboy! Reading is the best habit you can get. Well, you can learn from teachers too, and have mentors but there are so many constraints attached- they will talk fast, talk slow, they might talk like a pro or they might be terrible communicators. Books are a different animal altogether, I love reading! The beauty about reading and learning is that the more you learn the more you want to learn.
People who join Berkshire Hathaway seldom leave. How do you get along well with all your executives?
I try to get quality people. I always say - Hire someone in your organization who is better than you are. If you do that, you build a company of giants. If you get people worse than yourself, you build a company of dwarfs. And do not try to do everything yourself. Delegate the jobs and look out of the window. The results will come. That's how you build institutions. It happens only when you empower others, believe in others. Iam an investor, Iam very secured at that, I have no clue how to make Coca-Cola or how to dole out credit cards (Mr. Buffett owns 8% of Coca-Cola and 13 % of American Express). I understand the wisdom of the aphorism that you cannot please all the people all the time. Of Course, you will always find qualities that you don't like in people around you, but if you observe carefully the love of the work unites you both. There is no point in being obsessive about a bad quality in a person, whom you otherwise respect.
I am a small time businessman from Dallas, Texas, what do I need to do to hit big time?
Be patient, Achieving your financial goals and dreams will not happen overnight. As much as we would all really love to accomplish our goals in a few years, this is an ongoing process. Defining your financial goals is not a one-time task; you need to keep adding new plans at different stages in your life. We all admire the skills of Olympic ice skaters, pro golfers, and concert pianists. But do we remember that they didn't acquire their skills overnight? They had to practice hours on end for years to achieve their dreams. The key to success is to continue learning throughout your life with a voracious appetite.
I think it is marvelous that you have had a golden run with investing, how did you do that ?
My rule is to be fearful when others are greedy, and be greedy when others are fearful. Besides, I call investing the greatest job in the world because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it. Stay dispassionate and be patient. You're dealing with a lot of silly people in the marketplace; it's like a great big casino and everyone else is boozing. If you can stick with drinking Coke, you should be OK. First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression, most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
Mr. Buffett you have seen so many crashes and recessions, your take on facing recessions and stock market crashes ?
If past history was all there was to the game, the richest people would be librarians. Every scenario is different. But always remember, Tough times do not last. Tough people do.
What is the biggest advice you would impart to a young investor like me ?
Think for a moment that you are given a car and told this is the only car you would get for the rest of your life. Then you would make sure that you car is taken care of well, it is oiled and detailed every now and then. You would make sure that it never gets rusted, and you would garage it. Think of yourself as that car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest in yourself that would be my advice.
You personally know many of the Financial executives who are engineers of the current turmoil in the financial world, surprisingly even after record losses, those executives receive astronomical salaries and bonuses and arrogantly declare that they deserve it, why dint you advice them from making such decisions and what's your view on their justification for their pay ?
I like sharing my ideas but don't like imposing my ideas on anybody. It doesn't make sense and is a waste of time. If somebody has decided that they know everything that is there to know, nobody can help them. The best way to learn and succeed is to know that we know nothing. There is an entire universe out there and still some of us think we can know everything. In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything - arrogance, ego and overconfidence are very lethal. Personally I don't feel too comfortable with too much extravagance, because I always think like an investor. My thought process doesn't see a lot of value in a fancy car or a designer suit. Thinking like an investor always is very important to bring in a sense of discipline and focus. Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor. Never let ego, arrogance and over-confidence control you - not just as an investor but also as a human being. You will never have internal peace if you are unable to look at everybody around you with love, compassion and understanding. Irrespective of who the person is, he or she can teach you something you don't know. I have learnt so much from people all around me and I wouldn't have been able to learn all these wonderful things if I had not spoken to them with a smile. To quote Sir Isaac Newton- If I have seen farther than others, it is because I have stood on the shoulders of giants.
"A man has to learn that he cannot command things, but that he can command himself; that he cannot coerce the wills of others, but that he can mold and master his own will: and things serve him who serves truth; people seek guidance of him who is master of himself"
Happy Investing
I came across these interesting questions that were addressed to the Legendary Investor "Mr. Warren E Buffet" in his AGM(2008).
Its an interesting set off questions and answers, which reflects the simplicity of a Worlds one of the richest man and an Investor. What clues as an investor he throws in his answers are actaully his efforts to reach these levels. I recommend to read these and share with more and more investors.
Warren Buffet's speech
THE FOLLOWING IS A MAIL SENT TO ME BY A GENTLEMAN WHO HAD THE PLEASURE OF LISTENING TO WARREN BUFFET RECENTLY.
I had the good fortune to attend the 2008- Berkshire Hathaway Shareholders meeting at Omaha, Nebraska .It was a wonderful experience listening to and learning from the Master Investor- Warren Buffett himself and all I can say is that he stands alone as the reigning deity of financial world's Mt Olympus !The degree of humility and composure he exhibited, although he is the richest and most well respected human is stunning!
I tried to take some notes and would like to share with you some of the best questions and answers which came across during the conversation between we mortals and God.
Having read about him, observed him and worshipped him for a few years now, I think it is reasonable to believe that this guy is exactly what he seems: a plain-speaking, tee totaling man of uncrackable integrity who works really, really hard and sticks to his investing and management principles through boom and bust which makes him a freak of nature since he is above normal human tendencies. He is like a comet streaking through the heavens every 75 years or so.
The questions the shareholders threw at him for 7 continuous hours ranged from finances, life, religion, career, politics, sports and several other streams. And he answered everything with a Zen like calm and confidence.
Even if you are least bothered about investments and finances, I insist, Pl read on.
=========================================================================
What does it take to become a successful investor? Brilliance or Smartness?
Neither, Success in investing doesn't correlate with I.Q. Once you have ordinary intelligence, what you need is the temperament to control the urges that gets other people into trouble in investing.
When do you deicide to invest in a firm?
The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they're on the operating table. (Mr. Buffett bought Coke when it had its biggest fiasco after launching New Coke; he bought American Express when it went through a loss making phase in the early 60's)
What do you look for in people when they come to sell their firms to you?
I don't look for the usual credentials such as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap of their firm. What I look for is just a passion in their eyes; I think that's the key. A person who is hungry will always do well. I prefer it when people even after selling stay on and work for the firm; they are people who can't wait to get off their bed to get to work. Passion is everything; there is no replacement for innate interest.
Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in cash. Why aren't you investing?
Up until a few years back I had more ideas than money. Now I have more money than ideas.
When do you plan to retire?
I love my job; I love it so much that I tap dance to work. Mrs. B, the founder of Nebraska Furniture Mark worked until she was 104, she died within 6 months of her retirement, that's a lesson to all my managers, don't retire! I personally am going to work 6-7 years after I die, probably that's what they mean when they say- "Thinking out of the Box"!!
Why do stock market crashes happen?
Because of human nature for greed and insecurity. The 1970s were unbelievable. The world wasn't going to end, but businesses were being given away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you."
What are the things that are taught wrong in Business school and the corporate world?
I like such open ended questions, I think Business schools should refrain from teaching their wards about profit making and profit making alone, it gives a sense of 1 dimensional outlook to the young students that loss is a curse. In reality, in the corporate world, failure and loss making are inevitable. The capital market without loss is like Christianity without hell. I think they should teach the student on how to buy a business, how to value a business? Not just on how to determine the price of a business. Because price is what you pay, value is what you get.
Do you still hate Technology stocks?
With Coke I can come up with a very rational figure for the cash it will generate in the future. But with the top 10 Internet companies, how much cash will they produce over the next 25 years? If you say you don't know, then you don't know what it is worth and you are speculating, not investing. All I know is that I don't know, and if I don't know, I don't invest."
How to think about Investing?
The first investment primer was written by Aesop in 600 B.C. He said, 'A bird in the hand is worth two in the bush.' Aesop forgot to say when you get the two in the bush and what interest rates are; investing is simply figuring out your cash outlay (the bird in the hand) and comparing it to how many birds are in the bush and when you get them."
How do you feel after donating $ 40 Billion to the Bill and Melinda Gates foundation? You are a hero to us!
I feel nothing. I haven't sacrificed anything in life. I have had a good life. I donated after I turned 75. I think I admire those people who sacrifice their time, share their food and home, as the people to be emulated not me. Besides, what is money before a man's life?
What do you think are the pitfalls in donation?
I have never donated a dime to churches or other such organizations; I need to believe in something before I end up doing that. I have been observing the Bill & Melinda Gates foundation for years now and I am confident they will do a fantastic job of making use of the money. I am a big believer in Outsourcing, others believed in me as an Investor and gave their hard earned money to invest. I believe in Bill Gates, he is a better donor than me.
Why do you work from Omaha and not Wall Street, New York?
Wall Street is the only place where people alight from Rolls Royce to get advised by people who use the Public transportation system.
You seem to be so well read, tell us how it all started.
My father was a stock broker, so we had all these financial books in our library. He introduced me to those classics and I got into them. I am lucky that my father was not a fan of Playboy! Reading is the best habit you can get. Well, you can learn from teachers too, and have mentors but there are so many constraints attached- they will talk fast, talk slow, they might talk like a pro or they might be terrible communicators. Books are a different animal altogether, I love reading! The beauty about reading and learning is that the more you learn the more you want to learn.
People who join Berkshire Hathaway seldom leave. How do you get along well with all your executives?
I try to get quality people. I always say - Hire someone in your organization who is better than you are. If you do that, you build a company of giants. If you get people worse than yourself, you build a company of dwarfs. And do not try to do everything yourself. Delegate the jobs and look out of the window. The results will come. That's how you build institutions. It happens only when you empower others, believe in others. Iam an investor, Iam very secured at that, I have no clue how to make Coca-Cola or how to dole out credit cards (Mr. Buffett owns 8% of Coca-Cola and 13 % of American Express). I understand the wisdom of the aphorism that you cannot please all the people all the time. Of Course, you will always find qualities that you don't like in people around you, but if you observe carefully the love of the work unites you both. There is no point in being obsessive about a bad quality in a person, whom you otherwise respect.
I am a small time businessman from Dallas, Texas, what do I need to do to hit big time?
Be patient, Achieving your financial goals and dreams will not happen overnight. As much as we would all really love to accomplish our goals in a few years, this is an ongoing process. Defining your financial goals is not a one-time task; you need to keep adding new plans at different stages in your life. We all admire the skills of Olympic ice skaters, pro golfers, and concert pianists. But do we remember that they didn't acquire their skills overnight? They had to practice hours on end for years to achieve their dreams. The key to success is to continue learning throughout your life with a voracious appetite.
I think it is marvelous that you have had a golden run with investing, how did you do that ?
My rule is to be fearful when others are greedy, and be greedy when others are fearful. Besides, I call investing the greatest job in the world because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it. Stay dispassionate and be patient. You're dealing with a lot of silly people in the marketplace; it's like a great big casino and everyone else is boozing. If you can stick with drinking Coke, you should be OK. First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression, most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
Mr. Buffett you have seen so many crashes and recessions, your take on facing recessions and stock market crashes ?
If past history was all there was to the game, the richest people would be librarians. Every scenario is different. But always remember, Tough times do not last. Tough people do.
What is the biggest advice you would impart to a young investor like me ?
Think for a moment that you are given a car and told this is the only car you would get for the rest of your life. Then you would make sure that you car is taken care of well, it is oiled and detailed every now and then. You would make sure that it never gets rusted, and you would garage it. Think of yourself as that car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest in yourself that would be my advice.
You personally know many of the Financial executives who are engineers of the current turmoil in the financial world, surprisingly even after record losses, those executives receive astronomical salaries and bonuses and arrogantly declare that they deserve it, why dint you advice them from making such decisions and what's your view on their justification for their pay ?
I like sharing my ideas but don't like imposing my ideas on anybody. It doesn't make sense and is a waste of time. If somebody has decided that they know everything that is there to know, nobody can help them. The best way to learn and succeed is to know that we know nothing. There is an entire universe out there and still some of us think we can know everything. In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything - arrogance, ego and overconfidence are very lethal. Personally I don't feel too comfortable with too much extravagance, because I always think like an investor. My thought process doesn't see a lot of value in a fancy car or a designer suit. Thinking like an investor always is very important to bring in a sense of discipline and focus. Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor. Never let ego, arrogance and over-confidence control you - not just as an investor but also as a human being. You will never have internal peace if you are unable to look at everybody around you with love, compassion and understanding. Irrespective of who the person is, he or she can teach you something you don't know. I have learnt so much from people all around me and I wouldn't have been able to learn all these wonderful things if I had not spoken to them with a smile. To quote Sir Isaac Newton- If I have seen farther than others, it is because I have stood on the shoulders of giants.
"A man has to learn that he cannot command things, but that he can command himself; that he cannot coerce the wills of others, but that he can mold and master his own will: and things serve him who serves truth; people seek guidance of him who is master of himself"
Happy Investing
Sep 5, 2009
The Efficient Market Hypothesis & the Critics
Thanks to my Friend Miguel Barbosa i have access to this interesting article.
Its an interesting paper written by Burton G Malkeil on The Efficient Market Hypothesis & the Critics. There are 2 schools of thoughts, one which beleived that markets are Efficient and second school of thoughts beleive that markets are not at all efficient. Its an interesting paper which talks about that the markets are more efficient and less predictable.
He is also the auther of "Random Walk Down Wall Street". In his books he emphasis that the markets are efficients on long run, but extremely unpridictable on the short run.
The Efficient Market Hypothesis & the Critics.
Its an interesting paper written by Burton G Malkeil on The Efficient Market Hypothesis & the Critics. There are 2 schools of thoughts, one which beleived that markets are Efficient and second school of thoughts beleive that markets are not at all efficient. Its an interesting paper which talks about that the markets are more efficient and less predictable.
He is also the auther of "Random Walk Down Wall Street". In his books he emphasis that the markets are efficients on long run, but extremely unpridictable on the short run.
The Efficient Market Hypothesis & the Critics.
Sep 3, 2009
BUSINESS WEEK: The Return of Capital Spending
Hi readers,
From these article posted on Business week, it seems that globally markets are showing early signs of recovery. With Capital spending picking up, we can expect FY2011 and FY2012 to be much better than FY2009, FY2010.
The Return of Capital Spending
Companies that stopped capital outlays look to be starting them again, and that's a key component to global recovery
By Tara Kalwarski
Are companies ready to spend?
As the economy went into a tailspin last year, many companies stopped investing in their operations. For months they've refused to buy new computers, trucks, and other capital goods in an effort to stave off losses. The downturn in capital spending has been the worst since the Great Depression.
Now some U.S. corporations are opening up their wallets, laying the groundwork for a global recovery. A BusinessWeek analysis of companies in the Standard & Poor's 500-stock index found that 45% increased their global capital expenditures in the second quarter from the prior one. Only 19% did so in the first quarter. American Express (AXP), ExxonMobil (XOM), Verizon Communications (VZ), Wal-Mart Stores (WMT), and 106 others even upped their spending on a year-over-year basis. And those that continue to cut spending are doing so less drastically; expenditures overall have slipped just 3% in the latest quarter, vs. a 31% decline in the first. "Folks have changed their mindset toward cutting," says Steven Wieting, an economist at Citigroup (C).
The changing sentiment is another glimmer of hope for the global economy. Companies generally don't shell out money on new equipment, software, and buildings unless they think demand is picking up and profits are sustainable. The second quarter was encouraging: Earnings for the S&P 500, although still down from last year, were roughly 40% higher than in the first.
Capital spending will also be a critical growth driver in the coming years, especially given the dire state of consumers. The "expenditures will support a global recovery," says Kent Engelke, chief economic strategist at Capitol Securities Management. Already the European and Asian economies are benefiting from the uptick in spending by American multinationals. The U.S. economy, however, may lag somewhat as these companies continue to invest more of their dollars overseas. Capital spending within the U.S. fell 4% in the second quarter from the first—a bit worse than the drop in global expenditures among S&P 500 companies.
There's plenty of risk ahead. First, credit is scarce and costly, which makes it difficult to pay for outlays. St. Louis utility Ameren (AEE) spent an extra $44 million in the latest quarter, vs. a year earlier. But the company says it was a one-time bump for equipment upgrades required by regulators. "We're reducing capital expenditures," says spokeswoman Susan Gallagher. "Credit is still very expensive for us right now." Second, spending in some areas will continue to suffer for a while. Given the glut of office space and rising vacancy rates, business construction is especially vulnerable.
Better Credit Quality
The companies that are spending fall into two camps: those that are playing catch-up and those that are more optimistic about their prospects. The first group includes health insurer Cigna (CI), which increased expenditures by $16 million in the latest quarter. But Cigna's spending is off its peak, a level the company says it won't reach again until at least 2010. Such companies "cut back on capital spending much more than the fundamentals would have needed," says Milton J. Ezrati, senior economist at mutual fund firm Lord Abbett.
Companies such as American Express account for the second group. The credit-card company, which has suffered as defaults have risen and consumer spending has dropped, spent just $88 million on capital goods in the first quarter—the smallest amount since 2002. But credit quality at the company is improving: Delinquencies, those accounts more than 30 days past due, fell 14% in the latest quarter. With the problems abating, AmEx is plowing more money into the business, some $246 million in the latest quarter. At an analyst meeting on Aug. 5, CEO Kenneth I. Chenault said, "Initially our plan was to reduce investments this year by $1.5 billion.…Our intent is now to restore a portion of these investment cuts during the remainder of the year."
Some companies are allocating the extra money to technology, software, and other equipment that boost productivity. That's especially true for companies that have cut staff to the bone. "Companies can only defer CapEx for so long," says Kenneth J. Bentsen, president of the Equipment Leasing & Finance Assn., a trade group. "At some point, they have to replace their hardware and other equipment." The additional spending should be a boon for semiconductor makers such as Intel (INTC), Samsung, and Texas Instruments (TXN). Roger Wery, a partner at consultancy PRTM, expects global spending for chips to jump 33% next year.
Government largesse is spurring spending as well. The stimulus package offers subsidies for business investments in renewable energy initiatives. "There seems to be a great willingness to approve projects that serve the public interest," says Philip C. Adams, a senior bond analyst at researcher Gimme Credit in Chicago. ITC Holdings (ITC), a utility, is gearing up for green energy demand: It boosted spending to $109 million in the second quarter, a 10% increase over the previous year. "You can't change where the wind blows or where the sun shines," says ITC Chief Financial Officer Cameron M. Bready. And the company has to build infrastructure to use that energy.
Other companies are plowing dollars into new products or markets. J.M. Smucker (SJM) spent $80 million over the last three quarters of its fiscal year, up 29% from a year earlier. Most of the money went to Folgers Coffee, the brand it purchased last November from Procter & Gamble (PG) for $3 billion. Verizon is using extra funds to build telecommunications networks in Europe and India. The company estimates capital spending could top $17.8 billion this year, compared with $17.2 billion last year.
Many companies are spending on overseas operations, where they see stronger opportunities for growth. Campbell Soup (CPB) slimmed down last year by selling off Godiva Chocolatier but plans to increase capital spending by more than 30%. A growing number of the overall investment dollars have been funneled into the company's new Russian and Chinese ventures, markets in which per capita soup consumption is among the world's highest.
A truly sustained global recovery will need more big spenders like ExxonMobil. The oil giant has spent more than $10 billion so far this year, including a large investment in a new natural gas facility in Qatar. Overall, it expects to invest $125 billion globally through 2012. Says Kenneth J. Kremar, an analyst at IHS Global Insight (IHS), a research firm: "We're a ways off from a solid recovery, but the verdict is we're moving in the right direction."
Michael Maouboussin: On Investment Committee
Hi, I suggest all my readers to please read this interesting research done by Legg Mason Funds under Michael Maouboussin. Not only to Investment Committe, its gives an insight to how broadly decision reach their success and major decision fails and ways to enhance this skill sets in a Board Room.
How to Build Investment Committee
Summary :
General Findings
How to Build Investment Committee
Summary :
General Findings
- Small Committees tend to be more effective than large cos.
- Cognitively diverse committees make better decisions than homogenous ones.
- Diversity can create a performance drag.
- Committees frequently allocate time poorly.
- Committee members dont always reveal information they have.
- Committee often fail to properly consider reversion to the mean.
- Large committees encourage social loafing.
Sep 2, 2009
Genius - Charles Darwin.
The greatest discovery done by Charles Darwin stands strong even after 150 years and has strong implications even today.
View the Series on Biography of Charles Darwin and on his work "Origin of Universe"
Charles Darwin
Origin of Universe Part I
Origin of UNiverse Part II
Origin of Universe Part III
View the Series on Biography of Charles Darwin and on his work "Origin of Universe"
Charles Darwin
Origin of Universe Part I
Origin of UNiverse Part II
Origin of Universe Part III
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