From: John Conover <john@email.johncon.com>
Subject: Re: Profit dreariness
Date: 20 Jul 1999 06:34:43 -0000
S. Hales writes:
>
> S. Hales <esales@pipeline.com> wrote in message
> news:7n01oe$9pk$1@nntp6.atl.mindspring.net...
> >
> > <masonc@ix.netcom.com> wrote in message
> > news:379880a2.5546911@nntp.ix.netcom.com...
> > >
> > > While laboring long in a midnight dreary I came upon this
> > > quotation in my 1980 money book. Lack of sleep compelled
> > > me to pass it on to youall:
> > [snip]
> >
> > Get some sleep next time. Profits are all there is. If a firm is
> > profitable it is likely efficient, competitive, growing, and rewarding its
> > employees. One might note that since 1980 Quaker has acquired about 20
> > companies and its stock has increased some 600% not as much as Dell's
> > 54,000% but a good appreciation for a consumer non-cyclical stock. If
> > profitability was not a driving concern why did Quaker acquire those 20
> > companies?
> >
Then, how was all the wealth generated by Microsoft-the most
capitalized company in the world-when in 1997 it ranked 172nd in the
Fortune 500, (just below H. J. Hienz-the Catsup folks,) on gross
revenue, with profits of $2.5 billion, (half of what Intel's was,)
ranking it 28'th in the Fortune 500? (HP's printer division had better
gross revenue and profit for the year.)
Of course, you can buy stocks and companies based on profitability if
you want to.
But have you looked at the historical success rate of using
profitability as a forecast mechanism for a company's future
prosperity? (Like W. Edwards Deming said, "in God we trust-all others
bring numbers"; its 51%, BTW-not much better than using a tossed coin
as a decision mechanism.)
Might I suggest that arbitrage and speculation are an important
component of a company's valuation as suggested by Louis Bachelier's
doctoral thesis exactly a century ago.
John
BTW, I'll give you a hint. When arbitrage and speculation are
important components of valuation, it is a pyramid scheme.
--
John Conover, john@email.johncon.com, http://www.johncon.com/