Forum Archive Index - December 2001

["Dick O'Connor" <callme_nz@hotmail.com>]

Some time after WHS listed towards the end of 1994  I went along and bought 
a copy of Sam Walton’s book My Story to see what an absolutely first-class 
retailing company  did.

This is what I read: Wal-Mart listed in Oct, l970 with the shares selling at 
$16.50 – 100 cost $1650. Over the next 20 years the company split into two 
shares for every one held NINE times so that 100 shares grew to 51,200 by 
June, 1990. At that time a share was selling at around  $62 so an initial 
$1650 investment had grown to be worth over $3m (and I haven’t got the 
faintest idea what it might be worth today).

Curiously enough, the first lot of WHS shares I bought cost very close  to 
$1650. Thinking I’d better make an allowance for inflation, I went and 
bought another $1650 worth of WHS – it’s kind of pleasant lying in bed on a 
rainy night and drifting off to sleep thinking about what to do with the $6m 
if WHS really does become the Wal-Mart of the South Pacific.

Some of the remarks made about these shares lately, including the 
exceptionally optimistic ones in the US magazine article earlier this year, 
make me wonder if I should now go out and buy some more. Unfortunately, in 
the daylight, reality has an unpleasant habit of intervening.

Winner69, please ignore what I’m saying here. I think you did quite a good 
job of extrapolating  the WHS eps in a quite reasonable way. The price to 
pay is the hard part.

The current p/e of  32.9 is high.  Here are the figures for the last few 
Decembers:-

00 24
99     22
98 22
97 18.5
96 20
95 16

It is  remarkable that the rating has gone so high at a time when the 
company  profits have fallen and it is  predicting another two years before 
the Australian bet starts to pay off.The cause is obvious enough  - lower 
interest  rates are sending more into the sharemarket and  more people who 
have been sold out of Montana and FCL and the like are chasing  the smaller 
number of companies we have left to call our own. Whether you can count on 
this scenario continuing for the next 10 years is arguable.

There seem to me to be a tendency these days to overlook the fact that there 
are two parts  that must be fulfilled before Buffett would make a buy – and 
the most important one is price, because if the price isn’t right he just 
dosen’t buy, no matter how good the company fundamentals might be. I very 
much doubt myself that we have a company in NZ of the right quality and at 
the right price to be called a Buffett-type company.

Back in 1972 he bought See’s Candy for $25m when it was at a p/e of six. 
More recently it has produced a profit of  $75m a year  - THAT’s a 
Buffett-type company. bought at a Buffett-type price.



_________________________________________________________________
Get your FREE download of MSN Explorer at http://explorer.msn.com/intl.asp.


----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/