Super Stock Blog

THERE is nothing as infuriating as acronyms, particularly in finance.

CFDs and CDOs are flung around like confetti as professional badges and to confuse customers.

Defunct giant Lehman Brothers knew this when it conned many Australian local government councils, selling them Collateralised Debt Obligations (CDOs) – including your local council.

Metaphors, similes and slang are often just as bad.

Last week we used Club Med to mean the indebted EU, whoops (European Union) southern European member nations Portugal, Italy, Greece and Spain (acronym PIGS).

Travel agent Julia, of Landmark Travel, Manly, emailed a tactful admonishment: “dear bill, a client asked me today whether Club Med (the French resort company) has gone broke. Some people aren’t up to date with these expressions.”

Another reader, David, asked: “What did your closing question mean? it read: ‘My only fear is an unpredictable event. after all what is Western Australia’s symbol?”’

Sorry again for trying to be a clever dick. the Black Swan is WA’s symbol and the title of a bestseller by analyst Nassim Nicholas Taleb on unpredictable, random events such as the BP oil spill in the Gulf of Mexico.

However, let’s get down to the nuts-and-bolts business of making money. in the fourth quarter, Coles’ same-store sales were up 4.2 per cent, easily beating Woolworths 1.8 per cent. As a result in the last few weeks Woolies share price is down 4.5 per cent, while Wesfarmers is up 15 per cent.

Should we sell Woolies out of our super portfolios and buy Wesfarmers, owners of Coles? Some stockbrokers assume Woolworths’ long supermarket reign is over. But note, the two are very different.

If we sell Woolies and buy Wesfarmers, we are switching from a highly successful, recession-insulated food and liquor business and buying a conglomerate of companies including, among other things, coal mines, clothing stores, fertilisers, chemicals, insurance, liquid petroleum gas (LPG) processing and distribution as well as food and liquor.

Such conglomerates were popular in the 1980s. Remember Robert Holmes a Court’s Bell Group that tried to take over BHP? Later Bell was itself taken over by Alan Bond and became the Bond Group and went belly-up spectacularly.

If only Wesfarmers boss Richard Goyder would hive off Coles after perhaps merge it with Bunnings’ superb hardware stores? this may appear the right decision to us outsiders but we could never convince Goyder, who believes that owning different businesses reduces risk and management costs.

However, what about the prospect of an apple going bad in the barrel? Only one of the conglomerate’s major companies needs to start underperforming to infect all the companies. if this happens, as it has in the past, immediately analysts start to downgrade the performance of the group as a whole.

But in the case of Woolies versus Wesfarmers, why not do our own investment research? one of the best books ever written on do-it-yourself investment is one up on Wall Street by Peter Lynch, available via any internet bookseller.

If you stay half-alert you can pick spectacular performers right from the place of your business or out of the neighbourhood shopping mall, and long before Wall Street discovers them. It’s impossible to be a credit-card-carrying consumer without having done a lot of fundamental analysis on dozens of companies.

Obviously you or your partner visits a supermarket regularly. do you, or they, shop at Coles or Woolies?

Why? Coles has been running an advertising campaign claiming its goods are the cheapest. Is this a fact?

Incidentally, the listed Bunnings Warehouse Property Trust that owns Bunnings buildings – Wesfarmers own the Bunnings business – priced at $1.89 and yielding 5.8 per cent is itself an excellent, long-term super investment.

In Bunnings I heard a dad buying a power drill remark: “if Bunnings had a liquor licence I’d never leave.”

* Email: wharcour@bigpond.net.au.

<a href="http://manly-daily.whereilive.com.au/news/story/bill-harcourt-why-not-do-our-own-investment-analysisr/tag:news.google.com,2005:cluster=http://manly-daily.whereilive.com.au/news/story/bill-harcourt-why-not-do-our-own-investment-analysisr/Tue, 10 Aug 2010 06:21:20 GMT 00:00″>Bill Harcourt: Why not do our own investment analysis?