Super Stock Blog

Posts Tagged ‘shareholders’

Since it's beginnings in the 1950's, the stock has never been split like all the others have, so it's today worth almost one hundred and ten thousand dollars a share.

Should this be a model by which all companies should follow?

After all, the more they split, the more we lose sight of what they are trying to put over on the gullible public.

He wants to keep the low money people out. It works too. He gets only the serious type of investor he wants.

dont know the reason exactly but just want to add that if you think the "A" shares are expensive, then you can always buy the "B" shares…..theyre $3600 each.

also, google has never split its stock either….hopefully they'll go to $100K in 20 years too

Gullible,, put over on?? what are you talking about?

Warren buffet is the controlling person of Berkshire Hathaway
He doesn't have to split it if he doesn't want to.

If he was to split the stock, there would be millions of little shareholders that all need dividend cheques to them, and annual general meeting and financial statements.

This is expensive, as It would require a lot more staff in the company as well to handle the additional shareholders.

But you can buy a different stock that tracks the Bershire-Hathaway stock at lower cost, , it works like a index fund on Berkshire hathaway, but I can't remember the name

Why has Warren Buffett never split the stock of Bershire Hathaway?

Contributed by: Arjun Rudra (http://www.investingthesis.com) –

There exist a number of ways investors can screen for stocks. one of these ways involves screening for companies that exhibit high returns on equity (ROE). ROE is a very good yardstick by which to measure how well the management of a company creates value for its shareholders. However, as with everything the ROE statistics has it foibles and can be artificially inflated. To dig a bit deeper into what ROE is and how it translates into investment performance, we are super excited today to present to you an interview with a portfolio manager that relies heavily on the use of return on equity as a screening tool. His name is Jason Donville of Donville Kent Asset Management and he manages 2 funds on behalf of individual investors as well as select institutions, namely the Capital Ideas Fund, which was voted the Best New Fund in Canada for 2009 at the Canadian Hedge Fund Awards and the Financial Services Fund. take a second to sign up to our RSS feed or to subscribe to our updates via email for a follow-up to this interview with Jason’s top stock picks in a few weeks time.

Biography: Jason has had an illustrious career as an award-winning analyst in both Asia and Canada. Prior to founding DKAM, Mr. Donville was consistently ranked as one of the top financial services analysts in the country. in 2004 and 2005, Mr. Donville was ranked in all three financial services research categories (banks, insurance and diversified financial services) in the annual Brendan Woods surveys. Mr. Donville was also recognized as the top Stock Picker in Diversified Financial Services in the 2004 and 2005 National Post/Starmine surveys, and ranked number 3 for forecast accuracy in 2004 in the same survey.

Q: Warren Buffett has often pointed out that the return that a company gets on its equity is one of the most important factors in making successful stock investments. Mr. Donville, why don’t you start off by telling us why you consider the Return on Equity metric so important as opposed to Return on Assets or Price to Cash Flow?

A: We consider Return on Equity (ROE) to be the key starting point for any company we look at because we believe the key value driver of any company is its ability to earn a return on equity that is substantially higher than its cost of equity. However, we don’t simply stop at ROE. A company can achieve a high ROE in many ways and we use DuPont analysis to drill down into the ways in which a company earns a high ROE. Typically a high ROE (greater than 15%) can be achieved in one of three ways. these are 1) leverage 2) margins or 3) asset turnover. We generally avoid highly levered companies. about 95% of the companies we own have high profit margins and about 5% have high asset turnover ratios. Typically, companies with high ROE’s also have high ROA’s but we start with ROE first because it requires less adjustments when screening large numbers of companies. We consider Price to Cash Flow to be a valuation metric and valuation is the second but separate stage of our investment process.

Q: There area number of ways to calculate ROE from the most simple being Net Profit ÷ Average Shareholder Equity to the more complex DuPont Model, which is Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity). Mr. Donville, which of these formulas do you utilize in your calculations of ROE or is it a variant/combination of these?

A: We use both. in our main database we use net profit/average common shareholders equity to screen large populations of stocks. But once we see something we like we use DuPont analysis to drill down and understand where a companies ROE is coming from. We consider DuPont analysis to be one of the most valuable tools in the entire investment world.

Q: in addition to a high ROE, what other valuation/operating metrics do you pay close attention to, Mr. Donville? Additionally, when assessing a company’s viability as an investment, do you find discounted cash flow analysis (DCF) helpful or do you rely primarily on values that are readily ascertainable on a company’s balance sheet?

A: We look at working capital management because we find that there are times when it is difficult to be objective about a company’s management. Working capital management (inventory days, accounts receivable management, etc) is like a form of DNA for a company – its their signature of how good they are as managers that they cant hide. We also think quality of management is important but you need to have repeated exposure to management to get a really good read as to which managers know their stuff and which don’t. when we are just starting out with a new company, working capital management is a good proxy because good managers typically run tight ships and this is reflected in working capital management.

From a DCF perspective, we have a calculator that we use that is based on EVA (Economic Value-Added) analysis and it is very good at showing us how valuable a high ROE company is. that said, when we find a company with an ROE of say 20% and its trading on a PE ratio of less than 10 and has a low dividend payout ratio, we know before we even look at our DCF/EVA model that its extremely undervalued.

Q: How do you generate your investment ideas?

A: We try to read a lot of research and troll through a lot of databases looking for high ROE companies. once we find them we try to meet with management as quickly as possible and we try to ascertain how sustainable the high ROE is. once we are convinced that we have found such a company we start buying the stock.

Q: We try to read a lot of research and troll through a lot of databases looking for high ROE companies. once we find them we try to meet with management as quickly as possible and we try to ascertain how sustainable the high ROE is. once we are convinced that we have found such a company we start buying the stock.

A: Alpha can come from many sources and we view our core competency as being stock pickers. We generally don’t use much leverage but we use a lot of concentration. Our top 5 positions typically account for 50% of the entire portfolio and our top 10 names would account for 75% of the portfolio. We have shorts on from time to time but we see ourselves as primarily a long fund.

Q: Before we head to your views on the equity markets, Mr. Donville, I wanted to ask you a question on position sizing. outside of using options and derivates, I think the sizing of positions in one’s portfolios is integral to controlling risk. What are your thoughts on this subject, Mr. Donville and what criteria do you use to decide the size of stakes you acquire in companies?

A: We tend to hold highly concentrated positions but we also tend to buy stocks on the way up. We rarely if ever average down and we never buy a large position all at once. We want to see the upward movement in the stock validate that we are correct in assuming that the said company is undervalued.

Q: in your July 2010 newsletter (the ROE Reporter), Mr. Donville, you opine that the pessimism we have been hearing about is overdone and that you think the Canadian and US markets are heading higher. While there appears to be a tug of war between the bulls and bears with regards to inflation/deflation and the state of economy, there appears to be clear evidence from multinationals that emerging markets is where the growth is at. my question for you Sir is how much exposure do you have to the emerging markets in your portfolio and to what particular sectors?

A: Neither of my funds has an emerging market mandate.

Q: Finally, what books have you read in recent years that have stood out as valuable additions to your investment library?

A: I have a voracious appetite for investment books and if you come to my office you will see that my book shelves are stuffed with investment books. Two books I have read recently that I would highly recommend are as follows. The first is The Great Reflation: How Investors Can Profit From the New World of Money by Tony Boeckh who has been the brains behind the Bank Credit Analyst for more than 30 years. this book provides a very thorough overview of the macroeconomic factors that have gotten us to where we are today and Boeckh’s writing style is very engaging. The second book that I have read is The big Short by Michael Lewis which is ostensibly about the subprime meltdown in the US. However, like so many other books by Lewis such as Liar’s Poker, The New New Thing, Moneyball and The Blind Side, half the value of this book is in its story telling style. I think Lewis is as gifted a writer as Malcolm Gladwell and Lewis is arguably stronger when it comes to telling long intricate stories that require the reader to stay engaged for 300 pages or more. I also would recommend anything written by Michael Mauboussin , Aswath Damodaran, and Ron Chernow, all three of whom I rate extremely highly.

Thank You, Mr. Donville!

Do you pay attention to the ROE when researching an equity? let us know what you thought of this interview or anything else about the site in the comments.

Related posts:

1. Interview with Martin Braun of Adaly Investment Management Corp.
2. Musings on Crude Oil, Natural Gas and the Outlook on Energy with John Stephenson of first Asset Funds
3. 5 Canadian Portfolio Managers You Should Follow

An Interview With Portfolio Manager Jason Donville of Donville Kent Asset Management

WILMINGTON, Delaware (Reuters) – Billionaire investor Warren Buffett told his annual meeting that it “blows your mind” how quickly the newspaper industry is losing the fight for readers and advertisers.

Deals

Yet several companies that would collectively form the second-largest U.S. newspaper group, with a daily circulation of around 4 million, are expecting years of rising advertising sales, their main source of revenue.

These publishers, whose papers include the Trentonian in New Jersey and the Star Tribune in Minneapolis, have one other thing in common: They all have been bankrupt.

Buffett, whose Berkshire Hathaway Inc (BRKa.N)(BRKb.N) owns the Buffalo News and a stake in the Washington Post (WPO.N), told his annual gathering of shareholders earlier this month that the outlook is really tough for newspapers.

But a handful of publishers are hoping that rinsing a combined nearly $2 billion in debt through bankruptcy will give them the capital to reinvest and halt a revenue decline that plagues the industry.

“Yes, the margins and profits of past years will never be repeated, but that doesn’t mean that these businesses can’t make rational sense once the crushing weight of borrowed money is written down in some way,” said Alan Bell, a former chief executive officer of publisher Freedom Communications, which recently came out of bankruptcy.

Many newspaper companies have been able to stay profitable by hacking away at costs. What sets the bankrupt publishers apart is that they forecast stable or even rising ad revenues for years to come, although this would follow declines of 30 percent or more prior to their Chapter 11 filings.

Consider the Journal Register Co, with its circulation of 400,000 by way of 19 dailies, including the New Haven Register. It forecasts ad revenue will rise 8.4 percent over 2010-2013, according to bankruptcy court documents.

Journal Register cut $500 million of its debt in bankruptcy and is now trying to grab readers by giving reporters cameras and blending print and video. It has said it is looking for areas to add editorial staff, a rarity in the industry.

“These companies are trying to come up with new products beyond yesterday’s news in tomorrow’s paper,” said newspaper consultant Alan Mutter. “They get that the business is declining and wasting.”

He pointed to MediaNews Group, which recently introduced a glossy lifestyle magazine to supplement its 54 dailies and their circulation of more than 2 million.

“The fact is, that’s something they could not have done before bankruptcy,” said Mutter.

MediaNews Group’s holding company recently shed $765 million in debt through bankruptcy, and it expects advertising revenues to pick up this year and keep rising through 2013, according to court documents.

The company owns the Detroit News, the St. Paul Pioneer Press in Minnesota and the San Jose Mercury News in California. its CEO recently indicated it may use the newfound strength of its balance sheet to snap up weaker rivals.

Other examples include Freedom, which owns the Orange County Register, and the Star Tribune Media Co, which owns the top daily in Minneapolis. both forecast ad revenue to begin rising this year or next, and each scrubbed about $400 million of debt through bankruptcy.

Mutter said that newspaper companies that clear a chunk of their debt gain critical flexibility.

“The people who didn’t cleanse through bankruptcy are running around with big fat rocks in their pockets.”

Bankruptcy also provides shock treatment that can change entrenched interests, said Michael Epstein, a managing partner of turnaround firm CRG Partners.

“It’s like having a mild heart attack,” he said. “How are you going to treat your body after that mild heart attack? are you going to continue to pollute it or begin to take care of it?”

But not everyone agrees with the recently bankrupt publishers’ forecasts.

Brian Tierney, who was CEO of Philadelphia Newspapers LLC when it filed Chapter 11 last year, has said the hedge fund and bank lenders that now own rival publishers have used upbeat forecasts to justify piling debt on the newspapers after they emerge from bankruptcy.

As Buffett has said, that could lead to more financial trouble if it turns out the business is eroding.

Fitch Ratings analyst Mike Simonton said newspaper ad revenue might stabilize this year, in part because of easy comparisons with a very weak 2009. but he doubted cutting debt could free up capital soon enough to halt a long-term decline.

He noted another possible reason for the publishers’ optimism: shaky forecasting.

“These companies typically missed predictions and projections about their revenue going into the downturn,” he said, “and it’s not surprising that many would miss coming out.”

(Additional reporting by Jennifer Saba in New York; Editing by Lisa Von Ahn)

Newspapers bet on revenue driver: bankruptcy