Intelligent Investor Chapter 18 Summary : A comparison of 8 pairs of companies

A comparison of 8 pairs of companies

  • A comparison of pair of companies that appear next to each other or nearly so in stock exchange list.
  • Real Estate Investment Trust and Realty Equities Corp: REIT was good in traditional methods of handling other people's money and REC was expanding recklessly into varied fields with preferred stock, warrants, highly priced common stock because of acquisitions and debt obligations. But Wallstreet favored REC which finally went de-listed and got sued for fraud.
  • APC vs ARC: APC which is half size of ARC was selling for more than 25% of ARC which showed strong growth record. APC though performed well initially grew by 30% against 50% of ARC.
  • AHP vs AHS: Both quoted very high with lot of good will. AHS was selling at 4*Book value, in 1970 low, it's small decline in earnings was taken seriously by public leading to 30% decrease in price while AHP sold at a slightly higher level.
  • HRB vs BB: Relative newcomers, HRB had meteoric rise though BB had more business and HRB would have more competition in it's field.After 1970 low, BB gained more than HRB, but its amazing that HRB gained so much which is mostly inflated price.
  • IFF vs IH: Though IH was well known and performing very well, IFF was selling at a very high because of it's profitability and growth. Low price of IH protected it in 1970 decline resulting in 10% loss only compared to IFF's 30%.
  • ME vs MGH: Though ME performed well, MGH had huge good will component. In 1970 decline, ME fared better than speculative MGH.
  • NGC vs NPI: NGC had many write offs of deals, preferred stocks, warrants, bonds and had just 75% of NPI net income. After 1970 decline, NGC fell and NPI gained.
  • WC vs WG: Medium sized companies, WG was explaning a lot with a lot of subsidiaries, WC showed steady growth. WC was less impacted and recovered well over bargain level, while WG had operating loss and decline in price.
  • Undue pessimism and over enthusiasm waves.

Commentary:

  • Compare and contrast.
  • Cisco(tech) vs Sysco(food): because of Cisco's popularity along with it's industry's, it was selling at a very high multiple. Most of it's growth was from acquisitions and even tax breaks. In 2000-2002, Cisco lost 3/4 value and Sysco gained 56%. Once a company becomes large, growth becomes slow.
  • Yahoo vs Yum: Yahoo had the hype and made it to S& P 500 which increased price even more. In short run, market is a voting machine, but in the long run, it's a weighing machine. In 2000-2002. Yahoo lost 92% and Yum gained 25%.
  • Commerce one vs Capital one: Commerce one's stock have been high since it's IPO though it wasn't doing well. It lost 99.7% compared to Capital one's 38%.
  • Palm vs 3com: 3com sold 5% of it's Palm's subsidiary to public which meant that for 1 3com share, they would receive 1.5 Palm share. 3com was doing well, when Palm wasn't and still selling at 1350 multiplier of earnings. 2000-2002 hurt both, but Palm got smacked.
  • CMGI vs CGI: CMGI's high price led to CMGI buying more companies which led to further high price again leading to CMGI's ability to afford more companies- full circle which finally came to halt in 2000-02 when it lost 99.4%, when the neglected boring CGI gained 60%.
  • Ball vs Stryker:Market panic created great prices for good company Ball and good prices for great company Stryker. Once in a while, value and growth stocks go on sale.
  • Nortel vs Nortek:Nortel's pending receivables and expenses took a toll -97% loss when Nortek gained 63%.
  • Red hat vs Brown shoes: Red hat selling at 1000 multiplier went red with no profits in 2000-02, when Brown shoe went into profits.
  • Dont buy just based on increasing price, check if underlying business is doing well.

~

See Intelligent Investor Summary for other chapters summary.

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