Comments on: Will They Seek Out More Profitable Lines? http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/ Value Investing Blog Mon, 16 May 2011 10:55:06 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Joe Ponzio http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1858 Joe Ponzio Sun, 22 Jun 2008 09:21:28 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1858 There is no rule that says "this" is a good acquisition and "that" is a bad one; rather, the question is "does this make sense?" Comcast and Disney? It can make sense as both are in the entertainment industy. Disney needs a way to bring its product into homes; Comcast brings entertainment into homes. I'm not talking about cruise or themepark Disney, but movie Disney. Starbucks in the film business? It doesn't make sense. Talking about (or defending) the investment, Starbucks Chairman Howard Schultz had this to say: <p class="blockquote">While we are a coffee company at heart, Starbucks provides much more than the best cup of coffee - we offer a community gathering place where people come together to connect and discover new things. Wrong. You are a coffee company. People plow through your doors to buy coffee, and then leave. Some people might sit around and chat; most come just for the coffee. Now, Starbucks in a chocolate business, or cardboard cup business, or sandwich business can make a lot of sense. If, from the chocolate business, they then branch off into popcorn, then theaters, and then entertainment, it could make sense many years and many businesses later (like GE). Still, I agree with Rene - a direct investment in entertainment by a Starbucks smells like desperation or bad management (or both). There is no rule that says “this” is a good acquisition and “that” is a bad one; rather, the question is “does this make sense?”

Comcast and Disney? It can make sense as both are in the entertainment industy. Disney needs a way to bring its product into homes; Comcast brings entertainment into homes. I’m not talking about cruise or themepark Disney, but movie Disney.

Starbucks in the film business? It doesn’t make sense. Talking about (or defending) the investment, Starbucks Chairman Howard Schultz had this to say:

While we are a coffee company at heart, Starbucks provides much more than the best cup of coffee – we offer a community gathering place where people come together to connect and discover new things.

Wrong. You are a coffee company. People plow through your doors to buy coffee, and then leave. Some people might sit around and chat; most come just for the coffee.

Now, Starbucks in a chocolate business, or cardboard cup business, or sandwich business can make a lot of sense. If, from the chocolate business, they then branch off into popcorn, then theaters, and then entertainment, it could make sense many years and many businesses later (like GE). Still, I agree with Rene – a direct investment in entertainment by a Starbucks smells like desperation or bad management (or both).

]]> By: Rene http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1856 Rene Sun, 22 Jun 2008 06:14:35 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1856 Jay, I personally don't like it when a company like Starbucks expands into the music biz, etc. It smells like desperation to me. I have no problem with conglomerates like GE, who have proven over many years that they know what they are doing, but I shy away from all others. I like it when companies "stick to their knitting", which PFE is clearly doing. Now if only their P/B X P/E would come down to < 22.5, it'd be a buy for me. Jay, I personally don’t like it when a company like Starbucks expands into the music biz, etc. It smells like desperation to me. I have no problem with conglomerates like GE, who have proven over many years that they know what they are doing, but I shy away from all others. I like it when companies “stick to their knitting”, which PFE is clearly doing. Now if only their P/B X P/E would come down to < 22.5, it’d be a buy for me.

]]> By: jay http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1855 jay Sat, 21 Jun 2008 20:23:34 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1855 One thing I am always wondering why some firms are doing just fine in different business and some others are not, yet others are specifically created as conglomerate, such as DHR, GE. So when Comcast wants to invest in Disney, Starbucks wants to be in film business, how we know they are not going to be successful ? I guess that the key is to see if those managers are a good at allocating capticals. We usually assume that they are not good at it ? Suppose they are not going into other businesses, they stick to what they know, have more pipelines, what if the no major block buster drug came out from the pipeline ? Would it better for pfe to extend such a way as JNJ did in 80s so that their revenues can be hedged in long run ? One thing I am always wondering why some firms are doing just fine in different business and some others are not, yet others are specifically created as conglomerate, such as DHR, GE. So when Comcast wants to invest in Disney, Starbucks wants to be in film business, how we know they are not going to be successful ? I guess that the key is to see if those managers are a good at allocating capticals. We usually assume that they are not good at it ? Suppose they are not going into other businesses, they stick to what they know, have more pipelines, what if the no major block buster drug came out from the pipeline ? Would it better for pfe to extend such a way as JNJ did in 80s so that their revenues can be hedged in long run ?

]]> By: Rene http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1853 Rene Fri, 20 Jun 2008 07:40:06 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1853 The biggest lesson I've learned from all the classics is to be patient on the buy side. I'm not afraid to wait and I don't swing unless it's (what I perceive to be) a real fat pitch. I miss a lot of upside moves this way, but I have few really big down moves (First rule, don't lose money, second rule, refer to rule one.) Furthermore, a lot of upward moves that I miss, I get anyway, on the pullbacks. I still haven't pulled the trigger on PFE, waiting for the dividend cut or for it to be fully discounted and then I'll back up the truck. BAC is another in the same position, regardless of what the CEO says, I don't see how they not cut the dividend soon. Every serious investor should read all the above mentioned guys every year or two. My own style is more like Peter Lynch, but he also is influenced by the classics mentioned. The biggest lesson I’ve learned from all the classics is to be patient on the buy side. I’m not afraid to wait and I don’t swing unless it’s (what I perceive to be) a real fat pitch. I miss a lot of upside moves this way, but I have few really big down moves (First rule, don’t lose money, second rule, refer to rule one.) Furthermore, a lot of upward moves that I miss, I get anyway, on the pullbacks. I still haven’t pulled the trigger on PFE, waiting for the dividend cut or for it to be fully discounted and then I’ll back up the truck. BAC is another in the same position, regardless of what the CEO says, I don’t see how they not cut the dividend soon. Every serious investor should read all the above mentioned guys every year or two. My own style is more like Peter Lynch, but he also is influenced by the classics mentioned.

]]> By: Amit D. http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1852 Amit D. Fri, 20 Jun 2008 05:58:36 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1852 Awesome, enjoyed this topic alot. Appreciate it Joe! Awesome, enjoyed this topic alot. Appreciate it Joe!

]]> By: Joe Ponzio http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1851 Joe Ponzio Thu, 19 Jun 2008 17:28:50 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1851 Every time I reread Fisher, Graham, or other classics, I too feel like I learn something new. Revisiting Fisher two weeks ago, I realized how dated it was. I hope these posts help bring Fisher current, while sticking to the 1950s way of investing. You know, before they had real time quotes, the internet, the stock market channel, etc. Back when the only way to invest intelligently was to buy businesses at a discount and then wait patiently to be rewarded without getting slammed with useless noise! Every time I reread Fisher, Graham, or other classics, I too feel like I learn something new. Revisiting Fisher two weeks ago, I realized how dated it was. I hope these posts help bring Fisher current, while sticking to the 1950s way of investing. You know, before they had real time quotes, the internet, the stock market channel, etc. Back when the only way to invest intelligently was to buy businesses at a discount and then wait patiently to be rewarded without getting slammed with useless noise!

]]> By: kfh http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1847 kfh Thu, 19 Jun 2008 15:55:39 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1847 I know of one person that reads The Intelligent Investor once a year. He says each time he reds it, he learns something new. As for PFE. I own a ton of it. It was actually my first ever stock purchase. I paid way to much for them in hindsight, but as my first ever investment I had no idea what valuation was. I did know quality though :-) Anyways .... I am hoping that some of that sh!t sticks to the wall. The thing is, I am not overly worried about the dividend. I did a DCF a while ago which assumed that some sh!t stuck to the wall. I came up with an IV in the $30 ballpark. I might be off, but it is better to be approximately right than precisely wrong :-) Toss in a near 50% margin of safety and it is hard to understand what the fear is. I know of one person that reads The Intelligent Investor once a year. He says each time he reds it, he learns something new.

As for PFE. I own a ton of it. It was actually my first ever stock purchase. I paid way to much for them in hindsight, but as my first ever investment I had no idea what valuation was. I did know quality though :-) Anyways …. I am hoping that some of that sh!t sticks to the wall. The thing is, I am not overly worried about the dividend. I did a DCF a while ago which assumed that some sh!t stuck to the wall. I came up with an IV in the $30 ballpark. I might be off, but it is better to be approximately right than precisely wrong :-) Toss in a near 50% margin of safety and it is hard to understand what the fear is.

]]> By: Paul http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1846 Paul Thu, 19 Jun 2008 08:41:05 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1846 Love this series on Fisher. I've read the book twice and have had a hard time digesting what he writes. I've heard some have read Fisher and Graham multiple times and still can't understand some points entirely. The modern day references are great. Thanks for the posts! Love this series on Fisher.

I’ve read the book twice and have had a hard time digesting what he writes. I’ve heard some have read Fisher and Graham multiple times and still can’t understand some points entirely.

The modern day references are great.

Thanks for the posts!

]]> By: Rene http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines/#comment-1845 Rene Wed, 18 Jun 2008 19:54:21 +0000 http://www.fwallstreet.com/article/138-will-they-seek-out-more-profitable-lines#comment-1845 You wrote about one of my favs! They are doing both things, trying to hang on to Lipitor as long as possible (they just settled and won an extra year) and maybe buying that Indian company that will do the generic version and as you say, spending $8B/yr on R & D. Meanwhile the dividend, while probably precarious, is pretty fantastic. You wrote about one of my favs! They are doing both things, trying to hang on to Lipitor as long as possible (they just settled and won an extra year) and maybe buying that Indian company that will do the generic version and as you say, spending $8B/yr on R & D. Meanwhile the dividend, while probably precarious, is pretty fantastic.

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