I’ve got a new rule – don’t buy companies that end in .. ”oo”

Call it a “roole”

Yahoo was once worth $125bn, declined a $45bn buyout offer from Microsoft in 2008, and sold to Verizon for $4bn 10 years later

Few shareholders shouted “Yahoo”

The wheels and chassis have seemingly fallen off Cazoo

In Sep ‘21 it was worth $7bn but has since fallen 99.8% to $13m today, excluding the $400m of net debt

And shareholders who bought Deliveroo at £7bn when “dark kitchens” & bicycles were considered “tech”, were on the wrong side of a “67% off voucher” with their current market cap of $2.3bn

This new “roole” comes hot on the heels of not buying any company containing the name, “Beyond”

Like Beyond Meat which went public at $4bn, climbed to a “Beyond” Ridiculous” $14bn and is now worth $567m

They developed “technology” using beetroot juice to replicate the “bleeding” from a real burger

Unfortunately, their Income Statement (and shareholders) experienced a different kind of “bleeding”

And Bed Bath and Beyond (Help) would still be in business if the board hadn’t spent $13bn on stock buybacks since 2004, especially the “accelerated” ones announced post-Covid which

“accelerated” the company’s demise but

“accelerated” the CEO’s “separation payments and benefits…”

Pity it “accelerated” the loss of thousands of jobs..

Actually, forget all those “rooles”,

A far simpler roole is paying attention to the hashtag#numbersnotnarrative

and avoiding unprofitable companies promising “jam tomorrow”

One of the first books I read on Value Investing was by the late John Neff

John Neff managed the Windsor Fund for 31years from 1964-1995 returning a CAGR of 13.7% versus 10.6% for the S&P 500

meaning

$10,000 increased 56 times to $565,000

vs the S&P500 which increased 23x to $233,000

It was so successful that they closed it in 1985

Take note hashtag#passive Fans – there are hashtag#active managers out there who can beat the market 😉

How did he do it?

“To some observers, I’m a “Value Investor… others call me a “Contrarian” but personally I prefer a different label – “low price-earnings investor”

Read his book and you’ll learn that he liked:

– Profitable businesses with
– Earnings growth (who doesn’t?) and
– Dividends – “lets you snack while waiting for the main meal”

But like us, he didn’t want to pay too much

He used a simple formula that he called “Total Return Ratio”

Total Return to P/E

(Expected Earnings Growth + Divi yield) / PE ratio

A PEG ratio including the divi yield

Let’s take one of our top holdings, ABN Amro, as an example

5% exp eps growth + 10% divi = 15% / 5 = 3

Compared to Apple

10% + 0.5% = 10.5% / 30 = 0.35

I’m guessing Mr Neff would also prefer ABN

and that’s if Apple can grow 10%…

So what was the median inflation rate over the period when Mr Neff’s Value approach outperformed so strongly?

It oscillated between 2% and 14%

with a median of 4.3%

Pretty much like these days 😉