Forum Archive Index - August 2000

["Wedde, John" <john.wedde@cit.ac.nz>]

Hi Brian,
I agree with a lot of what you say but would make the following
observations.
1. The '87 crash may have just been a minor blip on the S & P 500 chart but
I think it was more than that here in NZ, and we still havn't recovered 13
long years later!
2. Surely there comes a point where retaining all profits for expansion /
income growth becomes counter productive as the business becomes more
unwieldy with increased size and, as well, opportunities for further
productive growth become increasingly difficult to find. Look what happened
to Brierleys! Isn't it a lot easier for a small company to expand / grow
than it is for a larger one?
Cheers
John
 
 
 --Original Message-----
From: Brian Brakenridge [mailto:brianbrak@xtra.co.nz]
Sent: Thursday, 3 August 2000 00:42
To: sharechat@sharechat.co.nz
Subject: [sharechat] Big picture issues



For those of you who may follow the Motley Fool sites you will have seen
this post already. Sorry. However I'm interested in feedback/discussion re.
NZ investors very high reliance on dividend payments.
 
IMHO I believe NZ investors preoccupation with dividend yield is one of the
most detrimental effects on the growth of the NZ market. In fact to be
slightly contentious I will go so far as to say it has a significant effect
on the growth of the NZ economy as a whole.

Warren Buffett believes that a company should retain all it's earnings if it
can employ them at a rate of return that is better than an investor could
get by taking delivery of those earnings via a dividend.

Surely if a company is consistently year after year realizing a tax paid ROE
of >15% it must be much more attractive for the managers to reinvest that
earning to the continued growth of the shareholders equity thereby in effect
achieving a compounding interest of in excess of 15% if at the same time the
company's Net Margin is also consistently increasing.

I argue that if a company has excellent management, a strong track record of
growth and room for further profitable growth, PLEASE DON'T PAY ME A
DIVIDEND.

Granted I own PFI for it's dividend but simply because we want a portion of
our portfolio invested in the property sector and investing in a property
company in our situation is more convenient and profitable than owning
rental property.

Good growth companies shouldn't feel a need to pay dividends thereby
stifling growth.

The second point I'd like to make is in regard to the '87 crash. So much has
been written about it and yet I recently saw a chart which tracked the
S&P500 for the past 50 years. The October 1987 was a mere blip on the
screen. 

Even the conservative old Consumers Institute will tell you that the stock
market has consistently, over a long period of time outperformed property,
fixed interest and cash. They advise that when you are saving for retirement
70% of your portfolio should be in shares and that even when you are retired
you should still have up to 40% of your portfolio in shares.

So why are investors still totally preoccupied with the "crashes" or the
potential for crash. I have to wonder how well individual companies and the
NZ Stock Exchange market the benefits of long term equity investments. 

I believe that more should be spoken about the huge difference between
"trading" or "playing the market" verses "long term buy and hold" and
"investing from a business perspective"

What's my point? I don't know, I just needed to get it off my chest and
hopefully get some feedback.

Cheers, Brian


Pohuenui Island Lodge 
Fiona & Brian Brakenridge
P. B. Havelock
Marlborough, New Zealand
Tel. 64-3-579 8161 Fax. 64-3-579 8361
Email: pohuenui.island@xtra.co.nz <mailto:pohuenui.island@xtra.co.nz> 
http://www.marlborough.co.nz/pohuenui/
<http://www.marlborough.co.nz/pohuenui/> 
 
 
 
 

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