The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [266]
* McGraw-Hill remains a publicly-traded company that owns, among other operations, BusinessWeek magazine and Standard & Poor’s Corp. McGraw–Edison is now a division of Cooper Industries.
* In “the May 1970 debacle” that Graham refers to, the U.S. stock market lost 5.5%. From the end of March to the end of June 1970, the S & P 500 index lost 19% of its value, one of the worst three-month returns on record.
* National Presto remains a publicly-traded company. National General was acquired in 1974 by another controversial conglomerate, American Financial Group, which at various times has had interests in cable television, banking, real estate, mutual funds, insurance, and bananas. AFG is also the final resting place of some of the assets of Penn Central Corp. (see Chapter 17).
* Whiting Corp. ended up a subsidiary of Wheelabrator-Frye, but was taken private in 1983. Willcox & Gibbs is now owned by Group Rexel, an electrical-equipment manufacturer that is a division of Pinault-Printemps-Redoute Group of France. Rexel’s shares trade on the Paris Stock Exchange.
1 Ask yourself which company’s stock would be likely to rise more: one that discovered a cure for a rare cancer, or one that discovered a new way to dispose of a common kind of garbage. The cancer cure sounds more exciting to most investors, but a new way to get rid of trash would probably make more money. See Paul Slovic, Melissa Finucane, Ellen Peters, and DonaldG. MacGregor, “The Affect Heuristic,” in Thomas Gilovich, Dale Griffin, and Daniel Kahneman, eds., Heuristics and Biases: The Psychology of Intuitive Judgment (Cambridge University Press, New York, 2002), pp. 397–420, and Donald G. MacGregor, “Imagery and Financial Judgment,” The Journal of Psychology and Financial Markets, vol. 3, no. 1, 2002, pp. 15–22.
2 “Serial acquirers,” which grow largely by buying other companies, nearly always meet a bad end on Wall Street. See the commentary on Chapter 17 for a longer discussion.
3 Jeremy Siegel, “Big-Cap Tech Stocks are a Sucker’s Bet,” Wall Street Journal, March 14, 2000 (available at www.jeremysiegel.com).
4 Yahoo!’s stock split two-for-one in February 2000; the share prices given here are not adjusted for that split in order to show the levels the stock actually traded at. But Yahoo!’s percentage return and market value, as cited here, do reflect the split.
5 Counting the effect of acquisitions, Yahoo!’s revenues were $464 million. Graham criticizes high P/E ratios in (among other places) Chapters 7 and 11.
6 Yum! was then known as Tricon Global Restaurants, Inc., although its ticker symbol was YUM. The company changed its name officially to Yum! Brands, Inc. in May 2002.
7 See “CEO Speaks” and “The Bottom Line,” Money, May 2000, pp. 42–44.
8 In early 2003, Capital One’s chief financial officer resigned after securities regulators revealed that they might charge him with violations of laws against insider trading.
9 For a more advanced look at this bizarre event, see Owen A. Lamont and Richard H. Thaler, “Can the Market Add and Subtract?” National Bureau of Economic Research working paper no. 8302, at www.nber.org/papers/w8302.
10 CMGI began corporate life as College Marketing Group, which sold information about college professors and courses to academic publishers—a business that bore a faint but disturbing similarity to National Student Marketing, discussed by Graham on p. 235.
11 All stock prices for Red Hat are adjusted for its two-for-one stock split in January 2000.
12 Ironically, 65 years earlier Graham had singled out Brown Shoe as one of the most stable companies on the New York Stock Exchange. See the 1934 edition of Security Analysis, p. 159.
13 We use a nine-month