These Are The Customers I Want To Serve

By Maria Reyes

examples I have used I have often given the first situation where a type of event occurred to illustrate my point, which explains why except for one example, all The other examples all occurred during those four decades. It may be useful to note the interesting parallels in each of the past decades. The 1960

• Language: English
• Publisher: Maria Reyes
• Release date: Feb 1, 2024
• ISBN: 9798869209214

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These Are The Customers I Want To Serve

These Are The Customers I Want To Serve

Copyright © 2023 by Maria Reyes

All rights reserved

TABLE OF CONTENTS

CHAPTER 1 : THE ABILITY TO USE CAPITAL EFFECTIVELY.

CHAPTER 2 : ORGANIZATION OF WORK

CHAPTER 3 : RULES OF EFFECTIVE PRESENTATION

CHAPTER 4 : JAPANESE COMPANY SYSTEM

CHAPTER 5 : GOOD LOCATIONS TO BUILD NEW STORES

CHAPTER 6 : THE FIRST AND MOST DIFFICULT PROBLEM

CHAPTER 1 : THE ABILITY TO USE CAPITAL EFFECTIVELY.

The cost of developing new products is just one of the first important factors that depletes the capital needed to finance growth. Then, these companies also have to spend a large amount of money on marketing activities necessary to bring products to consumers. When the above operations are successful, they need to expand the factory to serve the growing demand. Once new product lines go into operation, capital needs increase to support inventory and revenues, which in many cases almost directly contribute to business results.

There seems to be a natural fit of interest between these businesses with high-dollar investment opportunities and investors seeking the biggest possible returns – who don't need the income. extra as well as paying unnecessary taxes. I believe that this type of investor should mainly invest in non-dividend paying companies with high earnings and attractive opportunities to reinvest their earnings. These are the customers I want to serve.

However, the situation just now is not very clear. Traditional investment shareholders are increasingly becoming the main force in day-to-day stock transactions. Institutions such as pension funds or profit-sharing funds do not have to pay any taxes on their dividends. In terms of methodology, many of these institutions will not invest in a company unless it pays some dividends, no matter how small. To attract and retain these buyers, many companies with exceptional potential will pay out some decent dividends, representing a fairly small percentage of the company's total annual earnings. At the same time, managers of some growth companies have reduced dividend payments significantly. Today, skill in investing retained earnings wisely is a much more important factor in differentiating a high-potential company from the rest.

For these reasons, I believe the main thing that can be said about dividends is that they are a factor that will be greatly underestimated by those who do not need the income. In general, stocks that do not pay dividends or only pay low dividends will have more attractive opportunities. However, there is a general feeling among those who decide dividend policy that paying dividends is in the interest of investors (indeed, for some investors), and I occasionally see Opportunity is very attractive in companies that pay high dividends, although this is not common.

Note

12 Uncle Sam (US): Slang name for the United States of America.

13 Original text: E Pluribus Unum ‒ Motto of the United States of America, printed on dollar bills from 1776-1956.

4. Is this an efficient market?

By the early 1970s, my basic investment philosophy had been firmly established, drawing on the experiences of the previous four decades. It is no coincidence that the acts of wisdom and folly that I have cited in helping me form the foundation of my philosophy were events that occurred during the previous four decades. That doesn't mean I didn't make any mistakes during the 1970s. Unfortunately, it seemed that no matter how hard I tried, I sometimes stumbled more than once with the same mistake before I really learned that. However, in the examples I have used I have often given the first situation where a type of event occurred to illustrate my point, which explains why except for one example, all The other examples all occurred during those four decades. It may be useful to note the interesting parallels in each of the past decades. The 1960s can be considered an exception; The remaining decades all had a period in which most people believed that external influences were too great and too numerous, beyond the control of the management apparatus of businesses, when even The wisest stock investments often turn out to be foolish and probably not decisions made by wise people. During the 1930s, which was affected by the Great Depression, this view reached its most negative level; But perhaps nothing had a greater impact than the fear that the German war machine and the Second World War would have consequences in the 1940s, or the certainty of another great depression. would happen in the 1950s, or inflation fears, anti-government actions, etc. in the 1970s. However, each of these periods offered investment opportunities that seemed too convenient. profit. Each decade there are not just a few, but on the contrary, there are many common stocks that ten years later will bring returns of up to hundreds of percent to those who have bought and persistently held shares. . In some cases, profits can reach thousands of percent. On the contrary, in these decades, some stocks that were very popular with speculators at that time proved to be the most dangerous stocks, able to deceive those who were not wise enough to follow the crowd. Essentially, all of these decades were like other periods when the greatest opportunities arose from finding the most attractive situations but were undervalued, because at the time The financial community seriously misjudged that situation. When I look back at the various factors that caused the stock market to fluctuate over the past half century, as well as the cycle of optimism and pessimism that came from the public during this time, I suddenly remember a French proverb: Plus ca change, plus c'est la meme chose (The more things change, the more they tend to return to their old state).

Misconceptions about efficient markets

Over the years, a lot of people have drawn attention to a concept that, in my opinion, is completely wrong. I want to mention the concept of perfectly efficient markets. As with misconceptions in other periods, a contrary view can open up many opportunities for those who are well aware of the problem.

For those unfamiliar with the concept of efficient markets, the adjective efficient does not refer to the mechanical efficiency of the market. A potential buyer or seller can place an order in the market – where trading is carried out very efficiently – in just a few minutes. Efficiency also does not refer to the delicate adjustment mechanism that causes stock prices to rise and fall in certain proportions in response to small changes in the respective pressures of buyers and sellers. Instead, this concept means that at any given time, the efficient market price is considered to fully and substantially reflect all the facts that people know about the company. Except in the case of someone illegally obtaining important inside information, there is no other way in which we can capture real price differentials because of the favorable effects that cause people to Potential buyers believe they have an attractive investment situation which is reflected in the stock price!

If markets were as efficient as commonly believed and if significant opportunities to buy or good reasons to sell did not arise frequently, stock returns would not be consistent. Such a big change. By variation, I am not referring to fluctuations in price levels across the entire market, but to the fluctuations in the price of one stock relative to another individually. If markets have the potential to be efficient, then the analytical relevance to this efficiency must be relatively low.

The theory of efficient markets arose from the Random Walkers academic school (a school that views short-term stock price fluctuations as random jumps). These people find it difficult to devise trading strategies based on technical analysis that work well enough after trading costs and still provide attractive returns relative to the risk involved. encountered. I don't object to this. As you can see, I believe it is very difficult to make money with day-to-day trading on the basis of short-term market predictions. Perhaps markets are efficient in the narrow sense of the word.

Instead of being stock traders, most of us are or should be investors. We should seek investment opportunities with extraordinary long-term prospects and avoid investment opportunities with less bright prospects. This has always been the underlying philosophy of my approach to investments in any case. I do not believe that prices are effective for the long-term, persistent, and informed investor.

Very close and consistent with this concept is an experience I had in 1961. In the fall of that year, as well as the spring of 1963, I received a rather interesting assignment – teaching an advanced investment course. at Stanford University's business school. The concept of efficient markets remained largely unknown for many years afterward and had no bearing on my motivation for the exercise I will describe next. Instead, I want to show students so that they will never forget that the fluctuations of the entire market are not as important as the difference between the price movements of some stocks and other stocks. other.

I divided the class into two groups. The first group will buy stocks in alphabetical order on the New York Stock Exchange, starting with the letter A; The second group will start with the letter T. Each stock is arranged alphabetically (except preferred stocks and utility stocks, which I consider a different category). . Each student is assigned to hold four shares. They had to track the closing price of the last trading session of 1956, the price after adjusting for dividends and stock splits (excluding call options because they did not have a large enough impact to be worth having). other additional calculations), and compared to the price of Friday October 13 (if nothing happens, this is a pretty interesting closing day!). The percentage increase or decrease of each stock over this five-year period is recorded. The Dow Jones average increased from 499 to 703, or 41%, during this period. In total, there are 140 stocks in this sample. The results are listed in the table below:

These figures clearly show the market condition. During the period when the Dow Jones average increased 41%, 38 stocks – 27% of all stocks – suffered capital losses. Among them, 6 stocks - accounting for 4% of the total number of stocks - suffered a loss of over 50% of their total value. On the contrary, nearly a quarter of stocks achieved quite spectacular large profits.

To get deeper into the nitty-gritty, let me note that if a person invested $10,000 in the five best stocks on this list in equal amounts over a period of nearly five years, his capital would he would now be worth $70,260. On the other hand, if he invested $10,000 in the five worst stocks, his capital would drop to $3,180. Such bad outcomes are very unlikely. The problem here is whether luck or misfortune as well as investment skills can lead to these two levels. It is also not difficult to understand that a person with practical investment judgment could choose 5 of the 10 best stocks for a $10,000 investment; In that case, his net worth on Friday the 13th would likely be $52,070. Likewise, some investors always choose stocks for the wrong reasons and always end up trying to deal with the consequences. For them, choosing five of the ten worst stocks isn't about projecting completely unrealistic results. In that case, the $10,000 investment would drop to $4,270. Based on this comparison, after a period of less than five years, there could be a difference of $48,000 between a wise investment program and a less wise investment program.

A year and a half later, when I continued teaching this course, I proposed a similar exercise, except that instead of using the letters A and T, I chose two other letters in the alphabet, from there. Create stock samples for practice. Again, after a five-year period, with a different start and end date than the previous period, the volatility is almost the same.

When looking back over most markets over a five-year period, I believe one can find dramatically different stock performances. Some of this dispersion may arise from the unexpected – important new information about a stock's prospects that could not have been accurately predicted at the start of a period. However, most of these differences are predictable, at least in terms of direction and gains and losses in relation to the market.

The case of Raychem Corporation

Given the above evidence, I find it difficult for anyone to argue that markets are efficient using the word efficient in the same sense as it is used in this theory. But to dig deeper, consider the state of the market just a few years ago. During the early 1970s, Raychem's shares had a significant market reputation and accordingly they were selling at a relatively high P/E. We can recognize one of the reasons that ensure this group's reputation in the market through the proposals of Executive Vice President Robert M. Halperin. Here are four key points in his operating philosophy:

Raychem will not produce any products that are low in technological complexity (i.e., products that are easy for potential competitors to imitate).

Raychem will not manufacture any product that cannot be connected to a vertical line; that is, Raychem must design the product, manufacture it, and sell it to consumers.

Raychem will not manufacture any product without patent protection. In this case, Raychem would not invest research and development effort into a project, even though it may be within its capabilities.

Raychem only researches and produces new products when the company believes it can lead the market in whatever niche, which can sometimes be a smaller, or larger, market, that the product is trying to find. every way to gain market share.

In the mid-1970s, those who held a large number of traditional investment funds realized that the company had great potential, so those who believed that Raychem was competitive and strangely attractive owns a large amount of this company's shares on the market. However, there is another aspect that makes Raychem most attractive to shareholders and may be responsible for the high P/E ratio at the level at which it later sells its shares. Many believe that Raychem – which spends an above-average percentage of its sales on new product development projects – has perfected a research organization capable of creating a significant product line, based on That way the company can demonstrate that it is capable of pursuing an ever-increasing trend in sales and profits. It makes sense that these research-stage products serve as a major draw for the financial community because so many newer products compete only indirectly with older products from established companies. another company. Initially, new products will enable well-paid workers to do the same work in less time than was previously needed. In the end, customers can still save some money and be satisfied with prices that give the company a desirable profit margin. All of this caused the stock by the end of 1975 to reach a high of over $42.50 (price adjusted for later stock splits), 25 times the expected earnings for the year. Fiscal ended June 30, 1976.

Raychem, dashed expectations and collapse

As the fiscal year came to an end on June 30, 1976, Raychem was hit by two major impacts, a decline in prices and a loss of reputation in the financial