Another Solid Victory for Free-Enterprise and Corporate America

[Colleen Thomas]

Colleen,

Okay now I understand what you were getting at. I may not like it but I do understand where you are coming from with it. My way of looking at employees is old fashioned and not in sync with the new way of doing things which is where the confusion came from. (I believe in two maxims, an honest days work for an honest days pay, and if you can't do the work find something else to do. This might account for why I don't own a bussiness and why I'm usually disapointed by my co-workers and bosses.)

Cat

I don't personally expouse the Wall street view. I invest longterm and for me long term means twenty odd years down the road. So I want stocks I see as having the potential to gain in the lon term. Costco, from the article, would be the kind of stock I would want in my portfolio, since it seems to me their buissness approach will, in the long term, allow them to cut into Walmart's market share.

I've done enough bookeeping, and known enough accountants however, to have a good handle on Wall Street's approach. To them, it will always come down to numbers, because as someone pointed out, their long term thinking is usually nver farther than the next quarterly earnings report.

To a wall street analyst, margin is everything, because your proftis are going to be based only on 2 things, volume and margin. Volume is never assured, so Margin is the only factor in there that is quantifiable and predictable.

Their take really boils down to this. I can't predict costco's volume of sales for the next quarter. I can't predict Walmart's either. What I can say for sure, is walmart operates on a 25% margin and costco operates on a 12% margin. So costco is going to have to do more than twice as much vlume as walmart, to clear the same profit.

I can also predict that Walmart will be covering roughly 82% of it's employee's benefits packages out of profits, while Costco is covering 92% of theirs.

So if costco did do the two plus times the volume of Walmart, because they cover roughly ten percent more of their employee benefits, they are still going to take les to bottom line profits.

If you are not speaking comparatively, but are simply looking at Costco as a possible investment for your client then you look at it like this. If costco is going to turn 100 Mil in profit third quarter, they would be turning nearly 200mil if they were operating at industry standard margin. that's 100mil that could be going to shareholders that isn't genereated. of the 100Mil they did make, 10% more goes to employee benefits than needs to, so that's even less to carry to the bottom line, which is where my client will see a rise in stock prices or possible dividends.

One reason managed funds, Like Magellen or Janus ar so popular is because they put a whole lot more into determing a company's health and earnings potentil over time. Costco is probably a janus stock. They appear to have a sound bussiness modle and the potential to grow and take over a larger market share and that's important for a long term investor. But for Wall street, the short term immediate gains are being wiped out by what they would call needless generosity.

Just different ways of evaluating things based on very different goals.

 

[Colleen Thomas]

Which is where the complex terms (meaning I don't understand them proberly) come in; throughput and unit costs.

Reps and manufacturers all tell me that it is economically preferable to sell cheaply, thus maximising volume and reducing purchase costs (and taxes) I presume they're referring to depreciation being better value the more use you get out of your overheads. Sort of 10 people using one lightbulb sort of thing, the light bulb will blow eventually however many use it.

So happy workers = loyalty = reduced labour charge per unit.

What you don't seem to appreciate Guache is Wall street dosen't care what your cost per unit is. It dosen't care what your pension fund looks like. It's not concerned with your debt load, except in what percenatge of your gross is going to debt repayment and how much of that comes off the net.

It's concerned about your bottom line earnings, for this quarter, or this week or this day or (for day traders) before the closing bell rings.

I'm not arguing against costco's plan or how it does bussiness. I'm simply saying for a wall street analyst, it's cinsistantly underperforming on the bottom line. That's all.

 

[Liar]

It's concerned about your bottom line earnings, for this quarter, or this week or this day or (for day traders) before the closing bell rings.

Here's where it would be interresting to see an investment stategy that use words like "this decade" instead. Not that it'll ever happen, but I wonder what that kind of philosophy could do for the bottom line of a society as a whole.