Is it not ironic that within two weeks of the NYSE voting to merge with Archipelago and move decisively away from its open-outcry market method, and the regulatory problems it has experienced with its specialists, CNBC revamped its early morning business program, Squawkbox, moving part of its coverage to a set located inside the exchange?
If this doesn’t demonstrate the networks treatment of investing as primarily entertainment, what could?
The NYSE move to electronic trading, in order to minimize the egregious regulatory infractions of it’s specialist members, including front-running its customers when order filling, makes the trading floor an even less important place in the investing process then it already has been for some time. With the rise of managed funds, 401K plans, etc, institutional management has been the driving force in the market for quite some time. The trading floor is for order execution, but is not, in itself, the locus of investment decision-making that moves the markets.
Thus, CNBC seems to be moving to cover the sizzle, but not the actual “meat” of the capital markets. If you needed to understand what is going on in the markets, you can monitor any number of real-time ticker and index data feeds. Actually seeing the trading floor and filling of orders is superfluous.
However, if you simply want to portray an entertaining drama of market forces at work, I suppose having a program set located within earshot of the trading floor frenzy does that.
Tuesday, December 20, 2005
Monday, December 19, 2005
Pepsi’s China Potato Farming
The Wall Street Journal carried a feature article this morning discussing PepsiCo’s efforts at growing its own potatos in China for the local production of Lay’s potato chips.
What struck me were the last two paragraphs. After describing the agony PepsiCo has gone through to produce enough potatos in China to drive Lays’ market share to 40%, the piece noted that Wal-Mart (in China) complained about shortages of Lays on its shelves. The article finishes with these lines,
“….The chip-production goal has been increased again to meet rising demand. Mr. Shi’s shoulders slumped.
“We’re under a lot of pressure from the sales guys,” he said. “It’s growing too fast.”
This reinforces my thesis that the best way to buy successful growth companies is to buy those who have already demonstrated successful growth. That is because sustained profitable growth is so hard to achieve.
Isn’t it interesting that a world-class company like PepsiCo, with so many resources available, has to struggle, as the article depicts, just to introduce and grow the Lays potato chip brand in the world’s most populous country? You would think this would be child’s play. But evidently it is not.
PepsiCo has only attained a cumulative 20% total return for the past five years. By comparison, the S&P500 is slightly under a 0% return for the same period. That means that PepsiCo has had an average out-performance of only 4% over the S&P for the last 5 years. Clearly, it is by no means currently successful at turning whatever top-line revenue growth it has into consistently-superior total returns.
However, my portfolio strategy has selected a host of companies over the years which have consistently performed much better than PepsiCo. Thus, my preference for owning companies that have actually demonstrated consistently-superior performance over time, rather than those who one would believe should be able to do so. And the wisdom of my strategy’s approach is evident in the portfolio’s consistently superior returns over time.
What struck me were the last two paragraphs. After describing the agony PepsiCo has gone through to produce enough potatos in China to drive Lays’ market share to 40%, the piece noted that Wal-Mart (in China) complained about shortages of Lays on its shelves. The article finishes with these lines,
“….The chip-production goal has been increased again to meet rising demand. Mr. Shi’s shoulders slumped.
“We’re under a lot of pressure from the sales guys,” he said. “It’s growing too fast.”
This reinforces my thesis that the best way to buy successful growth companies is to buy those who have already demonstrated successful growth. That is because sustained profitable growth is so hard to achieve.
Isn’t it interesting that a world-class company like PepsiCo, with so many resources available, has to struggle, as the article depicts, just to introduce and grow the Lays potato chip brand in the world’s most populous country? You would think this would be child’s play. But evidently it is not.
PepsiCo has only attained a cumulative 20% total return for the past five years. By comparison, the S&P500 is slightly under a 0% return for the same period. That means that PepsiCo has had an average out-performance of only 4% over the S&P for the last 5 years. Clearly, it is by no means currently successful at turning whatever top-line revenue growth it has into consistently-superior total returns.
However, my portfolio strategy has selected a host of companies over the years which have consistently performed much better than PepsiCo. Thus, my preference for owning companies that have actually demonstrated consistently-superior performance over time, rather than those who one would believe should be able to do so. And the wisdom of my strategy’s approach is evident in the portfolio’s consistently superior returns over time.
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