Great companies which fail to create shareholder value

[Cod Liver Oil]

Tencent, Coupang, Disney, Nintendo,  LVMH, ABNB and UMG are a sample set of "great" companies that have created negative shareholder returns over the last 5 years or longer. Are these truly great companies that have merely stumbled or is there something systemically wrong with their ability to create value for share owners?  Even Amazon and MSFT have done no better than the risk free rate.  I understand some of the challenges these businesses face but the connection between business quality and value creation can seem tenuous at times even for investors with long time horizons. How much patience is required? Will these companies ever create any shareholder wealth?

 

Edited 5 hours ago by Cod Liver Oil

[DooDiligence]

Dominos pizza delivers, unless you're a shareholder.

 

How long does it take for bagholders to become market visionaries?

Even owning Berkshire makes me feel like a baggie at times.

[Dalal.Holdings]

A lot of these are great and will be fine over the long haul. It was mainly a matter of overpaying on valuation. That has been my gripe with FICO.

 

DIS P/E reached the 40s and higher 5 years ago. People were acting like it was the best thing in the world, Marvel movies would continue to rake in billions forever, and Iger was the messiah...

 

Nintendo too was at very high P/E and E/EBIT 10 years ago. Even a year ago its trailing P/E was in the 50s... (I think it's cheap now)...I mean, compare with other Japanese companies and Nintendo valuation was in the nosebleeds...

 

LVMH--same thing. A few years ago it was "European luxury can do no wrong". 

 

That's what happens when you pay a fat multiple for things. And it's always interesting to see value investors on forums like this talk about investing in companies with nosebleed valuations like that...another lesson on avoiding groupthink and herding

 

There are industries where there are structural/secular problems: CPG (KHC, CPB, etc), and alcohol (TAP, Brown Forman, etc) seem to ring a bell. In those cases, there are real problems in their respective industries and the future may not look like the past.

 

Edited 4 hours ago by Dalal.Holdings

[Sinbius]

29 minutes ago, Dalal.Holdings said:

A lot of these are great and will be fine over the long haul. It was mainly a matter of overpaying on valuation. That has been my gripe with FICO.

 

DIS P/E reached the 40s and higher 5 years ago. People were acting like it was the best thing in the world and Iger was the messiah...

 

Nintendo too was at very high P/E and E/EBIT 10 years ago. Even a year ago its trailing P/E was in the 50s... (I think it's cheap now)...I mean, compare with other Japanese companies and Nintendo valuation was in the nosebleeds...

 

LVMH--same thing. A few years ago it was "European luxury can do no wrong". 

 

That's what happens when you pay a fat multiple for things. And it's always interesting to see value investors on forums like this talk about investing in companies with nosebleed valuations like that...another lesson on avoiding groupthink and herding

 

There are industries where there are structural/secular problems: CPG (KHC, CPB, etc), and alcohol (TAP, Brown Forman, etc) seem to ring a bell. In those cases, there are real problems in their respective industries and the future may not look like the past.

 

 

Yep...the question should be why investors create negative or underperforming shareholder returns even when buying  great companies with at least decent management...

How much patience to listen to people that buy stocks at 50x and blame the company? Will these "investors" ever learn?

Edited 4 hours ago by Sinbius

[DooDiligence]

2 hours ago, Dalal.Holdings said:

A lot of these are great and will be fine over the long haul. It was mainly a matter of overpaying on valuation. That has been my gripe with FICO.

 

That's what happens when you pay a fat multiple for things. And it's always interesting to see value investors on forums like this talk about investing in companies with nosebleed valuations like that...another lesson on avoiding groupthink and herding.

 

Accurate.

 

There's still hope that I'll look like a genius in another decade.

[Marco Van Basten]

You can add Mco and spgi to the list.  I own both and expect them to do well on a going forward basis.  And yes, you can make a ton of money paying a fifty p/e, you just have to be right on earnings growth 

[Dalal.Holdings]

30 minutes ago, Marco Van Basten said:

You can add Mco and spgi to the list.  I own both and expect them to do well on a going forward basis.  And yes, you can make a ton of money paying a fifty p/e, you just have to be right on earnings growth 

 

It's one thing to pay 50x earnings for growth in some nascent business that has yet to expand into TAM and lots of white space ahead of it...but DIS? LVMH? NTDOY? MCO? SPGI? These are very large and mature businesses--good luck underwriting high growth for them.

[SharperDingaan]

If you insist on buying the popular names, at the same time as everybody else is, you are almost assured of an extended period of disappointment. For it to work out, the company has to more than beat the inflated expectations of the time, and deliver earlier than expected .... maybe it will, but more likely it will not. Time goes by, there's under-performance relative to the expectations (inflated), the blush comes off the rose, this thing is a dog! ... sell; the buy when there is blood in the streets .

 

Nothing to do with the company, which may well be very solid ... purely a supply/demand group think miss-pricing thing, and exploitable. 

 

SD