Great companies which fail to create shareholder value

[Spekulatius]

12 hours ago, Cod Liver Oil said:

Charts are telling. The Disney chart is damning. If you can get in front of positive changes at a dominant company that has luffed, you have a tailwind of years. Tencent has been running a great business for years but the macro has sucked; I can't blame Ma for it. Disney has a management problem which could conceivably improve. Is the IP flywheel really broken? ABNB invented a category which was genius but is kind of tired at this point. Taking out the garbage on vacation has lost its charm. Chesky's diddling won't help. Nintendo has sick IP but thinks shareholders are the great unwashed.  As the great autistic triillionaire monk has said, consider the most ironic outcome, for it is the most likely.

I actually  like  Disney and bought some shares. I think it’s one example where the fundamentals have stalled and now they improving  but Mr Market is sceptical and hence the stock has not reacted yet. At least that’s the story the chart is telling me. I could be wrong  and it’s a false start but I think there is a good chance that the future is a whole lot better than the past.

Edited yesterday at 12:13 PM by Spekulatius

[John Hjorth]

14 hours ago, Loss Horizon said:

Luxury vehicles do contain fair share of value in form of materials and labor. So do boats and private jets.

 

Luxury fashion items on the other hand contain very little besides the label. That is obviously enough for many, but I don't trust this model for the future.

 

@Loss Horizon,

 

Luxury companies in reality have the ability to tax human vanity!  - Fragile business model 

[Spekulatius]

Even if you buy a “great company”, the timing is extremely important as value does not necessarily to accrue proportional to intrinsic value. A great company can be a bad investment when bought at a too high valuation at the worn time. this has always been true but we went through a period from 2010 to 2021 where in general multiples were generally expanding for quality company across the board , so it seemed like this self evident law was not valid any more.  However, it should be obvious to anyone that you can just as well overpay for a quality stock than any one stock.

[villainx]

13 hours ago, Spekulatius said:

the future is a whole lot better than the past.

 

At certain point, possibly this very moment, how can it not, still loaded with good assets.

 

 

[Dalal.Holdings]

We should also think about those “great” SaaS companies that have yet to earn a decent GAAP profit. Just machines that feed on common stock investors in order to churn out employee stock based comp. Many investors, including “value investors” were willing to pay huge multiples for these (valuing them off Price/Sales, of course) and got totally hosed.

 

Stock based comp is, unfortunately, a real expense. And reality eventually always reasserts itself.

 

Then there are software companies like Adobe, Intuit, even MSFT in some cases that have grown accustomed to abusing their customers with insane pricing and price rises year after year. Intuit lobbies regularly to keep the U.S. tax code complex so they stay in business. It’s actually great to see AI deliver a little karma…

[HoldForDearLife]

On 7/26/2026 at 1:00 AM, Sweet said:

Maybe the question of the thread should be flipped, how can we avoid these companies?

 

It may not be fashionable, but I think the long term chart tells you a LOT about the company.  Several of the companies you mentioned I have been interested in but the chart was the clue that something was up.  The chart often has priced in all that shitty management and capital allocation and lack of shareholder focus.  I know Spek says the chart is one of the first thing he looks at, I’m the same.  I use it as a gut check.

 

There are exceptions of course, look at Citi recently,  but it was trading at something like 6x earnings with management being very loud and aggressive about changing.

 

I'd say that having a maniacal focus on cash generation and per-share growth in the relevant metrics (EPS, FCF, BV depending on the company) is the key part. You don't need to own something that is considered great, when companies generating heaps of cash and returning more and more of it every year will do just fine in terms of generating wealth. 

 

 

Another approach would be to ask what a great company that fails to create shareholder value even is. You could pretty reasonably argue that there aren't any, but that clearly isn't the consensus view of the markets. From what I've gathered, the label "great" usually gets stuck onto exciting, high-margin businesses with fast growth in typical investing discourse. That already offers a bunch of pitfalls to fall into: increasing competition leading to losing margins, diworsification while growing, brand dilution, overpromises broken and so on. A lot of these traits seem to go for consumer brand companies in businesses where there isn't some special barrier to entry to market. Maybe you could say that if a company cannot primarily focus on their shareholders when deciding over business matters, then it might not be such a great business after all.

 

Another issue is if a company seems to be run for someone else than all their shareholders. These kinds of firms are relatively easy to avoid by looking at stock ownership among the board and the directors, cash compensation, SBC and stuff like that, fortunately. 

 

Also, failing to create shareholder value needs to be clearly separated from failing to create shareholder returns. Overpaying for a truly great shareholder value creator hurts in the short term, but if the business case remains intact, the returns will follow sooner or later (although if you pay 50x for damn near anything, you'll likely do a lot of waiting). 

 

[Cod Liver Oil]

Spreadsheet are useful but fail to capture a ton of business qualities such as scarcity value like sports teams or hard to permit mines.  They can also mislead in the case of companies which are current cash cows but at high risk of being obsoleted (Adobe) or are too aggressive in price taking (discretionary spending like Disney or luxury goods). As Druk says, the market is right 80% of the time. I don't discount  the collective intelligence on the other side of the trade. In the case of Nintendo, I'll be stubborn.

Edited 44 minutes ago by Cod Liver Oil