Ann: Trading Update, page-68

"Considering that you have been in the market for a long time, I am quite surprised that you don't believe that there are people out there who are more than willing to buy shares solely based on what they read on a stocks forum."

When I reflect on the discussion on this forum in the preceding months and years, I sense that all the correspondents have more than just a working knowledge of the company, and the tone and content of the various posts suggests to me that they are seeking to enhance their understanding of things.

I see zero sign of anyone here saying (or even intimating), "Based on that post, I'm buying this stock, whatever it is/does." Every poster here appears to me to have had a view that was independently informed, to some degree.

Of course, there might be readers of posts who don't post themselves and they might be the targets of your caution; but then, again, if they bought SDI solely because of positive commentary that they saw on these threads, how do they avoid buying stocks where they also encounter positive commentary?

Because every stock has its share of eminently-ebullient supporters, and these people who you think buy stocks based solely on what they read can't be buying every stock for which they encounter positive posts.


"And now, correct me if I'm wrong, I get the impression that you are saying that their achievements were not that commendable because:
- ARB & BRG were helped by sharp fall of A$
- REH's revenue between 2011 - 2013 was flat (2 years out of 7 years period that you chose)
- NCK didn't face the same structural pressure as other retailers. I don't have the data, but how many home furnishing retailers in Australia do you think managed to perform better than NCK in the past few years? My guess is not that many.
- And your comparison of NCK and NBL & SFH was even more misplaced:"

Yes, I am saying - and speaking as a shareholder then and now - that their performance was adequate, not commendable:

- ARB and BRG were indeed helped by the fall in the A$
- REH's revenue was flat for 3 out of the 7 years (in fact, REH's earnings for 4 of those 7 years - between 2010 and 2014, before the residential construction boom commenced - rose by a CAGR of a mere 2.5% pa)
- As for NCK, what is misplaced about my comparison of NCK with NBL and SFH is your interpretation of it. Because I am saying exactly what you are saying: that SFH and NBL are inferior retailers to NCK (I expressly used the descriptor: "crappy" to describe NBL and SFH).

My point - which you have clearly missed - is that when retail businesses are rolling out new stores, the combined effect of Increasing Number of Stores Plus New Store Maturation is such a powerful financial phenomenon that it makes even crappy retailers such as SFH and NBL look good. There is a vast body of precedent for this: JBH, SUL, WOW, Bunnings, Officeworks, Coles (even under the troubled John Fletcher reign), and even DJS and MYR in their earlier days before those business matured.

And the fact is that NCK has over the past been on the exact same path for the past 5 or 6 years. When your store count is rising by 10% to 15% pa, and that combines with 10% like-for-like sales growth because your store population has a weighted average age of just ~3 years, then you can't report anything other than good revenue and profit growth.

I've yet to come across a retailer who is not described as "smart" during a period of new store roll-outs.


Considering that ONT and BRG lost a big hole in their revenue in a sudden way, isn't it even more impressive that they were able to fully recover their lost revenue in a relatively short period of time? SDI on the other hand, knows what is coming and yet is still able to surprise the market with a profit downgrade.

For starters, ONT is still not quite at the same level of revenue as it was before the CDDS torpedo struck (despite a series of acquisitions in the intervening period), and - in constant currency terms - it took BRG more than 3 years to get back there.

Besides, you are comparing those two stocks with SDI, not at the points at which they first lost those big slugs of revenue, but referring to their subsequent revenue recovery.
Therefore, if you want the comparisons to be meaningful, you really need to come back in 3 or 4 years to be able to gauge SDI's revenue recovery in the same way that we can observe that of ONT and BRG.


"I am not trying to do what Tiger Woods did at all. Instead I'm trying to piggyback Tiger Woods."

But your initial point was that Roger Brown was wealthy because his wealth was concentrated in the company he managed, implying that is the path to be emulated.

To which I responded by saying that there exists a multitude of people who also concentrated their wealth in the businesses that they founded/managed and yet wealth has eluded them.

Emulating Messrs Brown et al by concentrating your wealth the way they have (your first assertion), and "piggy-backing" on them now that they have been successful (your revised explanation), are entirely different things.

No matter; but to extend the Tiger Woods piggy backing analogy, if you were piggy-backing Tiger whenever everyone else doing likewise, namely at the peak of his game, your subsequent "Tiger Returns" would have been dismal.

The same could be said for such market darlings as ARB, BRG, CSL, REH etc, which are trading at unprecedented multiples. Like Tiger was, these stocks look to me to be valued at decidedly top-of-the-game multiples.

I'm just wondering how I will generate half-decent returns over the next 5 years from stocks in my portfolio which are capitalised at 25x earnings today.

I think I was/we were) very, very lucky to be an equity investor in the past decade, because I/(we) made substantial capital gains (unrealised ones, overwhelmingly, I'm afraid) not due to anything that I/(we) did which was that smart, but due to some extraneous, one-in-a-generation event.

My expectation is that there will be some dues that will need to be re-paying in coming years.

Because my experience is that when something looks too good to be true, then it almost certainly is.

And, to me, 25x P/E's look too good to be true.


"No, I have no intention of adding anything in that list at today's prices. The surplus cash is currently being accumulated, waiting for opportunities to present themselves. I am confident that my patience combined with my selective targets will one day be rewarded."

While I fully understand your logic, the reason I don't like to build cash is that it feels to me like I'm trying to "time the market" by doing so, so where we differ is that I am happy to migrate further down the quality curve in the belief that I can find investment opportunities there that are able to deliver rates of return above that of cash returns, even on a risk-adjusted basis.