recent result sets the tone for the future, page-30

The stock market never ceases to amaze with its ability to continually teach us investors new lessons, or to remind us of old lessons taught previously.

An example of one such lesson (for me, anyway) follows:


Led by a spot of boredom, I this morning was going through some broker research at the time that the Competitive Bidding concerns were at their point of maximum tilt, which was around this time 24 months ago.

Judging from the:

(a) sheer volume of broker comments published at the time, and
(b) the level of anxiety on display from broker research

one would have sworn that Resmed's world was coming to an end, based on the many official-sounding phrases like, "caution is warranted...", "...we remain concerned...", "...lack of clarity...", "...expectations have been dampened...", "...recommendation downgraded pending further update...".

And here we are, just two years later, with the share price having duly doubled, and all those “fears” and “concerns” having magically disappeared (make no mistake, the share price hasn’t doubled because of the disappearance of the broker “fears”; quite the other way round, it’s the rising share price that forces the “fears” to dissipate.


This is yet another example of the pervasive herd mentality, and the short-term mindset of the broking fraternity.

Which is why the recommendations and, especially, the so-called Target Prices put forth by investment analysts are almost worthless, and should be treated as such.

It should never be forgotten that the business model of the stockbroking industry is predicated on activity.

It makes absolutely no business sense for stockbrokers and their sales forces to provide investment advice along the lines of:

“Resmed is one of the stock market’s highest quality businesses with a long track record of wealth creation for its shareholders. Given its structurally growing industry dynamics, industry-leading intellectual capital, dominant market position, pristine balance sheet, should any unforeseen event occur, investors should not worry and should just hold onto their shares, because the durable business model is highly likely to see the company continue to prosper.

In other words, our investment advice is: Do Nothing. Just Relax.”