A voting machine for good businesses

"The public market is a voting machine in the short term, weighing machine in the long term," said Randall Abramson, Trapeze Asset Management. This quote came from one of Randall's favorite economic experts, Benjamin Graham, who was also one of Warren Buffet's mentors. Randall was going through his company's rational for investing, and running a demonstration of their extraordinary algorithm which made sense. Showing Disney's stock journey over the past few decades, gave a compelling snapshot to back up Randall's view that good investing is about value and digging deep to find undervalued companies. There were many opportunities to buy a seriously undervalued Disney stock and other times when the stock was too over priced to be an attractive investment.
The message was clear: fickle public opinion does not out perform the long term value of a business.
The public market has been a voting machine for future success, based on the talent and innovativeness of the management team and their employees and resources. The long term focus has been damaged though, as bubbles hammer good companies who do not deserve to have their stock reduced due to the foolishness of other businesses forgetting good business practices. The crash hurt sensible, wise investors with its sudden plunges.
This volatility of stock price, which is mostly out of the control of management, is the number one reason given by CEOs for frustration with public markets. Harvard reported that 88% of CEOs preferred running a private business without the pressure.

Jacoline Loewen, author of Money Magnet: Attract Private Equity Investors to Your Business

Succession Planning Should Focus on Selling the Business

Less than 3% of family businesses make it to the third generation. That arresting factoid prefaces Every Family’s Business, a book dealing with succession planning for family businesses. In this book review by Canadian Business expert, Larry MacDonald, he reveals how the author, William Deans, draws on a wealth of personal experience: he is a fourth-generation businessman and ran his father’s 250-employee chemical business for ten years prior to its sale. MacDonald says:

This remarkable book is written in the dialogue style of David Chilton’s The Wealthy Barber. It was first released in 2008 and has sold over 100,000 copies so far. Deans himself is much in demand and has done over 300 presentations around the world. He operates out of Hockley, Ontario and has a website at www.everyfamiliesbusiness.com.

When it comes to succession issues surrounding family businesses, most books and advisors deal with how to transfer control to younger family members. But Deans thinks the focus should instead be on selling the business at fair value whether it is to family or non-family. 

I would add in here that you can sell to private equity either fully or staggered over five to twenty years.

This sale will all chips off the table and not only assures a more secure retirement for the owner but often leaves behind greater wealth to distribute to heirs. MacDonald says:

Many business owners want to hand over their beloved enterprise on easy terms to children as an act of love or because they wish to leave their business behind as a legacy. But for a variety of reasons, as discussed in Every Family’s Business, the transfer often leads to acrimony and dysfunction within the family. It can also culminate in insolvency or a sale at a low price to a non-family buyer.

Read more Here

Why today’s investors must think globally

History reminds us that no nation ever pays off its debts outright, and that all government debt is eventually – and inevitably – inflated away.
It may be quiescent for now, but to ignore the time-bomb of inflation is to do so at one’s own peril. It’s a risk that could well be reflected in an ever-rising gold price (currently over U.S. $1300 an ounce, and counting), as well as an ever-sliding (and cheaper) U.S. dollar.
The U.S. dollar, the world’s reserve currency, keeps on sliding despite the pressures on China to lift the value of its yuan and a growing groundswell of foreign currency posturing.
The latent inflation risk is another reason why investment strategies must remain focused on equities. Besides, it’s invariably better to be an owner than a debtor and to have interest (and dividends) payable to you rather than by you – and ever more so now.
Adding to the case for being an owner rather than a loaner is a global economy being slowed by the U.S. but offset by a burgeoning new world order led by Asia, Latin America, BRIC (Brazil, Russia, India and China) and other rising powerhouses.
There’s also China’s ever-lengthening investment clout, witness Potash Corporation of Saskatchewan contemplating a Chinese white knight to rescue it from the hostile (and underpriced?) clutches of BHP Billiton? It’s but one more example of why today’s investors must think globally.
In Europe there’s encouragement too, despite nation-wide strikes in France and intensified payback stresses in Greece, Ireland, Iceland and others.
In Britain, the determination of David Cameron’s new coalition government to get on top of its huge debt and deficit problems remains especially noteworthy. One respected English friend writes: “The majority of the British people know that the problem must be addressed now and will back the government against an overpaid, overprotected and quite often bone-idle public sector”. Another comments on how many UK companies have come through the recession surprisingly well and have sustained earnings better than might have been expected.

You can never count the U.S. out

Tony Boeckh (of the Bank Credit Analyst) puts the case for today’s America best: “It’s got a trillion-dollar deficit monkey on its back, its consumers have been gutted, its housing and banking sectors could take years to recover, and its currency is a dog…. You can never count the U.S. out – it has an incredible ability to rediscover itself and rejuvenate.”

Deloitte reports Private Equity's Confidence

Private equity is stepping up and getting the results where the public market lags. A report from Deloitte goes on to explain:

 There is still confidence and optimism among private equity fund managers (GPs), according to the latest Mena Private Equity Confidence Survey released by Deloitte. The annual survey, conducted for Deloitte by Arbor Square Associates, is designed to measure confidence and market sentiment in the private equity market.

read more

Jacoline Loewen, Private Equity expert and author of Money Magnet.