I was brushing up on a little bit of Buffet today and thought I'd play a little theoretical exercise this weekend. I have my answer already but will post that on Monday.
Congratulations, you just inherited one million dollars and there are just two conditions. Its to be held in trust for you and all dividends received reinvested and you can't touch it for 10 years. You can only choose one company to invest the full amount into. Which company do you choose and why ?
I'd probably go with SUM. Pretty safe and should grow quite a bit.
Not many companies on the NZX you could feel easy about leaving that amount of money in for 10 years, one name springs instantly to mind and that is RYM. Look at their history and delivery of wealth into shareholders hands since they first listed.
HBL, or TRA,or MEL or GNE,or EBO.or POT,or MFT,and or as Couta1, RYM..
I would cheat and probably say FNZ.
But if one company was the answer, I would go either MHJ, TRA, or SUM.
New Zealand's very own BRK... got to be IFT for me.
Energy/Accommodation/Data/Transport & Essential Infrastructure all rolled into one well managed, discounted, phat dividend payer.
Easy.
Ryman healthcare.
Theres no company / management I trust more
At today’s prices ATM. With a bit more knowledge about their business which is coming up OCA. Just too early to say do it.
Come on guys, you only get ONE choice, which one and why ?
My pick is XRO. The business is expected to achieve 1 million Uk customers in the next 3-4 years and there are plenty of other markets to enter too. Even if the US expectations are not met it will soon start generating a profit and once the tipping point is reached it will become a real cash cow. At the end of 10 years my 1 million will be worth truckloads. When is my million going to paid over?
If I can't pick an ASX listed company, then my choice is ATM for similar cash cow (pardon the pun) reasons.
Okay. I'll have a go at .... but please note that I'm posting under a name that reflects my qualifications to express an opinion (or lack thereof).
My criteria are based on the idea that if I have to lock up a large (for me) amount of money for 10 years, I should be more concerned with controlling downside risk than searching for the largest amount of potential upside. Like Mark Twain, I am more concerned with the return of my money than the return on my money.
Relevant factors:
1. the risk of disruption through new competition, technological change, environmental factors or regulations
2. the existence of some kind of defensive moat
3. a good track record in delivering for shareholders – in particular an expectation that dividends will grow enough to at least offset inflation
4. acceptable valuation - particularly bearing in mind the importance of compounding dividends over a ten year period – I would like a starting net dividend yield above the current rate of inflation
5. I would prefer a company that is unlikely to need to raise further capital from shareholders - companies which raise money through placings damage shareholder value in the process and, as a non-resident, most NZ companies will not let me participate in rights issues
6. leverage should be low given expectations of rising interest rates
There are some very good to excellent companies which have track records in delivering value to shareholders and which (quite rightly) get a lot of attention on this board: MFT, RYM, SUM, IFT, ATM, POT, FRE and AIA among others
For my purposes, I have eliminated the retirement sector from consideration because of (in some cases) high valuations which assume a lot of future growth, because of vulnerability to regulatory "reform" and because of the potential for new competition to enter the market.
I have eliminated MFT and ATM on valuation grounds.
I have eliminated anything involving biological products for obvious reasons.
I have eliminated the electricity companies because of the potential for technological disruption and regulatory change. IFT is excluded for the same reason (although the diversification makes it tempting).
SKC was eliminated because of its debt levels.
Finance companies and consumer discretionary are too boom/bust for the purposes of this exercise. This takes out HBL, TNR and MCK.
I'm left with four companies which have at least partial monopolies: AIA, POT, SPN and MMH. AIA and POT are very expensive. SPN has no volume. So I am left with MMH which offers a trailing yield of 2.9% net/4.1% gross, trades on a trailing PE of 21 (a bit high but I will take it) and offers a coherent growth strategy (benefitting from the limitations of Port of Auckland, the growth in international trade (Trump notwithstanding), population growth in and north of Auckland and the use of the land bank adjacent to their existing operations. I'm assuming current political tailwinds are a short term thing and not relying on them.
The only problem: the shares are thinly traded so it could take several weeks to invest the full $1 million.
For me, a plan B would involving buying shares in WBC or ANZ which are listed on NZ and immediately transferring them from the NZ to the Australian share register where the Australian franking credits would eliminate NRWT I would have deducted if I left them on the NZ register. Compounding a 6.5-7.0% dividend yield (more if there is a discount on the DRP???) for 10 years should handily beat inflation. (And, yes, I am aware that this contradicts what I said above about not choosing a finance company.)
Looking forward to seeing what others come up with.
Raz Corp, with Trumps tax cuts is in high growth mode and I know whats happening on the inside. As you are all decent people I will sort a private placement for your inheritance as well. If we are talking NZX then RYM..why.. not just because of their track record but with customers that can afford it..they are the brand of choice.
FPH. Proven and well managed company with a long history of delivery. Is in a fast growing market with a well known and much liked product. Great FX hedging for Kiwis.
First off POT. Monopoly that will just keep on growing, s/p too.. Fabulous assets and natural harbour, perfectly placed. Room for expansion still and better tech keeps shortening turn around ship times.
Bigger ships ,11000 containers size now!! Fantastic management and an NZ essential service. Has gone up 4-500% in 10 years, will keep growing next ten years, maybe not so much.
Lowest risk stock around with a huge moat to match imo. May not increase as much as a few others but a sleep well at night stock for 10 years, it fits the bill, so price to me is way down the list of importance.. Least likely to be interfered with by govt and regs. Never cheap for all the above reasons etc.
IFT They have a good range of investments meaning that although you are investing in just One stock your eggs are not in such a small basket as with some of the others which have more company specific risk.
Unlike most other NZ stocks the current price is not overly stretched, and they have some great growth potential in their portfolio yet are not valued as a growth stock.