The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Stock prices in the next decade||Date: 3/7/2003 7:01 PM|
|Author: RV2000||Number: 35845 of 81642|
For example, if you're thinking of buying two hot dog stands...each costs $100,000. One generates $5,000 in annual income (PE=20) and one generates $33,000 (PE=3). All things equal, you can make a good guess as to which of these will be worth more in the future.
>>There was one in the '90s that claimed the stock market would collapse when all the boomers decided to cash in their stocks and retire.
Here's where I start getting confused.....It's with the situation where someone buys the hot dog stand with the PE=3, then:
* Reduces labor cost using "sweat equity" rather than employing others.
* Eliminates waste with "just in time" delivery.
* Reduces operating costs by replacing high-end kosher dogs with smoked generic, eliminates the sun dried tomatos, shops the day old bread store, etc.
* Relocates and targets business based on a strategic market study.
* Increase in market share both drives up their profitability and reduces the competitor's (the guy with the PE=20 cart)
At the end of the day, when they've brought the PE to a more respectable 18, and dropped their competitor's to 17 in the course of doing so, both put their carts on the market.
Lo and behold, they both find there's a glut of Hot Dog stands for sale because everyone is retiring and Hot Dog carts go for $87.5k!
Just thinking out loud here......
|Copyright 1996-2016 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|