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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 211723  
Subject: Re: Berkshire buys Heinz Date: 2/15/2013 8:50 AM
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The vast majority of the value of ANY stock is past the 5 year mark.
This is the most insightful piece of investing advice I've read in a long time. Thank you.

Well, I don't know if it's that big an insight, but it's the reason that a
firm's earnings falling temporarily due to the business cycle don't matter a whit.
The current business cycle will always be over before the five year mark.

It amazes me that "analysts" spend so much time on cyclical swings.
Just because winter is coming doesn't mean a farm loses its value.
There's going to be a winter every year. There will be a couple of earnings recessions every decade.
It's particularly amusing when a firm has a windfall then analysts
downgrade the firm for having falling earnings just because the windfall is ending.
(consider Seagate's windfall earnings last year when WD's factories in Thailand
flooded causing a global shortage which let Seagate increase prices.
When those price increases ended, Seagate got hammered for falling earnings
even though their earnings are still nicely higher than 2 years ago)

There is a much less obvious corollary. When earnings are at new highs as now
and it's a firm whose earnings are at all cyclical, the current earnings are probably
at least a little bit above trend. There's always another recession coming.
Cyclical adjustments have to be done, both up and down.

Hey, back to Heinz though.
Interesting snip from here
"3G had been studying Heinz using public financial statements for
some time, the people said. They calculated that the company had enough
cash flow to carry more debt and they liked Heinz’s growth overseas.
Heinz’s business outside North America and Europe grew 27 percent
last year to $3.6 billion and is now 31 percent of its business.

That's a surprisingly high growth rate for a surprisingly big piece of the business.
Not just a cash cow after all.

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