Old Investing Advice Gems from Wallstraits days

[Drizzt]

Many are looking for stable consistent profit growth. I.e. No lumpy profit yoy. And that is the kind of consistency BRK cant produce.

No business grows consistently forever. Newspapers came pretty close for maybe 30 years, then the Internet appeared and started killing them off. Berkshire Hathaway's results are actually lumpier than its underlying investments because of the insurance business - every once in a while there is a big loss from the supercat policies - quakes, hurricanes etc.

I personally think a company that has maintained its margins within a narrow range and has never lost money in the last 1 or 2 decades would qualify on a shortlist of consistent companies. But that is a view shaped by reading thousands of financial statements. Very few companies are immune to the business cycle, it is usually a question of the degree to which they are affected. A company whose profits fall 90% or swings into loss during the downturn is not consistent. A company whose profits fall 30% during the same cycle would probably be on the shortlist. Because of operating leverage, profits fluctuate much more than sales. A 10% decline in sales may well cut profits by 20%, and a 20% decline could cut profits 40%.

Investors who project a flat 15% CAGR for the business they are looking at are either tremendously naïve, or looking at a very special business, literally one in a thousand (or more). Of all the companies I have looked at, very very few qualified as consistent. One of them was Hsu Fu Chi. And even then Hsu Fu Chi is a seasonal business - March is the peak quarter while Jun reports a loss or more recently breakeven. It resembles See's Candies in these aspects. One big difference is that capex is quite heavy - only in FY10 did Hsu Fu Chi begin to produce meaningful free cash flow. But now that cash flow is improving, Nestlé is going to take it off the market. Sigh.

d.o.g how many years of discounted cf or cf evaluation we should do? 5 years 10 years? or 20 years for predictable ones?