In a recent post cs raised the issue of whether the chief executives of our public companies are worth what they are paid. The short answer is that some are and some are not. I’ve been a direct share investor since 1991. When we were putting my portfolio together my broker suggested throwing in a few Leighton Group shares. Wal King was CEO then and is still CEO today. He is one of the better paid of our CEOs and I reckon he’s worth every cent they pay him.
When Peter Reith approached him to take on the construction workers after his famous stoush with the wharfies King told him to bugger off. He didn’t want to fry the company, he said.
Leighton has traded through property downturns and the Asian crisis plus a few glitches like nearly dropping a block of flats into a big hole in the ground. I did buy a few shares in 1991 at $1.28. Today they broke through $17. I worked out that if I’d put all my dosh in Leighton back in 1991 I’d now be getting about $170K pa in dividends and be worth squillions.
But then I didn’t and you wouldn’t because you wouldn’t sleep at night. Back then you would have surely favoured Pacific Dunlop, the solid growth company of the 80s and now no longer to be seen.
On the other hand if you’d entrusted only $1,000 to Frank Lowy in the late 1950s and gotten in on the Westfield story you would now have wealth beyond measure. But back then you would probably have found their prospects totally underwhelming.
Those are examples of amazing wealth being created in very acceptable ways in a free enterprise economy. But wealth creation can also lead people in strange pathways. Imagine what it would be like if your core business was burying people. You could wake up every morning hoping for lots of baby-boomers to bury.
This is a direct quote about a company called InvoCare, a company that owns and operates funeral homes, cemeteries and crematoria around Australia:
Despite a 3 per cent to 4 per cent drop in deaths undermining revenues by 1 per cent, first-half reported profit rose by 44 per cent to $7.8 million. Consensus forecasts point to a full-year profit of about $29 million, assuming the usual up tick in deaths in the second half. The solid first half illustrates an ability to push through price rises, cut costs and benefit from deposits on prepaid funerals. A large fixed cost base, which means staff and vehicles cannot be cut when conditions soften, offers leverage on any rebound in the death rate.
That excerpt is from the launch issue of a new magazine the AFR Smart Investor. This is their Si view:
InvoCare enjoys a strong market presence in an industry that is highly leveraged to the ageing baby-boomer generation. While short-term fluctuations can hurt the company’s top-line growth, the expected increase in baby-boomer deaths in coming years should drive long-term profitability.
My view:
There are some activities that should be beyond the reach of the profit-creating impulses of capitalists.
Interestingly, Brian, some of the first examples of collective provision by workers were Friendly Societies to share the cost of paying for burials. The beginning of the co-operative movement in England in the late 18th century, if I remember correctly.
Invocare better hope we dont reach a medical singularity, otherwise they will have to go the way of the RIAA and try to get government to mandate that baby boomers be “processed” (ie killed) to maintain their share price and profitability.
Cam
aren’t you being a little optimistic there?
Unfortunately we’ll all be long dead before the Singularity comes, I’m afraid. Will just have to settle for cyrogenics.
Nice post Brian,
If I were running Invocare I would be thinking about getting into the Life Insurance business as a hedge against these bad market fluctuations.
Yep. Wot you said. I love reading the BRW RichList Issue every year despite having no assets of my own. I clearly remember Poseidon shares starting in cents and ending at about $174 each, and I have just read (November Vanity Fair) that the Sir James Goldsmith Wealth was built entirely on a 10 quid bet on a trifecta while he was a STUDENT (paid 8 grand so he left school). and Warren Buffet and his investors are such a great story.
Steve, life insurance would be a good hedge, as you say.
Brownie, I knew a guy who as a young teacher made a packet on the Rundle shale oil thing when it first hit the market. He sold at the top and put all his money into property. And did well.
The ones I feel sorry for are those who bought Telstra on the second float ‘for the grandchildren’.
Buffet was smart enough to stay out of the dot.com craze. I didn’t entirely and still have some Looksmart. I’m down over 95% on those suckers – they are barely worth the brokerage to sell them. The only value they have for me would be as a tax write-off. Yet Evan Thornley is still feted as a successful dot.com entrepreneuer.
Jason, I was being flippant and critical of industry groups like the RIAA who use government legislation to keep a business model running in the face of a disruptive technology. A medical singularity would put a lot of people in the post-life industries out of business, would they appeal to government?