Sunday, 4 March 2012

The Investor and Market Fluctuations: The story of the Great Atlantic & Pacific Tea Company Shares (3)

We see in this history how wide can be the vicissitudes of a major American enterprise in little more than a single generation, and also with what miscalculations and excesses of optimism and pessimism the public has valued its shares.
  • In 1938 the business was really being given away, with no takers; 
  • in 1961 the public was clamoring for the shares at a ridiculously high price. 
  • After that came a quick loss of half the market value, and some years later a substantial further decline. 
In the meantime the company was to turn from an outstanding to a mediocre earnings performer; 
  • its profit in the boom-year 1968 was to be less than in 1958;
  • it had paid a series of confusing small stock dividends not warranted by the current additions to surplus; and so forth. 
  • A. & P. was a larger company in 1961 and 1972 than in 1938, but not as well-run, not as profitable, and not as attractive.*

* The more recent history of A & P is no different.
  • At year-end 1999, its share price was $27.875; 
  • at year-end 2000, $7.00; 
  • a year later, $23.78; 
  • at year-end 2002, $8.06. 
Although some accounting irregularities later came to light at A & P, it defies all logic to believe that the value of a relatively stable business like groceries could
  • fall by three-fourths in one year, 
  • triple the next year, 
  • then drop by two-thirds the year after that.

Ref:  Intelligent Investor  by Benjamin Graham

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