10 year results and 10 year charts???

2 years is short term by Foolish standards. The 10 year chart tells a different story.

Sorry, Ian, I have to step into this one! Ten years is way too long, and what a company did 10 years ago is usually irrelevant.

First of all, for technology companies, and maybe for most companies, technologies change and things fall out of favor. Some examples: Microsoft, IBM, and even Yahoo, which were incredible growth stocks for a while, in fact, they dominated the world…and then just stopped. If you looked back at Microsoft’s 10-year record two years after it leveled off, you could say “Look at that 10-year record. Lot’s of growth looking back 10 years!” But all that growth was irrelevant for the future. Looking back at the last two years of stagnation gave a much better idea of the future.

And it’s not just technology changing. It’s company size as well. If you take a little restaurant chain that was growing at an average of 40% for five years, then slowed to an average of 25% for three years, and now has grown at 15% for the last two years…well your little company is now 14 times as big as it was 10 years ago. It’s not going to be able to add 40% more restaurants now the way it could when it was small. If you average its rate of growth for 10 years, and decide that it will grow over 30% per year going forward because it did for the last 10 years, you are just kidding yourself. The last two years give a much better picture of what to expect.

Then we see the reverse picture. A little start-up goes nowhere for a number of years, struggling along with losses, but then reaches an inflection point where its product gets adopted and takes off. Average back 10 years and it looks like it’s going nowhere. Look at the past two years after blast-off, and you get a much more accurate picture of the future.

But it’s not just technology companies. It’s any kind of company. Hamburger chains did great for a while and then were derailed by changing food habits. Oil drilling companies? Various clothing companies. Skechers, which had a serious speed bump in 2012, but has taken off in the past 2 years, becoming the 2nd largest sports shoe company (to Nike), after coming back from nowhere, from the dead! What gives you a better look at the future? Where they are now and what they’ve done in the past 3 years, or their problem from 2012?

10 years is way too long. I don’t believe even the MF intends you to look back 10 years. If they did, they’d never select 90% of the Rule Breaker picks!!! (That 90% is not an exaggeration. Look back at those picks.)

If you wish to look at 10 years because of your affection for Under Armor, that’s your choice, but don’t think what they did 10 years ago will give you the most accurate picture.

Best

Saul

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Sorry, Ian, I have to step into this one! Ten years is way too long, and what a company did 10 years ago is usually irrelevant.

Saul,

Crikey, I didn’t expect such a reaction to my comment.

I was merely trying to make the point that a 2 year period is relatively short in the context of a long term investment strategy.

In some respects, as foodles points out It doesn’t matter what time period you look at in hindsight to back up which stock is going to be a better investment in the future.

And if circumstances are such that a business is facing new opportunities or headwinds then the past isn’t going to be much help.

Having a thesis about where a company is going is far more important than looking at where a company has been.

But for many companies, the past can be a great guide as to how a business performs over the long term.

Personally, I nearly always look at a ten year chart first when considering a stock.

If you want to see what I mean, just take a selection of some of the Fool services ‘timeless favourites’: SBUX, DIS, MA, V, BRK-B, MKL, TDG, AMZN, MIDD, GOOGL and take a peek at the ten year chart. This type of consistent long term performance gives me a lot of confidence in a company.

And when things go awry, a ten year chart is useful to get some kind of perspective - the chart for CMG is a case in point.

I seem to remember a while back that when someone crunched the numbers on your investment returns it turned out that you had lagged the S&P over the last ten years, and you responded along the lines that you had made much greater returns before that. So in that case you were quite happy to look back over ten years to make your point.

But the past is the past, and as DG says , we need to be looking through the front window, not the rear.

As regards UA - I do think it is likely to outperform SKX over the long term, but I also agree that SKX may show better short term returns as the current stock price is way too low.

But my initial comment was not inspired by any particular axe that I have to grind. I have come to the conclusion that most investors would do better if they widened their time horizons, so when I saw a comment about a ‘2 year chart’ I thought I would encourage a wider view point.

TG says the easiest way most investors can improve their returns is to double their holding period. He (and I) are not alone in this regard http://www.suredividend.com/long-term-investing/

Ian

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Just wanted to add that in the link at the end of my last post, it is the selection of quotes that I was referring to - not the discussion on dividend stocks.

Ian

Saul, I think you are missing the bigger picture (and by that I don’t mean long term charts). One of the important lessons I learned about charts was decades before I became an investor. The lesson is that it is not enough to know what a chart says, you have to know why it is saying whatever it is saying. Charts of companies in different industries have to be read in certain ways.

Your commentary on technology companies is accurate, technologies change rapidly and a long historic chart is not particularly useful. With technology stocks look for the “S” curve which describes their life cycle. A technology like automobiles can last 100 years while desktop operating systems (Windows) might only last for 25. Some technologies are really short lived. But they have the “S” curve in common. The “S” curve can be divided into three equal length parts. The first third from invention to adoption when the “curve in the hockey stick” happens at about 15% market penetration. The next third is the fast growth until around 85% market penetration when the top of the “S” forms.

The fast growth for Microsoft was from 1990 to 2000. Same for Cisco

http://invest.kleinnet.com/bmw1/stats30/MSFT.html
http://invest.kleinnet.com/bmw1/stats25/CSCO.html

Apple was essentially floundering until Steve Jobs was called back. You can distinguish three short “S” curves from around 2002 to the present.

The “S” curve describes growth not just in technology. It applies to retail as well. There is a limited number of stores that a market can support, eateries support many more than clothing. The top of the “S” curve approaches when enough stores are in place.

Other industries have different chart characteristics, one expects a company like Exxon to go on for ever until we stop using oil but it is a cyclical industry and one has to study the cycles. I have an investment in Core Laboratories (CLB). The stock was depressed when Saudi Arabia opened the spigots starting the down cycle. By now oil seems stabilized at around $50 a barrel and a good time to buy CLB which should resume it’s 20% plus growth rate as oil producers get back into drilling.

http://invest.kleinnet.com/bmw1/stats20/CLB.html

Then there are the consumer staples, soap, candles, toothpaste, and so on. There is no reason for them not to continue doing the same thing for 100 years. Shopping, on the other hand, goes with demographics. Sears was railways, The Great Atlantic and Pacific Tea Company was urban shopping. Malls were suburbia. Amazon is Internet.

While you are right about technology, you can’t generalize that to all industries. You have to know why the chart is saying whatever it is saying.

Denny Schlesinger

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While you are right about technology, you can’t generalize that to all industries. You have to know why the chart is saying whatever it is saying.

Thanks Denny, Interesting discussion.

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Ian, be careful when making comparisons. Saul’s willingness to look back over more than ten years was applied to his entire portfolio, not an individual company. When he asserted that the previous two years of history is often a more accurate indicator of future performance than a ten year history it was directed towards analyzing an individual company. And equally important from Saul’s discussion is the need to know information about the company and the market that does not show up in the numbers, but helps to explain why they are what they are.

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