why is wow down so hard at the moment, page-23

"okay, how can they maintain such a high ROE in the face of a credit slowdown which has fuelled retail spending this past decade? can they squeeze such high returns per $ in a market where discretionary spending is falling and property prices are getting the wobbles? Consumer confidence has turned decidedly negative"


There is discretionary spending, and then there is food, petrol and grog.
And besides, businesses operate through cycles. Do you think that Exxon or Walmart or whatever will close down until consumer confidence returns ?

AP, I picture you living in a semi-detached in Hawthorn. You go for a stroll down Glenferrie Rd and you notice that there are two businesses for sale. Both make $100,000 profit pa.
Applying AP logic, both businesses are worth (say at a PE of 10) $1,000,000.
But if you apply correct logic, you will first need to know how much each business cost to set-up. Because if you want to expand it, the one with less capital invested is the easier to replicate and costs less to maintain.

Bookmark this post AP.


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