Pioupiou: WES is one prime example of a company that had a poor ROE, following the acquisition of Coles, and that mitigated against investors wanting to own it, even though its share price has almost trebled since that deal.
And the problem there is that, as a "fresh investor" it wasn't the numerical ROE you were really buying, because the "E" in the equation needed to be sanitised first, which would have given a vastly different figure.
I can think of several more like that...typically they involve companies that have come off aggressive acquisition forays, which have destroyed significant shareholder value, but whose management (invariably new board and management) have had the Road-to-Damascus experience and have thrown away the acquisition cheque book.
Sttoz: Sorry for your loss in relation to BNB. The intent of my paper was not intended to be BNB-specific, so I hope you don't take offence. What I was actually trying to do was to make the point that ROE, in isolation, is potentially a misleading gauge for many stocks, not just BNB, and that it needs to be subject to qualifying adjustments.
Of course in BNB's case, the reason ROE was meaningless is because the profits were "manufactured" or "engineered", rather than banked.
Which is why the P&L looked so completely different in tone and quality to the cash flow statement.
Wookie; Your point is well-made, sometimes balance sheets are over-capitalised, the pain of which has been borne by the shareholders at the time the over-capitalisation took place. Often, the fresh shareholder gets "subsidised" by the early investors.
Finch: Yes, It's hard getting them all right. But, with a bit of basic discipline and rigour it is surprisingly easy getting more right than wrong, and ensuring that the ones that you wrong don't inflict too much damage.
