Governments and Value III: Bribery, Corruption and other "Dark" Costs

In this last post on the effects of government on valuations, I want to return to the value destructive effects that corruption, bribery and other "illegal" side-payments to government officials can have on value. In many countries, business people know that to keep doing business, they have to grease palms and provide “gratuities” to the gatekeepers of officialdom. A spate of news stories in the last few weeks should alert us all to the reality that the problem is not only still prevalent but that companies everywhere are exposed to its costs.In a reminder to natural resource companies that the...

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Governments and Value II: Subsidies and Value

In my last post, I looked at the negative effects on equity value of the threat of government expropriation (nationalization). In this one, I want to focus on the more benign (and perhaps positive) impact that governments can have the values of some companies, through subsidies in one of many forms: providing or facilitating below-market rate financing, special tax benefits, revenues or price supports and even forcing competitors to provide direct benefits to a subsidized entity. Note that my intent in this post is not to examine the wisdom of these subsidies and whether governments should be...

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Governments and Value: Part 1 - Nationalization Risk

I have been writing about valuation for a long time and for much of that time period, I chose to ignore the effects, positive or negative, that governments can have on the value of businesses. Implicitly, I was assuming that governments could affect the value of a business only through the tax code and perhaps through regulatory rule changes (if you were a regulated firm), but that  a firm's value ultimately rested on its capacity to find a market for its products and generate profits from these products. The last five years have been a wake-up call to me that governments can and often do...

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Google splits its stock and spits on its stockholders

I have talked about Google in prior posts on its voting share structure and the increasing cost it is paying for maintaining growth. Well, the company had a big news day yesterday, starting with an impressive earnings report (earnings growth of 60% & revenue growth of 24%) and ending with an announcement that they would be splitting their stock, with a twist. I will focus on the stock split but use it to also make a couple of points about corporate control and earnings growth. Stock splits and stock dividends are empty gestures from an intrinsic value standpoint because they change none of...

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Emotions, Intrinsic value and Dividend Clienteles: The Apple trade postscript

Now that I have read some of the reactions to my post on "folding" on Apple, I would like to respond to at least three issues that were raised in these responses. The first was that my sale of Apple seemed to be grounded more in emotional than in fundamental reasons. The second and related point was that the sale of the stock at a price that was below my own estimate of intrinsic value was not consistent with intrinsic value investing. The third was a more general question of whether or when I would return to the fold of Apple stockholders.1. The "emotional" tradeTo those who have charged me with...

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Apple: Know when to hold 'em, know when to fold 'em..

In my last post on Apple, I made two confessions. The first was that I have loved the company’s products for almost three decades and am thus incapable of being unbiased in assessing value or marking judgments on its quality as a business. The other was that I am an Apple stockholder of long standing. At least one of these statements is no longer true, since I did sell my holdings of Apple in the last week. Since the issue of whether Apple is going to $1000/share or to $ 200/share still seems to actively debated, I wanted to explain why I chose to fold, rather than hold. Before I list my reasons...

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