Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
The risk of overpaying for a potentially attractive target is yet another
reason Yacktman prefers to see companies plow any extra cash
back into existing operations, instead of spending it to buy a competitor.
“When you go out and purchase another company, you’re forced
to pay up, because the seller knows what he or she is doing,” Yacktman
explains. “The most effective acquisitions are those where one
company brings some added value to the process. Here’s what I mean:
If combining the two operations will increase revenue and save in
distribution, advertising or production costs, you can do very well.
Yes, acquisitions can be a fabulous 25-year investment. But too often
managers pay up dearly for them.
“I often prefer to see companies repurchase their own shares, instead
of making high-priced acquisitions,” he says. “The Quaker Oats acquisition
of Snapple is a good case in point. The company would have
been far better off using its extra cash to repurchase its own stock,
instead of buying Snapple. Unfortunately, it’s very difficult for corporate
managers to get away from the idea of kingdom building. It’s
a natural problem many of them face. If abused, it can lead to disaster,
especially if they don’t pay the right price.”
Yacktman doesn’t force himself to meet personally with management
before investing in a company. In fact, although he does at least
try to talk with them by phone, if he thinks he understands the company
well enough without such a meeting he may still purchase a big
block of shares. In addition, the more stock top managers own, the
more impressed and interested Yacktman becomes. You can get this
information from the company or through various research services.
“I believe shareholder-oriented managers do a better job of allocating
investment capital, particularly excess cash, than do corporate kingdom
builders. They will often improve their company’s mix of businesses
over time,” he maintains. “I remember sitting across the table
from a CEO who didn’t have a lot of personal assets but what he did
have was all tied up in his company. He even had a mortgage on his
home to help support the stock he owned. I was very impressed. He
obviously knew what was going on in the company and would do
everything in his power to make it succeed.”
GETTING INVOLVED
Once he has invested in a company, Yacktman’s not afraid to get
101