International -- Readers Report
We Are What We Eat (int'l edition)
One week before the appearance of "Imperiled monarchs alter the biotech landscape" (American News, June 7), another apparently imperiled monarch-to-be, His Royal Highness the Prince of Wales, released "My 10 fears for GM [genetically modified] food" through the media. He, too, discussed the fate of the monarch butterfly.
The biotech giants are everywhere, and here in Australia, where we have a reputation for living in a "clean green" country, concern is mounting. Recent research shows that 40% of us are concerned about genetically modified foods. The reason is simple. There is a growing awareness that, to paraphrase the 19th century French food philosopher Brillat-Savarin, "we are what we eat." That being so, we have every right to know exactly what it is that we eat.
SydneyReturn to top
Don't Bet Too Much on the Euro (int'l edition)
One cannot really predict the dollar's behavior just by looking at U.S. economic performance or the deficit ("Will the trade gap spoil the fun?" Business Outlook, June 7). The dollar is only one part of the foreign exchange equation; the other is more difficult to anticipate, involving as it does different countries in various stages of development.
Considering the euro, real interest rates are definitely in the dollar's favor, while the U.S. deficit keeps the pressure up. Concerning the euro/dollar longer-term exchange rate, I wouldn't bet too much on the euro, which is an artificial currency. It is a juxtaposition of several currencies as diverse as the German mark and the Portuguese escudo. The only thing these countries have in common is a central bank and an agricultural policy, which eats up 80% of the European Union budget. Wait until 2002 comes, and the deutsche mark will cease to exist. Will you then be willing to abandon your good old dollar for a monkey currency?
San DiegoReturn to top
A Fuzzy Line Between Growth and Value (int'l edition)
For years, the majority of "value" investors have clung to misguided notions of value such as a low price-earnings ratio (p-e), price-to-book-value (p-b), or dividend yield, which are backward-looking measures applied to a forward-looking stock market ("Value investors learn new tricks," BUSINESS WEEK Investor, June 14). As valuation techniques improve and more sophisticated approaches become more widely used, investors will improve their understanding of company valuation and make better buy and sell decisions. This will lead to better performance of actively managed funds and better allocation of capital.
The distinction between value and growth investing is a false one, as both styles are joined at the hip by net-present-value arithmetic. Indeed, Warren E. Buffett would hardly qualify by a consultant's traditional definition of a value investor given the high p-e's, p-b's, and low dividend yield of his portfolio. He is successful because of his method, not his style. The method is net-present-value arithmetic.
It is a financial truism that the value of any investment is the present value of expected real net cash receipts. A bond is easy to value because its net cash-receipt stream is a contractual obligation. A company is more difficult because the net cash receipt-stream is composed of receipts generated separately from the existing and future assets (on or off the balance sheet). Once investors understand this concept, the distinction between growth and value becomes irrelevant, and the focus changes toward asking questions like "What does management have to achieve in order to justify today's price?" Investors who answer this accurately will beat the market regardless of style.
Christopher C. Faber
Holt Value Associates
ChicagoReturn to top