Wednesday, 1 May 2013

A comic book makes the case for Loews (amended version)

(Amended version, comments added in red at the end of the article)

Loews, a holding company based in the US, has done pretty well over the years. However, investors in general don't like holding companies much, the story is just not sexy. Often holding companies are trading at a discount compared to the sum of the value of the subsidiaries.

Therefore the CEO, Jim Tisch, suggested to use a comic book to teach potential investors about the value of the company.

The book is called "Lotta Value: Investment Hunter", and can be downloaded here.

Not everyone is that positive about the idea of using a comic book, an extract of Bloomberg can be found here:

One critic says that the comic “just looks dead. And the content is about as interesting as reading the ingredients on a processed food label.”

I am not that negative, but more interesting than the comic is the value investing story of this company, which can be found here.

A return of 15.5% over 50 years means that if someone would have invested $ 1,000 50 years ago then one would now be sitting on a capital worth of about $ 1,300,000 while the same amount invested in the S&P 500 would only have yielded $ 22,500, quite a difference.

RG commented: "As far as I understand, the S&P 500 historically returns approximately 8%-10% pa. So I wonder how the figure of $22,500 was arrived at over 50 years."

And RG is right, so it seems, based on this calculator. The difference in the 50 year annual return between 6.4% and 9.7% is the difference between price (without dividends) and price (dividends reinvested).

I think it is more fair to compare returns based on dividends reinvested. However, I am not sure if Loews' return includes dividends reinvested, if not then the real return would even be higher.

The calculator from the above website goes back as far as 1871. Annual returns are 4.2% (price excluding dividends) and 8.9% (dividends reinvested), giving prominence to the importance of dividends. Adjusted for inflation the difference is even larger, 2.0% and 6.7%.

The 10 year return for the S&P 500 is 5.7% resp. 7.8%, but the 13 year return is only 0.5% resp. 2.3%, stressing the importance of choosing a starting point for comparison wisely. I prefer to measure over a period as long as possible.

PERMANDU (the performance management delivery unit from the Malaysian government) compares its performance starting in 2009, but that is in the midst of the global recession. If I use Jan 2009 as a starting point for the S&P 500 then the returns become 14.8% and 17.2%, unrealistic high annual scores, about 10% higher than the averages, caused by exceptional circumstances. PERMANDU should acknowledge the importance of the starting point for its measurements, and warn the public that returns in the future (most likely) will not continue to be so good.


  1. Hi, I recently stumbled unto your blog to keep up to date to the going-ons in Malaysia.
    As far as I understand, the S&P 500 historically returns approximately 8%-10% pa.
    So I wonder how the figure of $22,500 was arrived at over 50 years. Cheers.

  2. Hi RG,

    I have it from the website from Loews, 6.43%:

    I agree, it sounds a bit low, I also have a higher amount in my head. First of all, returns have not been that great over the last say 13 years. Secondly may be this 6.43% is excluding dividend and the 8-10% including dividend? If that is the case, then the one including dividend should have been used, both for Loews and the S&P, only then one can make a fair comparison.

    So you might be right, will do some checking.