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john_1
Super Contributor
So much is said about predictive cash flows and margins of saftey, but the real issue is not whether a company is currently profitable, the real issue in my mind is can it continualy defend that profit from competition. The size of the moat surley the single biggest determing factor in the long term success of an investment. This has been hilighted by the significant out performance of the tobacco sector in the last 11 years on the stock market.
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17 REPLIES 17
AJT
Super Contributor
John, agree with your comment on the moat, i.e. barrier to entry - but in the tobacco industry is government legislation not a threat to this moat?
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SimonPB
Valued Contributor
ya but that a double edged sword coz gov love the tax they collect ..
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richardw
Super Contributor
They're likely quite happy growing in areas where governments aren't terribly worried about their population's health just yet. Most of the developing world, say. And an industry in decline is an excellent market, because you aren't going to get new entrants. Nobody, but nobody, is thinking that they must get into the tobacco market. Except maybe John.
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Not applicable
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Not applicable
You really think nobody wants to get into the tobacco industry? They are cash printing machines! And their margins improve every year.
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partridge
Super Contributor
I don't agree with Simon wrt the statement that Govs love the tax they collect on tobacco. That is ignoring the fact that Govs( taxpayers present and future) pay for NHI costs - which if you then look at the tax take on Tobacco vs the cost of treating diseases linked to tobacco smoking will almost certainly leave you in a neutral position. NHI in the EU is a VERY significant % of national budgets...and with declining populations... The same argument applies to taxes on alcohol.
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SimonPB
Valued Contributor
sure, but the issue is that the tax received is direct while the NHI cost is abstract ..
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Preston
Super Contributor
Have to agree with partridge on this one.
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Blik
Super Contributor
Turnover is Vanity, Profit is Sanity and Cashflow is Reality - a nice little rhyme I bear in mind.
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warhippo
Super Contributor
It now becomes a debatable point which is the worst linked to illnesses that cost governments the most ie. "fat" food or tobacco. Hence should then the Wimpy's and MacD's etc. not contribute more taxes?
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SimonPB
Valued Contributor
long term tobacco companies are dead .. but not just yeti ..
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john_1
Super Contributor
dont get confused.. Govenments dont tax tobacco companies for health reasons.. they tax them becasue they can... because 25% of the population can't make it past breakfast without using their products. Govenments understand the moat concepts well and where there is a moat there is taxation...dont get side tracked
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richardw
Super Contributor
Inelastic demand. Gotta have it.
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Not applicable
will they die in our lifetime?
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partridge
Super Contributor
As to when these industries finally stop destroying lives and enriching their shareholders - As Dirty Harry said "are you feeling lucky..? " It might be in less than a decade - on the other hand...Either way I think that one doesn't get to be poor taking a profit sooner rather than later
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binformed
Occasional Contributor
Anybody got the numbers of how many people smoke in the East. Is's scary. It will only go up
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SimonPB
Valued Contributor
one doesn't get to be poor taking a profit sooner rather than later .. nor rich ..
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