Sunday, May 11, 2008

Why did you buy that stock? [Michael Hill International]

I initially resisted buying shares in Michael Hill International, [MHI] the operator of approximately 200 Jewelry stores in New Zealand, Australia and Canada because the dividend wasn't big enough.

Buying Michael Hill shares would be contrary to my investing belief that an investment should pay good returns, right from the beginning, when you plunk down those hard earned sheckels.

Why did you buy that stock?

Why did you buy that stock? [Mainfreight]
Why did you buy that stock? [The Warehouse]
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Why did you buy that stock? [Auckland Airport]
Why did you buy that stock? [Sky City Entertainment]

I then watched over the years as MHI management continued to have a sustained success in their business and have 20 plus years of good revenue and profit growth behind them.

I then re thunk my position on dividends and returns and decided to look longer term, where I thought Michael Hill's main prospects lie.

Therefore the main reason I bought MHI shares was in the company and its good long-term prospects, 5 years and up. Granted, it is doing well currently but its big future lies in the long-term management and progress of the company for even better investor returns.

Its position in my high dividend portfolio as a "growth stock" marks it out only with Pumpkin Patch Ltd [PPL] in that respect. My portfolio was previously lacking in such growth stocks and it is probably prudent for investors to have one or two in their portfolios.

Good management marks this company out from many others listed on the NZX and as you might know, as a seasoned investor, good management of a company is the most crucial part of a business, save the product or service being sold. Management for me is another key reason for picking Michael Hill. This is embodied in Michael Hill, the man himself, and he has provided a culture where his other managers are able to run the company the way he would want and therefore the transition to another CEO in the future will be relatively easy-another good long-term indicator.

Once again, and it seems to be a recurrant theme that runs through the businesses that I pick to invest in, they are easy to understand. Like the other retailers in my portfolio, Pumpkin Patch Ltd [PPL] Postie Plus Group [PPG] and The Warehouse [WHS] they simply sell goods to the public. Easy peasy.

For me, having Michael Hill has part of my portfolio provides an opportunity for me to participate in a growing business in which the full benefits of that growth, in terms of larger profit , a bigger company and revenue are still many years down the track. Along with excellent management and and easy to understand business any significant dips in share price would be a good opportunity for me to acquire a much larger stake than my current 1000 share holding and I wouldn't hesitate to take that opportunity.

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c Share Investor 2008

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