Wednesday 30 July 2014

The Very Definition Of Cutting One's Nose Off

Tobacco controllers have been having orgasms on Twitter about this. Boy, has it made me laugh though.
Doctor delivers $1.2 billion blow to tobacco – and counting
You mean this Doc has taken over a billion dollars from the tobacco industry? Wow, that's incredible!
In mounting its noisy counter-attack against cigarette plain packaging, the tobacco industry has appeared largely oblivious to the emergence of another potent threat to its long-term viability. 
Since 2010 Melbourne-based radiation oncologist Dr Bronwyn King, from the Peter MacCallum Cancer Centre, has been steadily chipping away at the tobacco industry’s investor base, so far convincing Australian superannuation funds to unload $1.2 billion of tobacco company shares.

No, the tobacco industry has not been "oblivious", just not remotely bothered. And she hasn't been presenting any threat to the long-term viability of the tobacco industry, unless costing them not a single cent is seen by economically illiterate anti-smokers as a threat. We knew the tobacco control industry has always been incredibly stupid when it comes to economics, but they've really excelled themselves here.

The only loser in this sad story are the poor pensioners and future pensioners who are cursed to have lost high performing stocks as a result of Dr King's stupidity. The tobacco industry couldn't give a toss.

You see, the price of a company's shares is entirely separate to the profitability or true worth of the business. Unless the company concerned is thinking of announcing a rights issue to raise funds - something tobacco companies don't have to do because they are highly profitable - the share price is irrelevant to them as far as income is concerned.

Profitability and worth are real things, share price is just a measure for those who wish to make money on the back of that profitability and worth by way of yield and dividends.

Righteous types can sell billions of shares on principle but it doesn't matter one iota to 'Big Tobacco'. The share price may wane but nobody will stop smoking because of it, but whoever buys the shares after that makes a lot more money.

Tobacco company shares have always been under-valued relative to dividend yield or profits - when compared to other industries - simply because of perceived dangers of the global war against tobacco, so whoever has been clever enough to ignore all that guff has earned very well for a long time now. This is why tobacco shares are almost a constant in being flagged up by proper investment analysts as some of the best that any investor or pension fund can own.

The only possible result of Dr King's campaign will be that the stocks might be even more under-priced, even more attractive to investors, and therefore offer even more super profits than they already do for people who aren't financially stupid on the back of ignorant teen-like ideology.

Of course, the superannuation funds which now don't count tobacco stocks amongst their portfolio will be deprived of these super profits, meaning that eventual payouts will be inevitably lower than they could have been if Dr King hadn't embarked on her funny campaign. The only 'blow' here is to the people who will now have to suffer a smaller pension when they retire.

The cost to the tobacco industry, on the other hand, is not actually $1.2bn but more like {gets calculator out} $nil.

Bravo, Dr King. Bravo!

H/T Mark Wadsworth


Jax said...

Quite a lot of my own investments are with tobacco companies and they've done very well indeed, thank you! So it's excellent news that more may be coming on the market, particularly at a lowered price. I'll keep an eye open for some more to buy. Thanks, Dr King! Perhaps I will be able to retire early after all!

Sam Duncan said...

Wait. You mean... people have to be told this?

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