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Over time, his comments drifted back into dangerous territory. The problem was that Mohammed bin Salman’s approach to reforming the country was infuriating him. Everything seemed to be done by decree; Mohammed only seemed to be paying attention to different opinions when he was locking up those who expressed them. Mohammed was trying to open the country up to tourists and clamp down on corruption, but many who questioned his way of doing it were hauled in by state security and ordered to sign a pledge never to criticize the government again. The key lesson for Saudis: You are free only insofar as Mohammed bin Salman decides. On the surface, Saudi Arabia seemed to be reforming. But its underlying problem—the fact that people had no say in their own governance and that their freedom was left to the whim of a single man—was worse. Ironically, Mohammed encouraged his closest advisors to be brutally honest about projects and ideas, praising effusively those who spoke up about what they considered to be an unwise course for the country, even if they directly contradicted the prince’s own views. One evening, he got into a heated argument with a minister about the size of government allowances for Saudi government workers. Mohammed thought they should be enlarged in the budget because the 2030 plan wasn’t yet at a stage where it was putting more money into people’s hands, but the minister felt it was financially imprudent to spend money in that manner. Finally, the weary minister told Mohammed that he was the crown prince, and it was up to him to decide. “If I wanted to use my powers to push the decision through, I wouldn’t have spent three hours trying to convince you, losing my voice,” he said. When the matter was put to a committee vote, the technocrats voted against Mohammed, and the budget item wasn’t increased. But such debate happened strictly in private meetings. Public dissent was off limits, especially when it came to the key reform plans.
Blood and Oil
Bradley Hope and Justin Scheck
Germany had not planned on the need to hold out for long and upon entering the war had a stockpile of nitrates for making gunpowder sufficient for six months and no more. Only the later discovery of a method for fixing nitrogen out of the air enabled her war effort to continue. The French, gambling on a quick finish, risked no troops on what would have been a difficult defense of the Lorraine iron basin but allowed the Germans to take it on the theory that they would regain it with victory. As a result they lost 80 per cent of their iron ore for the duration and almost lost the war.
The Guns of August
Barbara W. Tuchman and Robert K. Massie
Walmart stock closed out 1999 at $69.13, and later reported earnings per share (EPS) of $1.25 for the fiscal year ending January 2000, up from $0.99 in the previous year. This gave it an earnings yield of 1.8 percent, or a P/E of fifty-five. Obviously, investors were counting on returns that would match the return on equity of 20 percent, or the earnings growth rate, not the tiny earnings yield. For fast growers, I try to tie together the growth rate and the earnings yield. To produce an earnings yield of 8 percent, Walmart would have needed EPS of $5.53 (8 percent × $69.13). Then I calculate how many years of an assumed growth rate it would take to reach that target. In the best case, the crossover is not many years away, I trust my forecast, and I believe that when it is attained the enterprise will still be growing dynamically. I thought Walmart’s growth rate would continue, perhaps at a less torrid pace, closer to the 12 percent gain reported the following fiscal year. As the already dominant American retailer in many categories, Walmart couldn’t keep grabbing share indefinitely. While Mexico became a stunning success for Walmart, its other international expansion has been a mixed bag. Assuming a 12.1 percent compound earnings growth rate, it would take thirteen years for Walmart’s earnings to reach an 8 percent earnings yield hurdle on the initial purchase price. Some analysts were more enthusiastic about Walmart’s future growth and believed it would get to the target sooner. But, my calculation ignored the compounding of time value of money for those thirteen years, so the target should have been even higher. Historically, few companies have been able to grow earnings 12 percent every year for thirteen years. Surprisingly, Walmart’s earnings did advance in an unbroken string at an 11.3 percent compound rate over the next thirteen years, yet its stock stagnated. The low price for Walmart in 2012 was $57, which, along with cumulative dividends of just over $10 per share would have summed to a negative total return. The average price of Walmart stock in 2012 was close to its price at the end of 1999, or zero capital appreciation, so its dividends were the stock’s total return. Cumulatively, the total return and dividend yield were a lot closer to the initial earnings yield of 1.8 percent than the earnings growth rate or return on equity. Uncharacteristically, shoppers of Walmart shares in 1999 had not demanded a bargain, perhaps because it was otherwise an irresistible story. The realized return on Walmart undershot the discount rate of 8 percent used in my example partly because earnings disappointed, but also because P/Es are prone to mean reversion. Walmart’s actual earnings of $5.02 were not that far behind the initial target of $5.53. But over thirteen years the compounded effect of that technical detail about the difference between the required earnings and actual earnings was substantial, which implied a much higher earnings target to…
Big Money Thinks Small
Joel Tillinghast
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