Fundamental Analysis

Case Study:
Phillip Morris (MO)

In my Freshman Discovery Class one eager student bought shares of Phillip Morris (MO) based on a classmate’s recommendation and a brief look at the fundamentals (including the fundamental belief that a Company that owned Miller Beer couldn’t help but do well). The stock declined in value, eroding the dollar value of the student’s account with a relentless persistence, while every other stock seemed to be hitting new highs every day. Why? It was only then that the student began asking who and what was Phillip Morris.

He discovered that Phillip Morris not only owns Miller Beer and Kraft Foods but Rothmans. A tobacco company? Actually the largest tobacco company in the US, and embroiled in a prolonged dispute with Congress over tobacco legislation from which only the lawyers seem able to emerge unscathed.

By the end of the semester this student, poorer but wiser, reported that he learned never to invest in a company before you know what they do for a living. Philip Morris has since recovered, but not before providing a solid lesson in Investment Finance. Investor, know thine own company.

My student pointed out that Phillip Morris’s recovery dates to the end of the semester - too late to do my student’s portfolio any good.