4 ms·

I'm always skeptical of an industry or business being inherently profitable in the context of a public stock/equity market. Sure, high profitability from the s

I'm always skeptical of an industry or business being inherently profitable in the context of a public stock/equity market. Sure, high profitability from the start is possible. But it seems like once you have an ongoing public company, whether growing or stable, the market is going to be pricing in future profits and that the profitability of the stock will tend toward average. Microsoft, Apple and Google, for example, have a tremendous venue stream and good prospects for the future ... so their stock prices are correspondingly high and investing in these stocks shouldn't be inherently better than investing on other stocks. Each fall, farmers supplied the leaf tobacco. How did they fare economically? Tobacco had the second highest profit per acre of any crop in the world. (Only a grove of an obscure exotic nut was higher.) Sure, I'm not even sure what matters here. Different land uses produce crops of higher or lower value. Land that can produce higher value crops is quite valuable, sure. So is land in Manhattan. Tobacco tended to be a monopoly, monopolies get a large revenue per capital invested. It's simpler to say tobacco was a large, concentrated industry producing an addictive drug. Any industry like tends to produce a lot of revenue per dollar invested and this is because industry leverage their connections or ability to navigate/manipulate regulators and the state.

barney54 5y ago
How was tobacco a monopoly? And if it were a monopoly why was it profitable to farmers instead of the monopolist squeezing the farmers?
- netcan 5y ago
  >How was tobacco a monopoly. Philip Morris.
- monocasa 5y ago
  > How was tobacco a monopoly? https://en.wikipedia.org/wiki/United_States_v._American_Tobacco_Co https://en.wikipedia.org/wiki/United_States_v._American_Toba.... > And if it were a monopoly why was it profitable to farmers instead of the monopolist squeezing the farmers? The monopolists did squeeze the farmers. It was still profitable for the farmers, but under what a fair market rate would be. Just because you're getting paid enough to keep going doesn't mean you're getting a fair rate. It's sort of like the SF tech anti poaching. No one denies that SF engineers get paid a lot. That also doesn't mean that they didn't get shafted out of thousands by a wage fixing scheme.
  - megablast 5y ago
    > The monopolists did squeeze the farmers. It was still profitable for the farmers, but under what a fair market rate would be. Just because you're getting paid enough to keep going doesn't mean you're getting a fair rate. Obviously it paid better than other crops, so it is not about getting paid enough to keep going.
    - monocasa 5y ago
      Enough to keep going with that crop versus others.
- ksaj 5y ago
  I wonder how profitable. There is a town in SW Ontario, Canada, named Tillsonburg. Up until the 80's, every other farm was a tobacco company, earning the nickname Tobaccoburg. Even Stompin' Tom Connors wrote this song about working in Tillsonburg's tobacco fields: https://www.youtube.com/watch?v=YouShACK-H4 https://www.youtube.com/watch?v=YouShACK-H4 (Also, what a lucky URL. They rarely spell actual words.) Since the 90's, you can drive throughout the town and surrounding area and find it very hard to find a tobacco field anywhere. You still see a lot of the old-style kilns, rarely ever a modern one, and they're nearly always in fields growing anything but tobacco. Even when there were tobacco fields everywhere, tobacco farmers highly relied on Jamaicans coming in through the Farm Labour Pool in order to make the season profitable. There were farms that didn't use the labour pool, but they were few and far between.
  - Scoundreller 5y ago
    The government also paid them off to get out of tobacco farming. https://www.thestar.com/news/ontario/2008/08/01/feds_give_farmers_300m_to_exit_tobacco_industry.html https://www.thestar.com/news/ontario/2008/08/01/feds_give_fa... Production went from 38m kg in 2005 to 9m kg in 2008, I don't doubt demand dropped by 74%, so someone else picked up the slack/production value and we just import from there. Another supply-focussed war on drugs failure.
    - ksaj 5y ago
      I didn't know about the cigarette smuggling convictions. Quite interesting. Out of the more than $1billion fine, it would be interesting to see how and where the money was allotted. A lot of ex-tobacco farms are now growing sweet potatoes for use in biofuel. I also saw ginseng, and I'm sure there are quite a few other crops they are working on.
netcan 5y ago
I think you're assuming a level of market rationality that doesn't exist IRL. In practice, certain industries have tended to be more profitable than others... even long term. Same for stock. Apple & MSFT's stock price does, in theory, "price in" their tremendous revenue, growth potential and profitability. But.... This was also true 10, 20 & 30 years ago. Yet, investments in tech companies over those years did yield market beating returns. I think that for tobacco and other cash crops, it helps that it's relatively durable and that the market is quality oriented.
- Closi 5y ago
  > Apple & MSFT's stock price does, in theory, "price in" their tremendous revenue I think this is easy to say in hindsight, but 10-20 years ago it was not at all obvious that Microsoft or Apple would be where they are today (even as recently as 2014 the outlook of Microsoft was very different than it is today). Besides, potential future revenue is different to actually achieving it - 30 years ago companies like Commodore, Amstrad and Gateway all had tremendous growth forecasts, and maybe in an alternative universe would be the dominant players today, but history favours the winners and is always obvious in hindsight.
- nradov 5y ago
  You appear to be confused by survivorship bias. Look back 10, 20 & 30 years ago. You'll find many other tech companies which underperformed, or completely failed. There was no reliable way to predict at the time that Apple and Microsoft would do especially well. Some long term investors who guessed right got very wealthy, but that was mostly just luck.
stefan_ 5y ago
What does the stock valuation have to do with the profit of the actual enterprise?
- loeg 5y ago
  > The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. > P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. https://www.investopedia.com/terms/p/price-earningsratio.asp https://www.investopedia.com/terms/p/price-earningsratio.asp
mxschumacher 5y ago
The global tobacco industry is more concentrated than ever, we might see Altria and Philipp Morris International merge again, then practically all of the world's cigarettes will be sold by 4-5 companies. For Tobacco companies a few things are going on, the number of cigarettes sold in Western countries is declining, yet profits are up (a conundrum explained by the industry's enormous pricing power). Smoking rates are still extremely high in countries like Indonesia. The biggest brands in the various "alternative" tobacco products like e-cigarettes are already owned by the conventional incumbents. Simultaneously these stocks face a lot of ESG pressure and are being sold by many funds on principle, not valuation. Just looking and multiples on profit, it is remarkable how low the valuations of some of these firms is.
- Scoundreller 5y ago
  > The biggest brands in the various "alternative" tobacco products like e-cigarettes are already owned by the conventional incumbents. My own observation is that most e-cigarettes in Canada and multiple countries in Europe are various Chinese devices and liquids sourced from vape shops that don't have anything from the incumbent combustible tobacco providers.

barney54 5y ago

How was tobacco a monopoly? And if it were a monopoly why was it profitable to farmers instead of the monopolist squeezing the farmers?

netcan 5y ago
>How was tobacco a monopoly. Philip Morris.
monocasa 5y ago
> How was tobacco a monopoly? https://en.wikipedia.org/wiki/United_States_v._American_Tobacco_Co https://en.wikipedia.org/wiki/United_States_v._American_Toba.... > And if it were a monopoly why was it profitable to farmers instead of the monopolist squeezing the farmers? The monopolists did squeeze the farmers. It was still profitable for the farmers, but under what a fair market rate would be. Just because you're getting paid enough to keep going doesn't mean you're getting a fair rate. It's sort of like the SF tech anti poaching. No one denies that SF engineers get paid a lot. That also doesn't mean that they didn't get shafted out of thousands by a wage fixing scheme.
- megablast 5y ago
  > The monopolists did squeeze the farmers. It was still profitable for the farmers, but under what a fair market rate would be. Just because you're getting paid enough to keep going doesn't mean you're getting a fair rate. Obviously it paid better than other crops, so it is not about getting paid enough to keep going.
  - monocasa 5y ago
    Enough to keep going with that crop versus others.
ksaj 5y ago
I wonder how profitable. There is a town in SW Ontario, Canada, named Tillsonburg. Up until the 80's, every other farm was a tobacco company, earning the nickname Tobaccoburg. Even Stompin' Tom Connors wrote this song about working in Tillsonburg's tobacco fields: https://www.youtube.com/watch?v=YouShACK-H4 https://www.youtube.com/watch?v=YouShACK-H4 (Also, what a lucky URL. They rarely spell actual words.) Since the 90's, you can drive throughout the town and surrounding area and find it very hard to find a tobacco field anywhere. You still see a lot of the old-style kilns, rarely ever a modern one, and they're nearly always in fields growing anything but tobacco. Even when there were tobacco fields everywhere, tobacco farmers highly relied on Jamaicans coming in through the Farm Labour Pool in order to make the season profitable. There were farms that didn't use the labour pool, but they were few and far between.
- Scoundreller 5y ago
  The government also paid them off to get out of tobacco farming. https://www.thestar.com/news/ontario/2008/08/01/feds_give_farmers_300m_to_exit_tobacco_industry.html https://www.thestar.com/news/ontario/2008/08/01/feds_give_fa... Production went from 38m kg in 2005 to 9m kg in 2008, I don't doubt demand dropped by 74%, so someone else picked up the slack/production value and we just import from there. Another supply-focussed war on drugs failure.
  - ksaj 5y ago
    I didn't know about the cigarette smuggling convictions. Quite interesting. Out of the more than $1billion fine, it would be interesting to see how and where the money was allotted. A lot of ex-tobacco farms are now growing sweet potatoes for use in biofuel. I also saw ginseng, and I'm sure there are quite a few other crops they are working on.

netcan 5y ago

I think you're assuming a level of market rationality that doesn't exist IRL. In practice, certain industries have tended to be more profitable than others... even long term. Same for stock. Apple & MSFT's stock price does, in theory, "price in" their tremendous revenue, growth potential and profitability. But.... This was also true 10, 20 & 30 years ago. Yet, investments in tech companies over those years did yield market beating returns. I think that for tobacco and other cash crops, it helps that it's relatively durable and that the market is quality oriented.

Closi 5y ago
> Apple & MSFT's stock price does, in theory, "price in" their tremendous revenue I think this is easy to say in hindsight, but 10-20 years ago it was not at all obvious that Microsoft or Apple would be where they are today (even as recently as 2014 the outlook of Microsoft was very different than it is today). Besides, potential future revenue is different to actually achieving it - 30 years ago companies like Commodore, Amstrad and Gateway all had tremendous growth forecasts, and maybe in an alternative universe would be the dominant players today, but history favours the winners and is always obvious in hindsight.
nradov 5y ago
You appear to be confused by survivorship bias. Look back 10, 20 & 30 years ago. You'll find many other tech companies which underperformed, or completely failed. There was no reliable way to predict at the time that Apple and Microsoft would do especially well. Some long term investors who guessed right got very wealthy, but that was mostly just luck.

stefan_ 5y ago

What does the stock valuation have to do with the profit of the actual enterprise?

loeg 5y ago
> The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. > P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. https://www.investopedia.com/terms/p/price-earningsratio.asp https://www.investopedia.com/terms/p/price-earningsratio.asp

mxschumacher 5y ago

The global tobacco industry is more concentrated than ever, we might see Altria and Philipp Morris International merge again, then practically all of the world's cigarettes will be sold by 4-5 companies. For Tobacco companies a few things are going on, the number of cigarettes sold in Western countries is declining, yet profits are up (a conundrum explained by the industry's enormous pricing power). Smoking rates are still extremely high in countries like Indonesia. The biggest brands in the various "alternative" tobacco products like e-cigarettes are already owned by the conventional incumbents. Simultaneously these stocks face a lot of ESG pressure and are being sold by many funds on principle, not valuation. Just looking and multiples on profit, it is remarkable how low the valuations of some of these firms is.

Scoundreller 5y ago
> The biggest brands in the various "alternative" tobacco products like e-cigarettes are already owned by the conventional incumbents. My own observation is that most e-cigarettes in Canada and multiple countries in Europe are various Chinese devices and liquids sourced from vape shops that don't have anything from the incumbent combustible tobacco providers.