By Ben Graham
THE unprecedented spectacle confronts us of more than one industrial company in three selling for less than its net current assets, with a large number quotd at less than their unencumbered cash. For this situation we have pointed out, in our previous articles, three possible causes: (a) Ignorance of the facts; (b) Compulsion to sell and inability to buy; (c) Unwillingness to buy from fear that the present liquid assets will be dissipated.
In the preceding articles we discussed the first two causes and their numerous implications. But neither the ignorance nor the financial straits of the public could fully account for the current market levels.
If gold dollars without any strings attached could actually be purchased for 50 cents, plenty of publicity and plenty of buying power would quickly be marshaled to take advantage of the bargain. Corporate gold dollars are now available in quantity at 50 cents and less–but they do have strings attached. Although they belong to the stockholder, he doesn’t control them. He may have to sit back and watch them dwindle and disappear as operating losses take their toll. For that reason the public refuses to accept even the cash holdings of corporations at their face value.
IN fact, the hardheaded reader may well ask impatiently: “Why all this talk about liquidating values, when companies are not going to liquidate? As far as the stockholders are concerned, their interest in the corporation’s cash account is just as theoretical as their interest in the plant account. If the business were wound up, the stockholders would get the cash; if the enterprise were profitable, the plants would be worth their book value. “If we had some ham, etc., etc.”
This criticism has force, but there is an answer to it. The stockholders do not have it in their power to make a business profitable, but they do have it in their power to liquidate it. At bottom it is not a theoretical question at all; the issue is both very practical and very pressing.