Monthly Archive for March, 2008

Did JP Morgan (JPM) make a good Big Moat Purchase?

After looking at Bear Stearns’ (BSC) numbers yesterday, we saw that they had a 10 year decline on all of the Big Moat numbers. The question now becomes, did JP Morgan made a good Big Moat purchase?

Just by examining the numbers you and I would immediately bypass Bear Stearns if we were following the Big Moat rules. None of the numbers were increasing and the fact that BSC had 10 full years of decline would make Big Moat investors run for the hills. The other assumption is that there are management issues if they couldn’t turn things around for 10 straight years.

But have a look at the chart. Up until the beginning of 2007, the history of BSC is straight up.

BSC Multi Year

It can get very tempting to jump on board when a stock never seems to falter. But the purpose of Big Moat is to help you avoid what happened after the start of 2007. Whether you want to blame the economy, the BSC management or scared investors, a company with bad numbers will almost always falter at some point. Big Moat is there to help you find solid companies and avoid the companies with the illusion of never ending success.

Did JP Morgan make a good Big Moat purchase? From a Big Moat perspective I don’t think so, but then, they were making the purchase for different reasons than you and I. They will probably end up with a great deal because of the assets they are acquiring go hand in hand with their existing business. Maybe the next Big Moat buying opportunity will be in JP Morgan.

Just for fun: Is Bear Stearns a Big Moat Company?

After the news of the Bear Stearns (BSC) meltdown I decided to run the Big Moat Analysis Spreadsheet on the stock. The results are not surprising given the recent news, but the ten year track record is surprising given that Bear Stearns is one of the big boys that big-moat is referring to when talking about institutional investors. These are the guys who have the ability to change the market with their transactions.

Here are the numbers in all their ugliness.

Bear Stearns (BSC) - Big Moat Analysis