The Intelligent Investor: The Definitive Book On Value part 35. The purpose of this book is to supply, in a form suitable for laymen, guidance in the adoption and execution of an investment policy. Comparatively little will be said here about the technique of analyzing securities; attention will be paid chiefly to investment principles and investors’ attitudes. We shall, however, provide a number of condensed comparisons of specific securities - chiefly in pairs appearing side by side in the New York Stock Exchange list in order to bring home in concrete fashion the important elements involved in specific choices of common stocks | 326 Commentary on Chapter 12 mal operating expenses into capital assets. As the Global Crossing case shows the intelligent investor should be sure to understand what and why a company capitalizes. AN INVENTORY STORY Like many makers of semiconductor chips Micron Technology Inc. suffered a drop in sales after 2000. In fact Micron was hit so hard by the plunge in demand that it had to start writing down the value of its inventories-since customers clearly did not want them at the prices Micron had been asking. In the quarter ended May 2001 Micron slashed the recorded value of its inventories by 261 million. Most investors interpreted the write-down not as a normal or recurring cost of operations but as an unusual event. But look what happened after that A Block of the Old Chips Inventory write-downs millions FIGURE 12-1 Source Micron Technology s financial reports. Commentary on Chapter 12 327 Micron booked further inventory write-downs in every one of the next six fiscal quarters. Was the devaluation of Micron s inventory a nonrecurring event or had it become a chronic condition Reasonable minds can differ on this particular case but one thing is clear The intelligent investor must always be on guard for nonrecurring costs that like the Energizer bunny just keep on THE PENSION DIMENSION In 2001 SBC Communications Inc. which owns interests in Cingular Wireless PacTel and Southern New England Telephone earned billion in net income-a stellar performance in a bad year for the overextended telecom industry. But that gain didn t come only from SBC s business. Fully billion of it-13 of the company s net income-came from SBC s pension plan. Because SBC had more money in the pension plan than it estimated was necessary to pay its employees future benefits the company got to treat the difference as current income. One simple reason for that surplus In 2001 SBC raised the rate of return it expected to earn on the pension plan s investments from to .
