Mighty River Power: to buy or not to buy?
There has been a lot of talk recently about Mighty River Power. Many are in favour of owning the shares, including
almost every major brokerage firm. This is entirely unsurprising because almost every major brokerage firm is signed up
to make a nice little commission for selling the shares.
There are a few independents, with no stake in the game, who have voiced opinions to the contrary.
So what’s the right answer – buy or don’t buy? Here’s the problem - we’re asking the wrong question.
Mighty River Power is a business involved in power generation. That’s one industry. A diversified portfolio contains
over 400 industries.
Mighty River Power primarily sources its revenue from one country. A diversified portfolio will source revenue from more
than 190 countries and will own businesses registered in over 40.
Mighty River Power had revenue of $1.52 billion last year. A diversified portfolio owns companies that made over $30
trillion in US Dollars in 2011. [1]
Mighty River Power made profits of $109 million last year. The combined profits of companies in a diversified portfolio
were over $2 trillion in US Dollars 2011. [2]
Mighty River Power is one company. A properly diversified portfolio may contain up to 8000 or more companies.
Here’s the right question - what’s the value of the 8001st company? It has value; it probably merits being owned. But it
certainly doesn’t merit the attention some have recently given Mighty River Power.
Internationally, many companies have had IPOs in the last year, but I bet you’ve never heard of most of them. What about
Southcross Energy Partners, or WhiteWave Foods Company, or Shutterstock Inc, or SilverCrest Mines, or Northern Tier
Energy, or any of the dozens and dozens of other IPOs that listed last year? And what about the dozens more scheduled to list this year.
Certainly investors have the freedom to speculate that this one energy company is going to do better than other energy
companies, but there’s a healthier alternative: investors can instead choose to invest in capitalism. An investment in
capitalism is an investment in 8000 different businesses across 400+ industries, with operations in over 190 countries.
Forget about owning a horse, own the track.
The benefit of owning shares in capitalism is that capitalism has never gone out of business. It’s businesses that go
out of business. Some play the game well and win market share and profits; some play poorly and lose everything. Only
the fit survive, but capitalism as a whole keeps on producing.
And here’s another benefit…peace of mind. Imagine trying to get your head around the full 256 pages of the Mighty River
Power prospectus. And imagine trying to figure out whose opinion to trust - especially given most brokers offering
opinions are paid to sell the shares. Luckily, that’s not necessary. As the 8001st company, it’s only a small fraction
of a well-diversified global portfolio.
Sure, own it; but own it along with all the other companies in your portfolio, and then relax. Let capitalism be your
workforce to achieve your share of the profit pie every year.
By Ben Brinkerhoff
Head of Adviser Services
[2] ibid