Long view

WESFARMERS chief Michael Chaney is basking in the warm glow of success.

There is little he can do wrong and, if he lives up to his forecasts, there is another year of pleasant headlines and generally positive devotion.

But it wasn’t always like this.

A few years ago Wesfarmers dipped well below $8 a share and questions were being asked if Mr Chaney was up to the task.

It was a mixture of tall poppy bashing, the press searching for a headline and investors’ typically short-term outlook.

Mr Chaney, backed by his board, told everyone to be patient, that his plan would work.

And he turned out to be right.

At this week’s press conference, Mr Chaney rightly turned down the opportunity to comment on the precarious positions of a number of his counterparts at the helm of blue chip companies.

No matter what he said it would sound like a gloat and, invariably, come back to haunt him at some later stage.

But the fact that reporters are asking shows the shift in respect with which the market views WA’s top performing industrialist, who was even touted as a potential head of BHP two years ago.

Interestingly, Mr Chaney survived and no doubt learned from that torrid time a few years ago when, unlike today, Wesfarmers was basically takeover proof due to the ownership structure.

Who knows whether that structure, which disappeared when Wesfarmers took Franked Income Fund out of the equation earlier this year, gave Mr Chaney the breathing space he needed to achieve his aims.

Now Wesfarmers has grown to a size that is difficult to digest, it felt it was held back by FIF.

But you have to wonder if that level of protection wasn’t just the mechanism required to overcome the short-term outlook that has pervaded our market.

The past five years’ profit growth of Wesfarmers is testament to the long-term thinking which is missing in so many companies or among those that invest.

Renewed caution

PERHAPS the rising renewable energy sector is almost a case of the opposite of the Wesfarmers story.

Here, companies with long-term plans are finding their share prices reflecting future success, not unlike the technology sector last year.

And, while the multiples which are being applied are hardly the same as the ridiculous numbers which created the tech wreck, it is timely to issue a word of caution.

These shares are being driven by a new wave of investment in so-called ethical funds.

Many of these funds are being bloated by money from people who have never entered the investment sector before. Suddenly those with a conscience have money and demand somewhere to put it.

It all sounds like the makings of another bubble.

For those in the renewable energy sector and those running ethical funds, it will not do either sector any good to inflate expectations and then let the market down.

Renewable energy needs investment but, if it wants to make ethical investment a profitable business, those involved must make sure they don’t get sucked into believing their own press – too early.

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