# McDonalds - Seems like a great Investment



## Tysonboss1 (12 December 2009)

Hi All,

Out of interest I have been doing some research on Mc Donalds Corp, And the more I learn about this company the more I believe it is a fantastic company to invest in.

Does anyone Here own stock in Mc Donalds. 

I am thinking of putting about $100K into Mcdonalds with an investment timeframe of around 10years.


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*

I like the company because it is generating strong cashflows and the management are returning the cashflow to share holders very wisely in the form of dividends and an on market share buyback scheme that aims at buying 1% of the companies stock every three months.

On top of the above capital management program which by itself should see Mcdonalds stock increase in value over the years they are also opening on average 350 new stores globally each year which is a bit over 1% of the Total number of stores.

I also like that the companies cashflow comes from a few different sources,

About a 1/4 of the stores are company owned so these stores generate revenue in the form on a monthly trading profit.

About two thirds of the stores are owned buy franchisees where mcdonalds collects revenue in the following ways.

- They charge a franchise fee when the franchisee take ownership

- The fanchisee then pays a monthly royalty based on a % of sales.

- Mcdonalds also either owns their buildings or controls them on a 20year lease and charges the franchisee rent which is calculated as either a minimum monthly rent or 8% of sales which ever is higher.

The balance of stores globally (mainly south America) and some other regions are run by a licencee who contols the franchise for entire countries who pays an upfront fee as well as a monthly fee based on a % of sales.


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*

Mcdonalds seems to be firing on all cylinders with management, shareholders, franchisee's and suppliers all working as one to keep the system strong and the cash flowing.


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## CanOz (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Tysonboss1 said:


> Mcdonalds seems to be firing on all cylinders with management, shareholders, franchisee's and suppliers all working as one to keep the system strong and the cash flowing.




In terms of exposure to growth in Emerging markets, do you think McDonald's is positioned well? How do you feel about the acceptance of their products in these markets?

If their growth cannot come from emerging markets, where will their growth come from.

Go beyond the balance sheet and find where they are going?

CanOz


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## adobee (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*

I would love to get into a McDonalds..  I have enquired previously and there website says dont both leaving your details we have a waiting list for five years.. the only way to do it was to get on a syndicate withsome one else who owns... I havent looked into it much but i think in the right location in Oz these are fantastic.. they are flexible and have changed to meet the market.. plus ideal training for staff.. manager leaves you manager in the next day who knows exactly whats going on exactly.. and computerised systems no cash stealing...  you are a business owner.. not working in the business as with many franchises..

if you have more info i would be quite interested...


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



CanOz said:


> In terms of exposure to growth in Emerging markets, do you think McDonald's is positioned well? How do you feel about the acceptance of their products in these markets?
> 
> If their growth cannot come from emerging markets, where will their growth come from.
> 
> ...




The South american licencee is doing well with sales growing,

The growth in china is also good.

Mcdonalds has scope to tailor their menus to suit different regions, for example one of the biggest sellers in china is the corn cup, yep a simple cup of corn.

I do believe they will contiune to be able to grow the business within their existing markets, they plan on growing sales through new stores, adding drive throughs and mc cafe's to existing stores, In the US they are having success with a new range of beverages and also higher priced alternatives such as the deli choice range.

So yes I do believe the system will continue to grow through expansion into new areas as well as grow with general economic growth of existing areas.

But having said that, even if the system did not open any further stores the longterm investor will benefit from a steadily growing dividend that would be headged against inflation and a growing capital value as the buy back scheme increases his or hers ownership over the years.


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



adobee said:


> I would love to get into a McDonalds..  I have enquired previously and there website says dont both leaving your details we have a waiting list for five years.. the only way to do it was to get on a syndicate withsome one else who owns... I havent looked into it much but i think in the right location in Oz these are fantastic.. they are flexible and have changed to meet the market.. plus ideal training for staff.. manager leaves you manager in the next day who knows exactly whats going on exactly.. and computerised systems no cash stealing...  you are a business owner.. not working in the business as with many franchises..
> 
> if you have more info i would be quite interested...




Yeah it can be very difficult to get a foot in the door if you are looking to become a franchisee since the system has really good franchisee retention, which is a sign of a good system,

When a store is sold or a new one opened it is generally offered to existing franchisees, 

Over the years the system has actually had it's total number of franchisees shrink, as existing franchisees tend to buy up any stores that come on the market.

One thing I got from the latest annual report though was that the are thinking of reducing the total number of company owned stores and increasing the number of franchised stores, so it may get easier to get in over the coming years.

For now I am just thinking of investing I am not actually looking at buying a franchise.


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## dalek (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*

You have obviously done your research.
As a matter of interest do KFC or Hungry Jack use the same model as McD ??


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## Wysiwyg (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*

What better investment strategy than one you can invest in directly through buying their products regularly and by promoting them to friends and family.


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



dalek said:


> You have obviously done your research.
> As a matter of interest do KFC or Hungry Jack use the same model as McD ??




No there are a few things that separate Mc Donalds from the rest of the Pack.

One of the biggest things is Mc Donalds real estate stratergy. Not many People know that Mc donalds is the largest owner of retail property in the world, By owning the real estate each store sits on it has allowed them to collect both rent and royalties from franchisees.

Also Most of the other Big names in the Fast food Business have been bought out by large packaged food businesses, KFC for example is owned by Pepsi co because in the early days big US food industry players saw the fast food business as easy money, but most ended up destroying their systems because they saw it as simpy a way to sell more of their own products instead of a self sustaining business. 

It's actually funny, Pepsi thought they would have an edge over Coca cola when they bought KFC and Pizza Hut and switched them to pepsi products, How ever Coke sales men just pointed out to all they other fast food businesses that by selling Pepsi they are helping the competition(kfc and Pizza hut) most of Kfc's and Pizza huts competition quickly switched to Coke.


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## wayneL (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Wysiwyg said:


> What better investment strategy than one you can invest in directly through buying their products regularly and by promoting them to friends and family.




Bad health strategy though


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



wayneL said:


> Bad health strategy though




awwww, come on wayne Plenty on healthy options these days.

I still prefer a good mc chicken meal though  and a Bacon and BBQ sauce cheese burger on the side ( thats new on the value picks menu )


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## wayneL (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Tysonboss1 said:


> awwww, come on wayne Plenty on healthy options these days.
> 
> I still prefer a good mc chicken meal though  and a Bacon and BBQ sauce cheese burger on the side ( thats new on the value picks menu )



Less unhealthy maybe.

That said I heard a great quote on some blog somewhere. "Always be long the adipose consumer".

LOL Not bad advice.


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## Macquack (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*

Tysonboss, have you looked at Burger King.

McDonalds flagship burger, the Big Mac is a disgrace, it should be renamed the Mini Mac or alternatively the Sub-Junior Burger


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## Nyden (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Tysonboss1 said:


> No there are a few things that separate Mc Donalds from the rest of the Pack.
> 
> One of the biggest things is Mc Donalds real estate stratergy. Not many People know that Mc donalds is the largest owner of retail property in the world, By owning the real estate each store sits on it has allowed them to collect both rent and royalties from franchisees.
> 
> ...




PepsiCo used to own KFC, but not for over 10 years now. YUM! Owns KFC, Pizza Hut, Taco Bell, umm, a few others as well.

So if you wish to diversify in to fast food, YUM might be the way to go.


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## Investor82 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Nyden said:


> So if you wish to diversify in to fast food, YUM might be the way to go.




My word of warning - do your research well before investing into YUM.


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## Tysonboss1 (12 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Macquack said:


> Tysonboss, have you looked at Burger King.
> 
> McDonalds flagship burger, the Big Mac is a disgrace, it should be renamed the Mini Mac or alternatively the Sub-Junior Burger




Burger king may have created a better burger, But Maccas has they better business system as a whole.


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## So_Cynical (12 December 2009)

On the Aussie retail fast food front we are pretty much limited to DMP - Domino's pizza.

Are there others?

------------

And agree that Hungry Jack's / Burger king is better...as in Burgers.


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## GumbyLearner (12 December 2009)

So_Cynical said:


> On the Aussie retail fast food front we are pretty much limited to DMP - Domino's pizza.
> 
> Are there others?
> 
> ...




There is also RFG. Brumby's, Donut King, Michel's Pasterrie


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## Krusty the Klown (15 December 2009)

I have been thinking of these shares recently also.

What you find with an investment such as this, is that they thrive in economic downturns such as the last two years.

People opt for a cheaper form of entertainment like this when they go out, particularly families when the budget gets tight.

The share prices take a hit along with the rest of the market, but the cash flow of the business actually increases.

McDonalds reported this in the last few months in a market announcement.


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## ROE (15 December 2009)

Tysonboss1 said:


> Hi All,
> 
> Out of interest I have been doing some research on Mc Donalds Corp, And the more I learn about this company the more I believe it is a fantastic company to invest in.
> 
> ...




Nope, Only have DMP and RFG 2 or 3 years back still have them though.

If that where you want to put your money, wouldnt be too hard to buy via any broker, the brokerage fee may be a little bit more but that is about it and
you have to fill in a whole bunch of paper for the IRS.


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## Tysonboss1 (15 December 2009)

ROE said:


> If that where you want to put your money, wouldnt be too hard to buy via any broker, the brokerage fee may be a little bit more but that is about it and
> you have to fill in a whole bunch of paper for the IRS.




I have decided that I do like the stock and have a target price,

But I am now just working through all the details of the finer points that will affect international investments like currency changes etc.etc this will be my first international investment out side of managed funds so I am taking a cautious approach and trying to learn as much as possible.


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## prawn_86 (15 December 2009)

Tysonboss1 said:


> But I am now just working through all the details of the finer points that will affect international investments like currency changes etc.etc this will be my first international investment out side of managed funds so I am taking a cautious approach and trying to learn as much as possible.




Yes you will now be exposed to both market risk from the stock and also currency risk. For an amount of that size i would suggest you look into some hedging options such as a forward or even a currency option.

It can get difficult if you are investing for the longterm however as most forex forwards are only a yr in advance


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## ROE (16 December 2009)

Personly I dont know why people bother with oversea stock unless you control
some crazy amount of money (I'm talking about Billions) and want to spread your investment a little wider.

There are some exceptional business in Australia that can generate enormous wealth for their share holders.

I can easily invest 50 Millions in Australia in a dozen or so stocks 

You face many uncertainty and risk investing in oversea market.

currency movement, tax laws, understanding their accounting rules and reporting seasons etc.....

For $100K it's just not even worth the effort.....I have that much money in one small cap stock like CCP 
My 2 cents


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## Tysonboss1 (16 December 2009)

ROE said:


> Personly I dont know why people bother with oversea stock unless you control
> some crazy amount of money (I'm talking about Billions) and want to spread your investment a little wider.
> 
> There are some exceptional business in Australia that can generate enormous wealth for their share holders.
> ...




I wouldn't normally go out of my way to invest over seas either, and as I said my research into mcdonalds only started out of interest, I wasn't activily looking for an over seas investment,

But I have never come across a company listed on the ASX quite like mcdonalds,


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## Krusty the Klown (16 December 2009)

Tysonboss1 said:


> But I have never come across a company listed on the ASX quite like mcdonalds,




The only one I can think of would be CCA. Stable global brand, but different business model.


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## ROE (17 December 2009)

Despite what RE love to call McDonald a Real Estate company, it's not
it is in the business of selling fast food and franchise system.

this cash cow provide them the cash flow they need to be in the business and paid out dividends.

The only reason they hold property is to control a stable environment for their
franchisee and not at the wim of the landlords...

Taking out the fast food business those property worth no more than those assets in listed property portfolio and the return will be nothing more than those of listed property trust.

but taking out property and leave the fast food business intact it still can generate far greater return.

Wesfarmers do the same thing with Bunnings warehouse.

Property investment is a terrible return on equity ... (it's only a decent number with high leverage)

and I leave them at that...other may disagree and think its greatest since man invent machine and that is fine I'm happpy to see that view.....everyone entitle to their view 

MCD isnt bad but why mess with foreign market, when there are many business in Australia that generate far more return than mcdonals for their shareholders and they dont own properties, they use free cash flow to expand the business that generate FAR FAR greater return in Equity....I give you some examples that I directly know.

Mcdonals

1990 - Now
9.0 - 62.40
20 year span   around 10% return a year

10 year time span the return is not as stella
30 - 62.40  around 7%

McDonal is one of America Great Company, let see how it's fare with Australia
great I have share in some of these.

Reece           20% return a year for 10 years
Woolworths      20% a year for 10 years.
The Reject shop 50% return a year since float.

and there are the former heroes that fall from grace and back again like
Credit Corp and Flight Center... these rock solid business provide return people only dream off in speculative mining 

stocks...but you cant measure it due to short time frame...400% return is very nice and I welcome it but I know it's an unrealistic number in the long run something like REH and WOW return is more realistic.

DMP and RFG is the closest listed franchise system to MCD again these are just starting out and I like to get involve  early once I can reasonably confident of the business model and where I see it 10 years from now.
and look at their early records it deliver stella return average 40% - 50% a year ... (it's following the TRS path)

With the right mind set and buying at the right price you can get Stella return in your local backyward  then you can sit back and drink nice coffee, 

then every 10 years the market throw you once in a life time bargain
which compounding the investment return on multiple times over

but good luck with your MCD adventure and hope you find future Stella return..


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## DB008 (17 December 2009)

*Re: Mc Donalds - Seems like a great Investment*



Macquack said:


> Tysonboss, have you looked at Burger King.
> 
> McDonalds flagship burger, the Big Mac is a disgrace, it should be renamed the Mini Mac or alternatively the Sub-Junior Burger




I agree. I rarely east fast food, but when l do, it's usaully an emergency. So, about 6 months ago, l was in a situation where l had no other choice l decided to order a "Big Mac". To my surprise, it was TINY. I thought to myself, my hands haven't grown that much since l was a kid. It's half the size of the Whopper, @Burger King. A Whopper Jnr might even be bigger!

Sausage and Egg McMuffin. Thats not a sausage, it's a rissole!


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## Tysonboss1 (17 December 2009)

ROE said:


> Despite what RE love to call McDonald a Real Estate company, it's not
> it is in the business of selling fast food and franchise system.




Mcdonalds collects more in rent from their franchises than they do franchise fees, So they are partly a realestate company.

Owning the realestate gives mcdonalds an added revenue stream in the form of rent, that most others in this business don't have, owning real estate has also given them a beter credit rating over the years and allowed them to finance their business at lower rates than others in the business.


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## Krusty the Klown (17 December 2009)

ROE said:


> MCD isnt bad but why mess with foreign market, when there are many business in Australia that generate far more return than mcdonals for their shareholders and they dont own properties, they use free cash flow to expand the business that generate FAR FAR greater return in Equity....I give you some examples that I directly know.
> 
> Mcdonals
> 
> ...




These return comparisons are all well and good but they don't address any risk tradeoff's.

Woolworths I could agree with you but a local plumbing supplier and a small retail homeware chain are not as secure a business as a global giant like Macca's - a different business model in multiple markets.

Macca's has a virtually guaranteed global market compared to these other two small ventures trying to gain a foothold in their specialised markets.

As you said they are doing well, but one is less than 10 years old and another about 30 years old, MCD is over 60 y.o. with stable growth.

I can't see Macca's going bankrupt any time soon. Businesses the size of Reece and the Reject Shop can come and go very quickly.

But, if the business is in your risk comfort zone ..... go for it.


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## Krusty the Klown (17 December 2009)

Tysonboss1 said:


> Mcdonalds collects more in rent from their franchises than they do franchise fees, So they are partly a realestate company.
> 
> Owning the realestate gives mcdonalds an added revenue stream in the form of rent, that most others in this business don't have, owning real estate has also given them a beter credit rating over the years and allowed them to finance their business at lower rates than others in the business.




_*"I'm not in the hamburger business, I'm in the real estate business."*_ Ray Kroc, first CEO who bought the original McDonalds store from the McDonald brothers and then proceeded to build one or two more stores........


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## Tysonboss1 (17 December 2009)

ROE said:


> but good luck with your MCD adventure and hope you find future Stella return..




I am not banking on a "stella" return, Just steady consistent Dividends and capital growth,

As I said it's the whole package that attracts me to mcdonalds, It's the capital magangement, the global brand, the realestate stratergy, the franchising model, the mature business, the sheer scale of operations, the adaptabilty, etc etc. 

I haven't yet found an equal on the asx,... But I am not saying  their aren't better businesses on the asx or companies that sell better products but it's the full package of maccas that attracts me.

As far as donut king goes it can hardly be compared to maccas,


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## Tysonboss1 (17 December 2009)

Krusty the Klown said:


> The only one I can think of would be CCA. Stable global brand, but different business model.




I like Coca colas brand dominance however I would rather invest in the Coca Coca company rather than one of the bottling franchises such as CCA


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## Wysiwyg (17 December 2009)

Buying a snack from a take-away without having to leave the vehicle is what appeals to me as a consumer. The large pictures of products for sale is a clever marketing strategy because the consumer thinks the item is bigger than it really is. Only to be handed an ever decreasing sized miniature version after paying for it.  Opening their store hours to 24 appeals to me because I can avoid the car queues if feeling peckish during the usual sleeping period.
I don't recommend cheese, meat pattie, bun, sauce and potatoe (cheese burger & fries) to the health conscious after midnight though.


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## ROE (17 December 2009)

Krusty the Klown said:


> _*"I'm not in the hamburger business, I'm in the real estate business."*_ Ray Kroc, first CEO who bought the original McDonalds store from the McDonald brothers and then proceeded to build one or two more stores........




Sales by Company-operated restaurants $16,561
Revenues from franchised restaurants  $6,961
Total $23B in Revenue

out of that figure $6,961, $4,612.8 is coming from rent.

I think the CEO doesnt know how well a good business generate cash, he's too fixate on hard asset like property.

Selling burger and franchise system generate 4 times the money
it get from rent 

Was they to invest those excess cash in expanding the business they may get
many times the return 

or if they like property they can give it to the expert, uncle Frank Lowy they can buy shares in Westfield and get stella return, WDC since 1960,  15% return a year... ooops better than uncle Mac himself...at 13.5% since it listed in 1978

I like WDC in early days and I like it alot more when Mr market throw it for $10.50 and tar it with the same brush as other listed RE trust


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## Krusty the Klown (17 December 2009)

ROE said:


> I like WDC in early days and I like it alot more when Mr market throw it for $10.50 and tar it with the same brush as other listed RE trust




No arguments from me on that call.


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## Tysonboss1 (17 December 2009)

ROE said:


> I think the CEO doesnt know how well a good business generate cash, he's too fixate on hard asset like property.
> 
> Selling burger and franchise system generate 4 times the money
> it get from rent
> ...




alot of the time When they sell a new franchise they basically get the property for free.

Picture this, they buy a piece of land for maybe $300,000 and spend another   $400,000 on a building and fit out, they then sell the franchise to a franchisee for up to $1M, 

So in effect the franchisee has paid for the land and the building that is now owned by mcdonalds, and mcdonalds charges them rent and a sales royalty for the life of the business.

The real estate idea was first thought of by Harry Soneborn and even Ray Kroc who later in life had a falling out with Harry said that the real estate stratergy is what made Mcdonalds the power house it is today.


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## Tysonboss1 (17 December 2009)

ROE said:


> I like WDC in early days and I like it alot more when Mr market throw it for $10.50 and tar it with the same brush as other listed RE trust




I like WDC as well, I have nearly $500K in WDC already.

I would however like WDC to do a few things before I would say they had the whole package though, mainly in regards to capital management.


I would like them to cancel the DRP
I would like them to reduce the dividend payout ratio to about 50% of free cashflow instead of 100% (this is already on the cards for fin year 2010)
With the retained free cashflow I would like it to be split into 2 areas, 1, investing in new developments and clearing debt,.. 2, a permanent systematic share buy back scheme.


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## ROE (17 December 2009)

Krusty the Klown said:


> These return comparisons are all well and good but they don't address any risk tradeoff's.
> 
> Woolworths I could agree with you but a local plumbing supplier and a small retail homeware chain are not as secure a business as a global giant like Macca's - a different business model in multiple markets.
> 
> ...




What is risk?

1. Higher risk = higher return?

This is crab, I can buy stock that has little risk and offer bloody good returns...

to me risk is NOT if the stock is a mid cap or small cap stocks or have high beta or what ever industry generalise.

To me stuff is risky if I buy something I'm clueless or lazy or I still buy even thought it didn't pass my ten commandments of investment.

and I'm human and sometimes I do get lazy.

Once a stock pass my ten commandment it provides little risk and deliver great return 

Very few stocks pass the ten commandments  so I buy and I buy lot if and when it does..

I read lot of bankruptcy company annual reports and I run my 10 commandments over it and it failed many  Not a single company pass the 10 commandments and ever gone bankrupt

I can tell you TRS and REH going to be around long before you and I left this planet  if you think small is risky .


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## Tysonboss1 (17 December 2009)

In the book, McDonald’s: Behind the Arches, Love (1995) the secret was revealed: “What converted McDonald’s into a money machine had nothing to do with Ray Kroc, or the McDonald brothers, or even the popularity of McDonald’s hamburgers, french fries, and milk shakes. It was Harry J. Sonneborn.”

“McDonald’s real moneymaking engine was its little-known real estate business, Franchise Realty Corporation; envisioned and created by Harry Sonneborn. The obscure McDonald’s alter ego company was based on Sonneborn’s unique even lesser known financial formula.”

Just months before Ray Kroc died, he commented  “Harry alone put in the policy that salvaged this company and made it a big-leaguer. His idea is what made McDonal’s rich.”


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## ROE (17 December 2009)

Tysonboss1 said:


> I like WDC as well, I have nearly $500K in WDC already.
> 
> I would however like WDC to do a few things before I would say they had the whole package though, mainly in regards to capital management.
> 
> ...




but paying more than than earning is what real estate is all about, it's the norm for Residential investment, so WDC will defined the industry best practice  hahaha j/k  

Why dont you write to Uncle Frank Lowy  I write to the CEO when I think they went off the track and remind them DEBT is a dirty 4 letters words.  I said Hello, you here to make money not to let the banks grab your balls.

They may not listen but it may sit in their head some where and maybe come around to it some day


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## Ageo (18 December 2009)

As a business Mac's leaves every other fast food chain to dead. Case closed.


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## Krusty the Klown (19 December 2009)

ROE said:


> What is risk?
> 
> 1. Higher risk = higher return?
> 
> ...




As long as you address the risk.

I must admit I agree with you here. The more due diligence you undertake the less risk you carry regardless of the asset or asset class.

Whether its Little Mary's lemonade stand in the neighbor's yard or Enron.


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## Tysonboss1 (2 February 2010)

ROE said:


> Why dont you write to Uncle Frank Lowy  I write to the CEO when I think they went off the track and remind them DEBT is a dirty 4 letters words.  I said Hello, you here to make money not to let the banks grab your balls.
> 
> They may not listen but it may sit in their head some where and maybe come around to it some day




Maybe some one from Westfields does read this forum,

WDC has suspended their DRP, Woo Hoo , this along with dividends being cut back to 60% of free cash flow as announced last year should see some good balance sheet strentgh building.

Now lets get a longterm share buy back plan started.


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## Boognish (2 February 2010)

It's probably been mentioned in the thread but Maccas would have to be one of the most canny real estate investment companies in the world.


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