Decoration, like every other form of art, exists not for its own sake, but for the purpose of expression of the individual, one of the most fundamental needs of human nature. In fact, every product of human workmanship expresses something about the person and conditions that created it, even though the degree of expression may vary greatly. For example, a train expresses a power that would be immediately apparent to someone seeing it for the first time.
While some expression is to be found in every work created by human effort, the degree of expression varies, and as the expression increases, and the qualities expressed rise in value, the product becomes more truly a work of art. A crude and inharmonious interior expresses a lack of taste and appreciation. If the owner did not lack these qualities he would not be satisfied to let it remain as it is. Even with taste, we cannot ignore the value of training, in order to know the best ways of expressing the qualities we want to display.
Interior Decoration, like every other art, has a language of its own. The words and sentences combine to tell a story and are the details of furnishings and enrichment that we use to decorate our rooms. The individual who understands this language can read between the lines so cleverly that the thoughts and character of a person may be fully told by a single glance at the room which this person calls his own.
Wealth has little to do with this art of expression. Gentility and charm of character may be expressed in the simplest of surroundings, while grossness and lack of culture may be seen in an expensive interior. This is not to discredit expensive furnishings and decorations. They must be used with proper discretion and in their proper place. The qualities we may express can be quite varied. Not only is the personality of the artist expressed in his work, but the nature of the materials at his command, the spirit of his times, the atmosphere of thought and tradition in which he lives, and the purpose of the particular object he has created.
Some aesthetic errors are so great that little knowledge is necessary in order to avoid them. Nobody would dream of putting a Greek statue, however beautiful, in a prominent place in a Christian church because the clash of styles would be too apparent, just like no one would put a colossal bust of some departed hero in their bedroom next to their gas fireplace (http://www.ferche.com/). However, smaller errors are constantly committed by those who are not trained enough to obtain true expression and harmony.
In addition to the general conditions of period and place, decoration should express the purpose of an object or a room. In a dining room, for example, everything should be devoted to making it possible to eat comfortably and with enjoyment. Some conditions are usually fixed, such as the size and shape of the room, the location of doors and windows, the material of the floor, and so on. Other conditions can usually be varied, such as the color and material of the wall coverings, the design of the furniture, the use of pictures, etc.
In some cases the design may be determined by objects that are crucial to the scheme of the room. In other cases the decorator may have a blank canvas, making it all the more necessary to determine the most suitable treatment for the occasion. Even though the general function of the room is the same, a change in who’s occupying it may call for a change of treatment. For example, the living room of an elderly professor should present a very different appearance from that of a hip young couple, even though the two rooms were similar in size and location.
There are almost infinite possibilities for expression in interior decoration from furniture, rugs, pictures, and hangings to architectural features like mantelpieces, door and window casings, paneling and the like. Sometimes the decorator can feel restricted by their budget, but the primary goal is always the same whether there a great deal of money or very little – appropriateness. The decoration of a room must always depend upon the room’s purpose. The attractiveness of the room should appeal to the mentality of the occupant, so that they are unconsciously at ease in the room.
These qualities are dependent on the insight and personality of the artist, but there are certain standards that have been established by experience and certain aesthetic formulas that have been developed over centuries. There are empirical rules that generations of artists have learned from one another, which have been found so valuable in the great majority of decorative problems that they are safe guides for the un-initiated. Only after the beginner has thoroughly mastered them, only when the student becomes a master himself, can he safely dare to improvise.
An Analysis Of Decision Under Risk
In 2005, Berkshire Hathaway bought about a million shares of Lexmark. I haven't followed this story closely, but I assume the stock was purchased by Lou Simpson rather than Warren Buffett. I have only two reasons for believing this: the total purchase was small relative to Berkshire's investable assets and the Lexmark purchase is typical of Simpson's investment philosophy (or at least, what little I can glean about his investment philosophy from his past purchases). Regardless of who actually makes the purchases, a new Berkshire holding always draws a lot of commentary.
The commentary on Lexmark has been almost uniformly negative. Even many value investors have a very dim view of Lexmark at these prices. Now, I am not a contrarian investor. Psychology and sentiment do not enter into my considerations at all. I've bought stocks trading near five year lows, and I've bought stocks trading near five year highs. I just try to be rational. I'm not afraid to agree with the consensus, if it's an accurate representation of reality. Here, it isn't. The model of Lexmark that has emerged in my mind over the past few weeks bears little resemblance to the Lexmark I've seen described elsewhere.
Most of the negative comments about Lexmark have focused on the consumer segment. Yet, more than 75% of Lexmark's profits come from the business segment. The business segment is Lexmark's franchise. There, the company has managed to build a moat, not a very wide moat, but a moat nonetheless. Lexmark is the only focused, integrated printing company of any consequence. It understands its business customers? needs, and provides specially tailored solutions that none of its competitors can offer. Worldwide, some very large companies use Lexmark's products for some very specialized tasks. Among these are retailers, banks, and pharmacies. Lexmark has complete control of their product including the printing technology itself and the software used to manage its printers (i.e., to interface with the user's computer). Businesses that care about getting these specialized tasks done right (and getting them done cheap) use Lexmark.
Even Lexmark's competitors have to concede the fact that Lexmark knows printing better than anyone else. Lexmark is the only company that develops its own ink ? jet, monochrome, and color laser technologies. It is a vertically integrated printer business like no other. The two competitors most often mentioned as threats to Lexmark are HP and Dell. While everyone will suffer from deep price cuts; I think it's HP and Dell who should be scared.
Lexmark has the much stronger competitive position. For years to come, it will be launching the best printing products for high ink consumption tasks. Lexmark hasn't been focused on competing directly with these companies in the consumer segment; that's going to change because of the emerging photo printing market.
Lexmark isn't interested in selling hardware. It's interested in selling ink. Now that there is real demand emerging for high quality printing within the home, Lexmark is going to start going after the consumer market. Over the next few years, Lexmark will be selling more printers in this segment. A few years after that, the company will see strong recurring revenues from ink sales.
Generic ink cartridges are the biggest threat to the high margin printing business. However, I believe, of all the players in this industry, Lexmark will be the least affected. Its highest margin sales are its most insulated sales. Its lowest margin sales, in its least dominant businesses, are where generic ink will hurt the most.
There is also some concern that Dell could always move away from using Lexmark printers. Let them. From what I can see, sales to Dell will not be a particularly significant high free cash flow margin business. There's no benefit to the Lexmark brand either. That brand is going to become stronger over the next decade, because the quality is already there. Lexmark simply hasn't been that visible to consumers. The Dell deal doesn't help build the Lexmark brand. Honestly, I wouldn't be terribly troubled if Lexmark's sales to Dell dropped to zero tomorrow. Such an occurrence would not materially affect my valuation of Lexmark.
As far as I can tell, Lexmark's management is excellent. They understand the printer business better than anyone (they also happen to understand the science of printing better than anyone ? CEO Paul Curlander has a PhD in electrical engineering from MIT). Lexmark's management also sees highly profitable opportunities in printing long ? term, despite a very competitive situation short ? term. I agree with that assessment.
Within the printer business, there is a real danger of ferocious price competition. However, I do not believe there is a real danger of prolonged ferocious price competition. Lexmark is the company best positioned to weather the storm. It will generate tons of free cash flow, none of which has to be siphoned off to other lines of businesses, as it does at all of Lexmark's competitors. Lexmark's high free cash flow margin recurring revenue stream will supply it with more than enough ammunition to outlast its competitors. They may be deep pocketed, but eventually, they will have to answer to Wall Street. Long ? term, they can't compete with Lexmark. It will take them some time to realize that. But, Lexmark has the time.
That's my assessment of Lexmark on qualitative grounds. How does the stock look quantitatively?
The stock is selling for about 15 times earnings and 10 times cash flow. Right now, a dollar of Lexmark's stock buys you a dollar of sales. I think that's a bargain. Not many companies of this caliber sell at a price ? to ? sales ratio of one.
For the last ten years, Lexmark's return on equity has not fallen below 20%. During the same period, the company's return on assets never fell below 10%. The free cash flow margin has generally been in the 5 ? 10% range.
I wouldn't be surprised to see Lexmark's ROE and free cash flow fall substantially in the next few years. However, long ? term, I believe a return on equity of 15 ? 20% and a free cash flow margin of 8 ? 10% are sustainable. In fact, if I was forced to pick an exact ROE that Lexmark could sustain I would pick 20%. But, I would also caution you not to expect that for the next five years or so.
The important estimate is the 8 ? 10% free cash flow margin. That's the best way to value Lexmark. At one times sales, you have an 8 ? 10% yield, if you think sales can be sustained. If you think sales can grow, you have to factor that into your analysis. At present, a discount rate of 8% seems appropriate.
I never do a discounted free cash flow analysis on this blog, because I feel the variables that go into are something you have to decide on for yourself. I don't want to slap an exact figure on the value of a company, because I don't want to suggest that kind of precision. But here, you can clearly see how I'd value Lexmark. I gave you what I think Lexmark's free cash flow margin will be (8-10%), you know what Lexmark's sales are ($5.4 billion), and I gave you the discount rate I thought was most appropriate (8%). The only necessary variable I haven't provided is a sales growth estimate, and I'm not going to provide that, because I don't want you to think it has anything to do with the next five years.
It doesn't. I'm looking at this company well beyond that point, and I like what I see. Lexmark will strengthen its brand (with consumers), and people will still be printing. So, yes, I am projecting revenue growth for Lexmark; and yes, it is enough to suggest Lexmark is worth substantially more than $5.5 billion.
Both Sarah Martin & Geoff Gannon are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Sarah Martin has sinced written about articles on various topics from Wine and Spirits, Acne Treatment and Finances. Sarah Martin is a freelance marketing writer based out of San Diego, CA. She specializes in home improvement, interior decorating, and crown moulding. For the best in the hardwood moulding industry, please visit. Sarah Martin's top article generates over 301000 views. Bookmark Sarah Martin to your Favourites.
Geoff Gannon has sinced written about articles on various topics from Computers and The Internet, Home Management and Finances. Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at Gannon on Investing.. Geoff Gannon's top article generates over 4400 views. Bookmark Geoff Gannon to your Favourites.
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