The Only Car Manufacturer Worth Investing Your Money In

The automotive industry has rarely be one that has awarded investors with great returns; in fact, the current economic conditions serve as a good example of what I’m talking about. North American constructors are encountering the worst economic environment they have ever faced. European and Japanese brands are faring better, mostly because they were accustomed to building small fuel efficient cars for almost two decades. My main concern is that there is one company that many investors are passing over because its stock is not traded on any North American exchange.

To many people’s surprise, the company I am talking about is Porsche SE (FRA: PAH3), the holding company that owns the Porsche AG constructor and a 51% majority stake in Volkswagen AG. I knew for a while that Volkswagen and Porsche had had a commercial partnership for a while, exchanging various technologies and components for the construction and development of new cars. But it is only recently that it came to my attention that Porsche was the one owning Volkswagen and not the other way around as it is the case for many luxury cars manufacturers to be owned by middle class cars producers.

A quick look at the 2008 financial statement led me to think that there was something there to make investors pay attention. With a 24% net profit margin, it seems to me that the company has a competitive advantage strong enough to ensure the sustainability of their profits. They also accomplished a staggering 48% return on shareholder’s equity for the fiscal year, which is very rare for many companies but literally unseen for a car manufacturer! Though it is important to mention that a important part of their earnings come from dividend payments by Volkswagen AG.

The downside is that all the common shares of the company are privately held by the Porsche family. As the illustrate it on their web page, the 87500000 shares traded on the Börse Frankfurt are preferred shares that represent exactly 50% of the number of shares that have been issued by the company and have no voting rights and that about half of those are owned by institutional investors. The main advantage of those shares remains that they pay a slightly higher dividend than the common share and, as many preferred shares, are senior to the common shares on the dividend payment.

For those you might be interested in investing abroad, you can visit the corporate site of Porsche SE for more information: http://www.porsche-se.com/pho/en/

Full Disclosure: The author does not have a position in PAH3 or POAHY.

Protect your investment gains

One of the many mistakes made by investors if that they often neglect to protect their gains from the burden of taxes. Don’t get me wrong, I am not talking here about illegal means to avoid taxes, there are many ways to save taxes and at the same time remaining compliant with tax laws. The examples I will be showcasing are more specific to the US and Canadian financial systems, but I’m pretty sure it shouldn’t be very hard for somebody industrious enough to find them for their local jurisdiction.


The first tools are traditional retirement savings plans. In their case, the contributions are tax-deductible. So for somebody who is in the 30% marginal tax bracket contributes 5000$ in that plan, he will see his tax return or his tax obligation respectively increase or decrease by 1500$. An investor could use them since they allow for a variety of investment vehicles, ranging from CDs (GICs in Canada) to Stocks, which is of interest. The taxpayer gets the tax benefit during the fiscal year that the money is invested. In the US, there are the IRA (Individual retirement account) and the 401(k). In Canada, it is the RRSP (Registered retirement savings plan) that offers the same advantages. To me it seems it would be very useful for people in higher tax brackets to maximize those types of account.


People in lower tax brackets and some money to spare will find the second type of investment account very interesting. It has been available for a while in the US and has been offered to Canadians only since January 2009. Contributions to a those accounts are not deductible for income tax purposes but their biggest advantage is that investment income, including capital gains, earned in a TFSA are not taxed, even when withdrawn! I might be wrong, but it looks to me like the last tax haven available to the middle class. In the US, they are called Roth IRAs and in Canada, they are named TFSA (Tax free savings accounts). Put the issuance of TFSAs the, the Canadian government provided a graph showcasing the long-term tax advantages:


People not familiar with those accounts should meet with their investment advisor to get more clarifications about them. This article gives only a glimpse of their characteristics and an investor serious about his long term success should think about implementing them in their investment strategy. There should be more effort put in maximizing them to the limits than since they will provide tax relief in the present and untaxed profits in the future.