Investment Results At Stock Market Peaks

Dr. Jeremy Siegel of The Wharton School of Business performed an important study on the long-term returns for investors that made lump-sum investments during the peak of a bull market that lasted at least four years. He measured lump-sum market investments in June 1901, September 1906, September 1929, February 1937, April 1946, and December 1968 and tallied these results over a ten, twenty, and thirty year period.

During the subsequent ten years, the results are disappointing: A $1,000 investment in these peaks collectively grew to $1,250.

Continue Reading!

Royal Dutch Shell: From One Correction To The Next

My goal for as long as I can keep it up: Refrain from using the word crash to describe typical fluctuations in the energy market. During one particularly brutal period of John Rockefeller’s capital planning life, he saw the price of oil fluctuate between $0.10 and $10.00. Ten cents! Ten dollars! That adds some perspective to the current–correction?–in the price of oil that has seen the commodity go from $100+ barrel in the past few years to the $40s today.

But a study of the oil markets will give you a newfound appreciation for Benjamin Graham’s margin of safety–getting a good entry price really does protect your from darn everything. Imagine if, in 2008 and 2009, you saw Royal Dutch Shell price’s decline into the $30s as the price of oil got cheap and the backdrop of an economic crisis made the stock cheaper than long-term projection of oil fundamentals warrant.

Continue Reading!

Comparison Is The Thief of Joy

That’s a Teddy Roosevelt quote. One thing that can drive even the best absolutely crazy is the concept of perpetually escalating expectations. It was so bad that Warren Buffett even contemplated early retirement because the track record of his early days had become more of a curse than a blessing. Never having a down year, beating the Dow Jones by ten percentage points annually, and the growing hype in Omaha started to choke him.

In his last partnership letter dated May 29, 1969, he mentioned that he considered stock market values generally frothy, but also spent time discussing the notion that he didn’t want to be chasing the “investment rabbit” for the rest of his life. He was circumspect in saying that his own past successes had forged their own chains; his early successes were so extreme that the Shakespearean fall awaited and he would spent the last fifty years of his life getting the Bill Miller treatment, “He used to be great.”

Continue Reading!

Why Four Sectors Of The Economy Create A Disproportionate Share Of Fortunes

If you could sell $100,000 worth of fruit at a grocery store and make $60,000 in profit or sell $100,000 worth of refrigerators at a local retail store and make $60,000 in profit, which would you prefer? The right answer to that question depends on one unknown variable: time. The quicker you can get your hands on that $60,000 in profit, the more valuable the business. If you are selling fruit in a major city center like Chicago or Los Angeles, you might be able to sell that in a month. The velocity of money is important because the sooner you get your hands on that $60,000, the quicker you can redeploy it into new investments that will also pay you money. That is compounding.

Continue Reading!

Finding The Trend Wave With A Blue-Chip Stock

In 1972, a shareholder of Kimberly Clark collected $0.06 over the course of the year for 1 share of KMB stock. In 2015, such a shareholder would have collected $3.52 per share. Adjusted for inflation, Kimberly-Clark paid the equivalent of $0.27 per share in 1972 dividends. That means you are looking at an actual thirteen-fold increase in the real purchasing power of Kimberly-Clark dividends without taking into account the wealth created by capital gains and dividend reinvestment over the past 43 years.

Continue Reading!