Amazon’s Cash Flows Remain Nearly Impossible To Value For Investment Purposes

Over the course of the January-October snapshot of this year, shares of Amazon have tumbled 30% (recently settling into a range in the $280s, below its recent high of over $400 per share). Two of you have written to ask me whether this is an opportunity purchase a growth stock investment at a value price.

My answer? This is a situation that firmly belongs in the “too hard” pile, an idea borrowed from Charlie Munger. One of the things that is an important with investing—among other things—is to figure out your circle of competence and stick to making decisions there. I can look at the extent of BP’s oil reserves, take a look at the likelihood of a big settlement/measure its potential effect on the company, and figure out that it’s wise to purchase the stock in the low $40s if you have a 10+ year time horizon in mind. The amount of money you make from reinvesting the dividends along the way, plus the capital appreciation, seems so likely that I’d rather spend my time focusing on building on strengths there rather than making actual financial decisions on things I don’t understand as well (really, the vastness of BP continues to be underestimated in most financial commentary I read on the company—its current profit engine is to the tune of $14 billion per year, even with all the asset sales, it is still 7x as profitable as the legendary American grocer Kraft that I just wrote about).

Continue Reading!

Kraft’s Appeal And Drawbacks As A Permanent Investment Holding

For the past couple of days, we have discussed the ways in which IBM can prove to be a superior investment going forward, despite the narrative that’s become familiar to many—the technology service firm has been having trouble growing its revenues. Because of IBM’s low 25% dividend payout ratio, and its extensive commitment to repurchasing stock that is currently in the 10x earnings range, you can easily way a way IBM can prove to be a lucrative long-term investment even while its revenues stagnate.

Continue Reading!