The Investment Analyst Community Failed You On Sears Stock

In 2011, Sears Holdings (SHLD) reported a loss of $500 million. It was the first time in at least thirty years that Sears had reported a loss. At the time, management and investment analysts reported the problem as “short term” and “fixable.” The analyst consensus called for a return to $200 million in annual profitability by 2014.

Then 2012 came and Sears reported a smaller $200 loss. This news encouraged analysts, and they raised 2014 guidance for a $275 million profit.

By the end of 2013, Sears reported its worst year ever at the time with a $700 million loss. Analysts pushed back their profitability projections to 2016, and tempered them back down to $200 million.

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Why The Dow Jones Should Be 20,000 Points Higher

You know how everyone in the investment community loves to rag on IBM stock? Well, there’s nothing new about that. In fact, this lament might be something you have in common with your grandfather.

When part of President Roosevelt’s New Deal legislation included the Social Security Act of 1935, Wall Street got excited by the lucrative contract that IBM secured to process social security checks upon the program’s inception in January 1937.

Unfortunately for IBM shareholders, the contract contained a provision that demanded IBM perform the government services at cost if more than 3% of social security payments were made in error during the first year. By January of 1938, the independent congressional inquiry found that 4.7% of social security payments were not processed correctly.

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What Mistake Are Smart Investors Making These Days?

Warren Buffett did the investor community a great favor by introducing the concept of an “economic moat” when explaining what types of businesses are so superior that they can be purchased and held passively for long periods of time and riches will subsequently abound. In his annual letters, Buffett has defined a moat as “the ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.”

Often times, a strong brand name is the source of what gives a corporation an economic moat. But a laziness, or at least a false equivalency, has arisen in recent years in which the terms “commonly known brand name” has become interchangeable with the concept of an “economic moat.” An economic moat only exists when a business has a competitive advantage over it competitors which is usually either pricing power or an economy of scale that creates lower distribution costs.

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Protecting Yourself From Financial Advisor Fraud

The worst investor fraud since Bernie Madoff appears to be upon us. Yesterday, managers at the New York based hedge fund Platinum Partners have been arrested as federal prosecutors allege the occurrence of a $1 billion fraud. Mark Nordlicht and has partners spent the last decade giving their investors nearly 20% annual returns, with those returns being fueled through return of other investors’ capital in response to withdrawal requests rather than actual investment returns.

Although the Platinum Partners clients may be able to receive some recovery through a combination of SIPC, insurance, and the distribution of remaining assets, this remains a worst-case nightmare for those who entrusted a meaningful portion of their accumulated savings to the stewardship of the Platinum Management team.

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Why Bed Bath & Beyond Shouldn’t Pay A Dividend

If you have a strong balance sheet, and you aren’t shipping out most of your profits to shareholders, you can withstand an extended period of challenging business conditions and still create shareholder value.

Even though keeping adequate cash reserves and running a business with a hyper-focus on prudence remains out of fashion, the value of financial strength occasionally reveals itself.

It comes to my mind every time I take a look at Bed Bath & Beyond (BBBY) stock. For the past ten years, the company has become yet another victim of Amazon as customers learned that they kind find the exact same home furnishings at a cheaper price than they’d get if they visited a physical Bed Bath & Beyond retail location.

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