Why Tootsie Roll Stock No Longer Outperforms

Between 1957 and 2012, shares of Tootsie Roll stock compounded at an annual rate of 13.57% (it was originally called The Sweets Company). You would have turned $10,000 into $4.5 million over a forty-five year period by selling Americans Junior Mints, Andes Confections, Mason Dots, and of course, Tootsie Rolls. It would have been the simplest way to passively build wealth—you would be a part owner in a business that repeatedly sold products over and over again that earned 13% profit margins and executed on a very understandable business model.

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How Financial Advisors Fail Their New Clients

A great deal of wealth in the United States is invested for the benefit of people who don’t give a darn about the stock market. Some data points bear this out, such as Abbot Downing’s internal survey that finds almost 70% of their clients fall into the classification of “financially unsophisticated.” This is perfectly understandable, given that successful investors usually want to pass a good chunk of their accumulated wealth onto their kids who may not share the interests. Also, having a high-earning career or running a small business doesn’t necessarily give you the kill set to recognize why a $5,000 investment in McCormick will create drastically more wealth than the same amount invested into Alcoa stock for half-a-century.

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Warren Buffett’s Coca-Cola Dividends

When Warren Buffett purchased Coca-Cola stock, a purchase that took place between 1987 and 1994 with the most intensive buying occurring in 1988 and 1989, he managed to acquired 400 million shares at an average price of $3.25 per share. Discussions of this successful investment focus on the fact that the $3.25 has grown into $42 over a 20+ year time span.

What gets less attention are the dividend payouts which are sent to Berkshire’s headquarters as cold, hard cash. Every 90 days, Warren Buffett receives 10% of his initial purchase price back when he gets sent a check for $140,000,000.

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A Cautionary Business Investing Tale

In 1973, a man in Connecticut took out an $8,000 loan to start his own business that would provide maintenance to make-up air units at commercial locations. Through grit expressed by his willingness to work hours and provide sophistication in the field of commercial infrastructure, he was able to diversify his business operations to include office fit-outs, electrical design builds, and security lighting to the residents of New Haven, Connecticut over the years.

He sold his business for $18 million in 2014 and effectively retired on the advice of an accountant who sensed that the valuation for his business was at the high point of the cycle.

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What Are The Record And Ex-Dividend Dates?

The payment of a specific cash dividend to shareholders involves four dates–the announcement date, the ex-dividend date, the dividend date, and the payable date.

Some of them mean exactly what they sound like.

The announcement date simply refers to the date on which a corporation decides to disclose to the public that a dividend will be coming in the future. It is of nearly no legal significance, and it confers no rights. The only time I have ever seen the announcement date matter is in the context of insider trading. If a company executive traded the stock of his corporation before the announcement of a one-time special dividend, it may be used to prove the case. But for a typical investor, the announcement date is only relevant for conveying information about the dividend to come.

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