Five years ago, Coca-Cola stock hit a high of $45 per share. Right now, the stock trades at $47.85. When any stock does not appreciate in price for five years or more, the investor class often allows their analysis to succumb to recency bias. That is to say, if Coca-Cola had the exact same business that is operating now but the price of the stock was, say, $80 per share, the analysis of Coca-Cola’s present circumstances would be far rosier than is currently on the case.
In theory, we should be able to avoid recency bias by reminding ourselves that the value of any business today is contingent upon the net present value of all future profits that the business generates capitalized at some multiple on the end date of your contemplation period. Remembering this lesson has served the investors in iconic companies such as Johnson & Johnson and the … Read the rest of this article!
A justifiable but ultimately flawed investing impulse is to rely solely on the numbers we see from a company rather than thinking about the qualitative aspects of the investment itself. Some of this reasonable. Thinking about the quality of earnings is hard whereas current numbers are easy—anyone with an internet connection can pull up a spreadsheet and see Exxon’s $0.63 quarterly dividend backed by profits that are usually 4-5x as much. It’s much harder to look at the quality of those profits—personally, I get excited seeing the fact that Exxon is acquiring 21% more in reserves than it drills out of the ground, and I like to see the company’s slow transition from relying on liberty-suspending-mentally-unhinged third-world despot to do oil business, and shift some of that work to Canada.
My guess is that a lot of this has to do with the unquantifiable nature of earnings quality—okay, we all … Read the rest of this article!
There is a BP gas station by where I live that uses a deceptive business practice to cajole people into patronizing it. The gas station owner posts a price that is $0.20 below the Shell Oil station across the street, and it is not apparent until you physically arrive at the gas station that you don’t get that price unless you get a car wash, too. By that point, most people will have already “settled” on that gas station and pay that price anyway.
When I talk about building long-term wealth, this is not what I mean. It’s not about extracting goods from others by lying, cheating, or stealing. If the records filed with the Secretary of State are accurate, this guy is a member of the local community. He has daughters he sends to the local private high schools. Yet, he has no problem using a bait-and-switch tactic to … Read the rest of this article!
The second and third order world effects that William Danforth has had on our civilization are staggering. Although most of the 300+ million people going to bed at night in the United States have no idea who he was, it is no great tragedy except to the extent that they remain ignorant of ways to learn from his life.
By all accounts, Danforth had an internal yardstick that meant he measured his life not by the acknowledgement, praise, and validation of others, but rather, his own objective analysis of the good he caused. If you help someone else out or do something to make the world a better place, you don’t need a pat on the back from someone else for your action to be great. Sure, there’s a sweetness inherent in receiving sincere appreciation for your good works, but it’s not a necessary condition for you to know that … Read the rest of this article!
In a 1988 ABC special, columnist William F. Buckley debated Jesse Jackson on drugs (particularly cigarette smoking), and during the debate Buckley said this:
“If we get nothing else out of the hour tonight, I would hope that we emancipate ourselves from the superstition that that which is legal is necessarily honorable. . . It’s perfectly legal to contract syphilis but that does not mean that society is in favor of syphilis.” And then he goes on with the pointed jab: “As a matter of fact, it’s perfectly legal to vote for Jesse Jackson. That doesn’t make it reputable, does it?”
I receive a decent amount of comments from readers (some of it posted here, some of it posted on my Seeking Alpha writings, and some of it sent to me privately) responding to old articles that I have written analyzing the tobacco stocks (Altria, Lorillard, Reynolds American, and … Read the rest of this article!