Making Long-Term Investments In Declining Industries

Many of you are aware that tobacco stocks have been excellent investments despite experiencing a simultaneous drop in sales growth that hampers the industry on an annual basis. If you were contemplating an investment in the old Philip Morris in 1981, and you were informed that cigarette sales would decline by 3.5% annually between 1981 and 2015, would you still be interested in making the investment? Would you have any idea that the investment would go up to deliver 20% annual returns from that point forward, giving you an ownership position in Philip Morris International, Altria, Mondelez, and Kraft-Heinz?

A similar story has played out for railroads. In 1900, the railroad industry represented 63% of the American stock market. If you were a dividend investor in 1900, it almost certainly meant that the bulk of your wealth would be coming from railroad dividends. And yet, railroads currently make up less … Read the rest of this article!

Thomas Mellon: Changing Your Life Through Concurrent Benefits

The 2006 book “Mellon: An American Life” covers the life of Andrew Mellon as he built a fortune through Alcoa, Gulf Oil, and the Mellon banks while becoming one of the most influential citizens in United States history via his advocacy to the President during the administrations of Warren Harding, Calvin Coolidge, and Herbert Hoover. The modern-day sports mogul Stan Kroenke, with ownership interests in the Denver Nuggets, Colorado Avalanche, Colorado Rapids, Colorado Mammoth, English football club arsenal, and the St. Louis Rams, spent the early years of his adulthood fiercely studying Carnegie’s focus on developing long-term projects and keeping the same management teams in place for decades on end.

Carnegie’s buy-and-never-sell approach (only using cash profits to accumulate more) has become Kroenke’s signature style. But as interesting as the story of Andrew Mellon is, the real underrated story is that of his father: The jurist and businessman … Read the rest of this article!

When The Investment Waters Get Cloudy

In 2011, I noticed Google (GOOG) at $250 per share. It was actually $500 at the time, but has had a stock split since then. I thought the stock was cheap. There was innuendo on many Google stock message boards indicating that a change in the ownership structure was being deliberated internally and would affect the voting rights of shareholders. I did nothing.

Sure enough, shortly thereafter, Google announced that it would be doing an unusual 2-for-1 stock split. Not only was the stock splitting, but a change in ownership structure was attached to the terms of the deal. Google was creating separate class GOOG and GOOGL shares so that the founders Larry Page and Sergey Brin could retain 55% voting power over the company even as their actual ownership of the overall company dwindled to a portion of that.

I am not pleased with voting arrangement that do not … Read the rest of this article!

Value Investing Meets 1999, 2015

On January 10, 2000, Merrill Lynch’s Henry Blodget made the following statement: “Valuation is often not a helpful tool in determining when to sell hypergrowth stocks.” Shortly thereafter, the valuation of tech stocks trading on the NASDAQ exchange crumbled. On July 13, 2015, Paul Sweeney, an analyst at Bloomberg, offered this: “When you see stocks with these high multiples, it shows you the market’s comfort in the longer-term growth story.” Every generation, a rationalization for paying prices disconnected from business fundamentals seems to arrive. People can’t help themselves; it plays out over and over again.

The likelihood of falling for this kind of stuff does seem to be more nature than nurture. When Warren Buffett explained value investing to students at Columbia University in 1981, he mentioned that people instinctively are attracted to the concept of buying “dollar bills for fifty cents” or they immediately have no interest in it. … Read the rest of this article!

A Tale of Two Cities

Earlier this month, Facebook (FB) gained a lot of attention for being the fastest company to reach a $250 billion valuation in the history of the NASDAQ stock exchange. It’s not really a measuring stick that comes with an equal playing field, as Facebook was valued at over $100 billion at the time it went public. Is Facebook going from $100 billion in 2012 to $250 billion in 2015 better than Starbucks going from $400 million in 1992 to $83 billion in 2015?

Of course, what makes life interesting for investors is that we get to spend our time figuring out whether the rise in Facebook’s share price is deserved, as the company’s market cap goes barrelling past legendary investment titans like Wal-Mart Stores and Procter & Gamble.

There are less than a dozen companies in the United States that Facebook is yet to eclipse, and one of them is … Read the rest of this article!