At the end of 2013, Grinnell College had an endowment of $1.5 billion. Not bad for a student body of 1,700 situated on a 120-acre campus in Iowa. The endowment has reached such a blessed size because the Trustees of the school had done two things intelligently in the 1960s: they bought shares of Berkshire Hathaway, and they made a very large investment in (what was then) the very small tech startup Intel [Grinnell College was the principal capital source for Intel in its formative years].
What I find interesting about the story is this: Even though the Grinnell Trustees were around the most successful compounders of the 20th century, they couldn’t resist the urge to sell once the investment had grown to be a very large component of the portfolio. If you visit a library and dig up old Grinnell University magazines on the microfilm, you will see … Read the rest of this article!
Some of you have written in to me asking why certain blue-chip stocks don’t get mentioned, or only get mentioned in passing, here on the site. I can’t speak for everything, but often it has to do with valuation or my own estimates of future growth.
For instance, I would love to talk about Nike, Brown Forman, Hershey, and Colgate-Palmolive all the time. They are absolutely extraordinary businesses, as they possess both durable earnings quality that can make profits in all conditions AND they also have very strong earnings growth supported by sales figures that increase year in and year out.
My problem? Valuation. It is highly likely that anyone making a lump-sum investment in any of these companies right now will achieve long-term returns that trail the growth of the businesses themselves by an amount that you will find frustrating.
Take Nike, for example. This is a company that … Read the rest of this article!
One of the reasons why I have chosen blue-chip investing as the medium of choice to advocate is because there is so much downside protection—absent falling demand due to technology change or a lack of liquidity and a super-leveraged balance sheet like you saw at Wachovia, it’s almost impossible to take down a $100 billion company.
Anyway, I was checking the numbers on what has happened to General Electric stockholders over the past decade, and they’re officially in the black: if they dutifully reinvested and let their GE shares run on autopilot, they would have grown their position from 322 shares outstanding to 460 shares, and giving them total annual returns in the 1.5-2% range.
No, those aren’t returns to aim for at the moment of contemplation, but think about the conditions that existed and surrounded a GE investment over the past decade: the company was trading at 22x profits … Read the rest of this article!