When Coca-Cola initially went public in 1920, it quickly found itself in the position of being a $30 million compared that was generating $9 million in annual profits. The P/E ratio was somewhere around 3. Buying a young Coca-Cola after the IPO was one of the best investments that you could have made in history, with a round lot of 100 shares growing into almost $2 billion at the end of 2012.
The profits generated by the company have doubled thirty-eight times since the IPO, plus you got a dividend that has been raised every year since 1963 alongside stock buybacks in recent years that would amplify the total wealth created by this … Read the rest of this article!
Although he didn’t mention it in this letter, Warren Buffett has repeatedly mentioned that he likes to keep a minimum of $20 billion in cash on hand to be placed in Berkshire’s coffers. The reason why he does this is because he wants Berkshire to be protected in the event of an extraordinarily rare catastrophe loss. Berkshire is susceptible to deep earthquakes in California, hurricanes in the southeast, and those extremely rare earthquakes in the Midwest. For instance, Berkshire provides much insurance coverage along the New Madrid Fault, which last went off in February 1812 and destroyed St. Louis in under thirty seconds. It was so deep that the writings of the time … Read the rest of this article!
Out of all the possible topics in the world that Munger could have chosen to begin his letter to investors of Berkshire Hathaway, Munger began talking about the management system and policies that allowed Berkshire Hathaway to be so successful after giving a brief outline of what was to come. Although Munger didn’t explicitly say this, there is a reason why processes and systems are so important: they provide a template that systematically converts your labor into passive (or generally passive) sources of income.
There is a reason why high-profile football players and basketball players find themselves in long-term financial difficulty. It is because they fail to embark on this journey—either they spend … Read the rest of this article!
Perhaps other than the release of The Intelligent Investor by Benjamin Graham, The Crash and its Aftermath by Barrie Wigmore, or Quality of Earnings by Thornton O’Glove, no document will be more willing to lend itself to knowledge extractions than the release of Berkshire Hathaway’s 50th annual letter tomorrow morning at 8 AM. Fifty years ago, Warren Buffett took control of Berkshire from Seabury Stanton after a fractious arrangement—Buffett agreed to dispose of all his Berkshire stock to Seabury personally for $11.50, and they reached the deal orally with a handshake. When the paperwork arrived, Stanton only agreed to pay Buffett $11.375 for his share of the stock. Reputations are a funny … Read the rest of this article!
There is a reason why many long-term investors that want to compound their wealth at an exceptional rate—usually 12% annually or better over long blocks of time—tend to gravitate towards companies that are classified as “small cap” or “mid cap” compared to their large-cap peers. Something like AT&T makes $128 billion revenues per year—the kind of asset that acts a stable foundation for a portfolio because of the reliable 5% dividend yield that inches upward each year—but the dividend payout ratio, debt load, and high existing revenue base would make it ill-suited for someone, say, looking to make an investment with a chance of compounding in the 12% or 13% zone. In terms … Read the rest of this article!