In 1846, the Pennsylvania Railroad was created. It was one of the stodgiest blue-chip stocks in American history, even making dividend payments during the Civil War. In fact, from 1846 through 1946, it never cut its dividend and found itself boasting the longest streak in world history without a dividend cut. It was a symbol of American capitalism, as it operated 10,515 miles of rail line throughout Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, West Virginia, and Washington DC.
To a lot of people, it was America. It employed 250,000 people at its height. Pennsylvania’s breadth and power was so extensive that one out of every 2,000 men in the country worked at this east coast railroad company. When the dividend held steady at $2 per share during the Great Depression, it was those $200 checks for every 100 shares owned that prevented some families … Read the rest of this article!
I have quite a few articles that I intend to publish on the Heinz-Kraft merger engineered by Warren Buffett’s Berkshire Hathaway in partnership with the Brazilian cost-cutters from 3G Capital (Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira), but I have been distracted from the pure investment analysis of the transaction because I have been thinking about the moral and philosophical implications of 3G’s business strategy after taking over the management a company.
Generally speaking, businesses with high-quality profits experience megatrends that can last in five to twenty year increments depending on the industry. First, there is the successful era when revenues are growing by 10% or more. This is when everyone gets excited about the business, and cost controls are ignored with a Sodom & Gomorrahic zeal. Helicopters and Falcon jets for the executives? Sure, no reason you can’t reward the leaders of the team for good work. Wait, … Read the rest of this article!
Michael Liedtke, the technology writer for the Associated Press, recently wrote an article discussing the effects of the unorthodox Google stock split designed to keep the majority voting control in the hands of founders Larry Page and Sergey Brin. The issue is that Google may have to pay out $500 million to shareholders of the non-voting stock because Page and Brin promised that the non-voting stock that its stock would trade within 1% of the voting stock. Because the non-voting shares lagged by almost 2% in the first year, Google may be on the hook for half a billion dollars in payments. All those criticism are fine and fair.
The problem with Liedtke’s analysis is this passage: “Yet many investors have become frustrated with Page’s unwavering belief that Google should be spending billions on far-flung projects ranging from driverless cars to diabetes-controlling contact lenses that may take years to pay … Read the rest of this article!
From 1900 through 2000, an investor that owned a tobacco index would have compounded wealth at 14.6% annually. Someone that invested in shipbuilders would have compounded wealth at 6.4%, over three full percentage points below the market at large over the course of the century. It’s a sector allocation that has profound consequences: A tobacco investor in 1900 would have turned $1,000 into $2 billion today. Someone that instead chose to hitch their fortunes to the shipbuilding industry would have turned $1,000 into $591,000 over the course of the past century. One investment approach would buy you the Dallas Cowboys and all of Jerry’s World included, the other would buy you an upper-middle class home after a century of patience.
This disparity came to my attention after I recently wrote about Carnival Cruise Lines. If you ever feel the need to own a ship, invest in Boeing or Lockheed Martin. … Read the rest of this article!