Private Equity May Grab Your Future Wealth

After I recently lamented the strong performance of Exxon (XOM) stock despite the price of oil being in the $40 range and the necessity for the oil giant to take large write-downs, I speculated that the rise of indexing strategies in the stock market means that people will be sending through automatic buy orders without much regard for whether the fundamentals of the business deserve increased demand for the stock.

A reader forwarded me an on-point discussion of this topic between a young Bill Ackman and Charlie Munger that took place as part of “The Buffett Essays Symposium” in 1996.

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Procter & Gamble Stock: The Future Won’t Match The Past

Let’s compare snapshots of Procter & Gamble between 2006 and 2016.

In 2006, each share of Procter & Gamble represented $2.64 in net profits. In 2016, each share of Procter & Gamble earned $3.67 in net profits. That seems like a disappointing, though tolerable, ten years of 3.35% annual growth.

The reality is worse, though. Over this time Procter & Gamble added $7 billion in debt and leaned on that financing along with $20 billion in retained profits over the decade to retire 500 million shares of stock.

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