Why Tootsie Roll Stock No Longer Outperforms

Between 1957 and 2012, shares of Tootsie Roll stock compounded at an annual rate of 13.57% (it was originally called The Sweets Company). You would have turned $10,000 into $4.5 million over a forty-five year period by selling Americans Junior Mints, Andes Confections, Mason Dots, and of course, Tootsie Rolls. It would have been the simplest way to passively build wealth—you would be a part owner in a business that repeatedly sold products over and over again that earned 13% profit margins and executed on a very understandable business model.

And yet, the 2002 period onward only saw the stock compound at a rate of 3.1% per year. Why did one of the best investments in the American stock market suddenly become mediocre at best? Three reasons: (1) a slashed advertising budget; (2) a maturing candy market in the U.S.; and (3) an expectation of a takeover that has … Read the rest of this article!

How Financial Advisors Fail Their New Clients

A great deal of wealth in the United States is invested for the benefit of people who don’t give a darn about the stock market. Some data points bear this out, such as Abbot Downing’s internal survey that finds almost 70% of their clients fall into the classification of “financially unsophisticated.” This is perfectly understandable, given that successful investors usually want to pass a good chunk of their accumulated wealth onto their kids who may not share the interests. Also, having a high-earning career or running a small business doesn’t necessarily give you the kill set to recognize why a $5,000 investment in McCormick will create drastically more wealth than the same amount invested into Alcoa stock for half-a-century.

The big-picture question for every financial adviser with a disinterested wealthy client is: How do you get someone interested in the stewardship of their assets–not just in an academic sense that … Read the rest of this article!