Three Quotes From Seth Klarman On The Financial Crisis

I was just reading through Seth Klarman’s 2010 letter to his investors at The Baupost Group and I wanted to share with you three quotes that caught my attention enough to reflect upon:

(1)Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse. 

To deal with this problem, I like to go straight to the Charlie Munger playbook. Instead of crafting a strategy that fears bad things happening, I try to ask myself this question: “If the world gets even messier, what companies will still be making a profit even if everything falls apart?”

When I answer that question, I think of Exxon making $38 billion in profits across 38 countries. I think of Coca-Cola making $10+ billion … Read the rest of this article!

Wendy’s Is Destroying Itself To Repurchase Shares

If you’ve been following Wendy’s stock over the past few years, you may have noticed that the stock price has quadrupled in value from $4 in 2009 to $16 today while earnings have tripled over that same time frame from $0.20 to $0.60.

This strong ten-year performance is not indicative of a business that is positioned to deliver strong long-term returns over the coming generation.

While Wendy’s management deserves credit for realizing the advantages that come with the 4-for-$4 deal, making money by boosting traffic and earning high profit margins on the mandatory drink portion of the order to offset the lower profit margins on the food items, it has not been managing the company’s balance sheet as prudently.

A significant portion of Wendy’s earnings per share growth is the result of stock repurchases funded by debt, and as a result, Wendy’s now has a leveraged balance sheet that will … Read the rest of this article!