For those of you interested in what I’ve been reading this weekend:
1. You can click here to read an article about a guy that bought some Palmer Oil stock and argued that it was worth 1.8 million shares of Coca-Cola by tracing a complex set of mergers. This would have entitled them to hundreds of millions in Coca-Cola stock, but alas, the Marohn family did not adjust for the extremely dilutive reverse stock splits when Palmer Oil became Palmer-Stendel Oil and then Petrocarbon Chemicals, which made the stock nearly worthless by the time it merged with Taylor Wine (which eventually got merged into Coca-Cola in 1977).
All along, Coca-Cola contended that the shares were worthless. Unfortunately, they did not include their rationale for claiming they were worthless, and the family dropped the claim once it became clear that in a best case scenario the shares would not have been … Read the rest of this article!
One of the interesting things about mutual funds is that they tend to retain the halo effect of the mutual fund superstars even after those fund superstars are no longer around. One such case is the Fidelity Magellan Fund. It built up all of this brand equity when Peter Lynch was running it for thirteen years and giving investors returns of 29.3% annually. Lynch ran it from May of 1977 to May of 1990, and the fund increased in size from $20 million to $13 billion by the time that Lynch let go of the reins.
The fund fell apart under the management of Robert Stansky and Harry Lange. Under Stansky, the fund peaked at $100 billion in 1999, before losing half of his assets under management by the time that he left in 2005. Stansky made the mistake of going into bonds way too soon; investors during the late … Read the rest of this article!
Not that long ago, I was watching the Missouri Tigers play against another team with the exact same mascot, the Auburn Tigers. Unfortunately, my Missouri team lost, but I’d like to talk about something curious that happened during the halftime show: two college students competed against each other for a free college tuition. It was a competition involving throwing footballs through a giant cube-shaped Dr. Pepper box, and the winner of the contest received a free college tuition (or maybe it was just one year of free tuition, I don’t remember) that was paid for Dr. Pepper.
Now, as a Dr. Pepper shareholder, this did not bother me. In fact, I liked it—I thought it was a great way to build the brand name, generate some goodwill, and do some good in the world. But here is the problem: it was my money used, and it was done without my … Read the rest of this article!
I was watching CNBC early this evening (perhaps that was my first mistake), and the headline blaring on the bottom was about McDonalds’ operations in Japan. McDonalds is currently planning to shutter 74 restaurants in the country of Japan, as net income generated by McDonalds operations this year will be just a bit below $50 million or so, about half of what analysts had been expecting ($91 million).
The question on CNBC then became: Should current shareholders of the stock sell?
All of the respondents relied on predictions about the McDonalds’ future growth in Japan to craft their answers. Not one of them even took into consideration the overall profitability of McDonalds as a corporation or took a holistic view of what is going on at the company.
In 2012, McDonalds made shareholders $5.36 in total profits. By the end of 2013, McDonalds will be making their shareholders $5.57 in … Read the rest of this article!
One of the seeming national pastimes among investors over the past decade has been to lament the performance of Microsoft stock. After all, from 2003 to 2013, the company has only delivered annual returns of 6% over that time frame, and that is even taking into account the price gain of over 30% this year (otherwise, those 6% annual returns would have been 3% annual returns).
However, from 2003 to 2013, Microsoft’s profits grew from $0.97 per share to $2.65 per share. That’s a 173% gain over the decade, which works out to a 10.6% annual increase over the decade. The profits at Microsoft grew just fine over the past ten years, and that’s why I don’t complain about Steve Ballmer’s leadership the way some people do. The reason why Microsoft “lagged” over the past ten years is because investors went from paying $26 for every dollar of profit that … Read the rest of this article!