You probably saw the news earlier this year that pharmaceutical companies raised the prices of over 250 drugs. As someone with a website that offers the investor’s perspective on all of this, I get to wondering: If you see the news items that a drug company is raising the prices of prescription drugs in its portfolio by an average rate of 8-10%, and the typical unit sales growth for a drug company is 8%, shouldn’t these companies be delivering close to 20% annual returns to shareholders each year?
Historically, drug makers outperform the S&P 500 by a percentage point or two each year, which is a difference that becomes significant over time, but … Read the rest of this article!
Tonight, I’d like to introduce to you a figment of my imagination for the purposes of this article only, Luckless Larry. Larry is a no-talented investor who spent the 1980s investing $5,000 on January 1st of each year.
On January 1st, 1980, he bought $5,000 worth of Lehman Brothers stock.
On January 1st, 1981, he bought $5,000 worth of Washington Mutual stock.
On January 1st, 1982, he bought $5,000 worth of Worldcom stock.
On January 1st, 1983, he bought $5,000 worth of Johnson & Johnson stock.
On January 1st, 1984, he bought $5,000 worth of General Motors stock.
Income investors, recognizing how much the joy of a stable cash flow can improve their lives, often press their luck in trying to find the point at which point you can have too much of a good thing.
There are two areas where the abandonment of common sense can get an income investor into trouble: (1) one, if he ignores warning signs about a potential investment’s current profitability and outlook in search of dividend yields that are above 5%, or (2) he is drawn to the idea that he can better regulate his lifestyle and investing desires by loading up on stocks that make a monthly deposit into one’s bank account each month. … Read the rest of this article!