Regarding the identification of excellent long-term stock investments, Warren Buffett made the following observation in his 1977 shareholder letter:
“Most companies define ‘record’ earnings as a new high in earnings per share. Since businesses customarily add from year to year to their equity base, we find nothing particularly noteworthy in a management performance combining, say, a 10% increase in equity capital and a 5% increase in earnings per share. After all, even a totally dormant savings account will produce steadily rising interest earnings each year because of compounding.
Except for special cases (for example, companies with unusual debt-equity ratios or those with important assets carried at unrealistic balance sheet values), we believe a more appropriate measure of managerial economic performance to be return on equity capital.”
Generally speaking, the average small American company earns a return on equity of approximately 12%. The average large company, defined as those that have … Read the rest of this article!
On the list of investments that I should have recognized, but ultimately failed to recognize in real time, is the success of Adobe, Inc. (ADBE) as a software as a service company. Back in 2011, when Adobe stock was at $27 per share, Adobe was the type of business where you would pay a one-time fee to acquire.
Want to access, edit, and highlight a PDF? Pay Adobe $99, and boom, you’ve got the privilege to do so for life. That was a great business model. It turned Adobe into a billion-dollar company because it didn’t cost anything additional to acquire a customer. Nothing wrong with that.
But then, Adobe took an action that changed its business model from “great” to “phenomenal.” It changed the way it charged for Adobe. Instead of having to pay a one-time fee, customers would buy a monthly license in which they had to pay … Read the rest of this article!
Wendy’s is not a company that gets a whole lot of attention simply because it has played fourth fiddle to Dairy Queen, Hardee’s, Burger King, and the star of the show, McDonald’s. With McDonalds growing profits and dividends like clockwork around the globe every year, and being the one source of truly lucrative long-term wealth creation within the fast food industry, it can be easy to overlook some of the contributions to human understanding brought about by some of the secondary players.
Today, I want to shine a quick spotlight on a strategy employed by Dave Thomas, the founder of Wendy’s. From the beginning, Thomas had to work cut out for him—when he opened his first Wendy’s in Columbus, Ohio back in 1969, there were already over a thousand McDonald’s franchises dotting the American landscape. But Dave Thomas was no stranger to uphill battles—he never knew his parents, his adoptive … Read the rest of this article!