On page 22/23 of his work One Up On Wall Street, Peter Lynch explained why the stock market declines of 1990 bothered him a lot more than those of 1987: “While the 1987 decline scared a lot of people (a 35 percent drop in two days can do that), to me the 1990 episode was scarier. Why? In 1987 the economy was perking along, and our banks were solvent, so the fundamentals were positive. In 1990 the country was falling into recession, our biggest banks were on the ropes, and we were preparing for war with Iraq.”
When you see the prices of your non-cyclical stocks decline by more than 20%, the subsequent question that you should immediately ask is: Are the dividends and overall profits falling substantially, too?
Outside of the financial sector, the stock market crash of 2008-2009 was not accompanied by a joint decline in the … Read the rest of this article!
I know I have mentioned this several times over the past year, but I consider the business and stock performance of Adobe Systems, Inc. (ADBE) over the past decade to be one of the most instructive business case studies over the past decade. There is so much to learn about how a software company with solid 10-14% annual growth transformed itself to “Berkshire Hathaway in its early days” type of growth with its 23% annual earnings per share growth over the past six years as it has transitioned aware from a permanent licensing to a monthly subscription-based model for generating revenue.
For investors who correctly identified this trend and purchased shares accordingly, the results have been significant, with $1 of investment growing into between $11 and $20 each depending upon the specific entry point of the investment during the past decade or so time frame.
As a result, I have … Read the rest of this article!
A great question from reader Joe left as a comment on a previous article:
This question isn’t directly related to this post but I’d still like to get your thoughts on an investing concern that has been on my mind lately. To what extent do you view your investing life as an extension of your personal life?By that I mean to what extent do the personal morals and ethical values of Tim the man govern the investing decisions of Tim the dividend growth investor?If you ask your typical dividend growth investor if they would be willing to invest in a lucrative but immoral venture, say selling child pornography or crack cocaine, the answer would probably be “absolutely not” regardless of the yield, valuation or growth prospects of the underlying venture.And yet, ask that same investor what their thoughts are about Phillip Morris and they would probably describe what a
… Read the rest of this article!
I was reading through one of my cases about a contract dispute between an employee and an employer, and there were a couple of things I picked up from the case that I thought would be worth mentioning to you.
The basic plot was this: A business owner promises his 82 year-old janitor that he can continue working there for the rest of his life, and when the business owner dies and leave his son the business, the son is looking for ways to get rid of the the janitor and wipe him off the payroll.
He cut the janitor’s hours, lowered his wages, and still couldn’t get him to quit. Eventually, the son that became the business owner was able to fire him. And here’s how he did it.
First, he had the janitor fill out a self-evaluation form and scorecard, in which the janitor gave himself scores like … Read the rest of this article!
Probably the most frequently asked question that I have ever gotten from readers is some variation of this: With the recent stock price increases of the past four years in mind, does it still make sense to buy the top-quality companies in the world like General Mills, Procter & Gamble, Johnson & Johnson, PepsiCo, General Electric, Coca-Cola, ExxonMobil, and Nestle at these prices?
It’s a question that you’ll ultimately answer for yourself, but here is how I think about it: the consequences of overpaying for an excellent business and holding for the long run are quite minimal compared to almost any other financial mistake that you can make. When you are dealing with the kinds of companies that are relentlessly growing profits and dividends year in and year out, you will find that the company “grows” into its valuation within a year or so, and then it’s off to the … Read the rest of this article!