I’m a sucker for a good commercial, particularly one with a competitive edge that indicates “I’m here to win.” The United States has largely moved away from producing those kinds of ads over the past 25 years for two reasons.
First, companies realized that starting commercialized wars with peers would lead to market share and pricing bouts of oneupsmanship in which you’re left with lower margins, and as a consequence, lower profits.
In other words, large American companies have developed a fear of the counterattack.
I’ll give a hypothetical. Let’s say that Wal-Mart lowered the price of all bread and milk products by 25%, willing to take a loss on those items to get more foot traffic through the door (and as a result, they would increase profits when customers bought products beyond the loss leaders). To kick off the campaign, Wal-Mart might launch an advertising campaign that compares the … Read the rest of this article!
I have a new update on Patreon, which you can access by clicking here. I cover a stock that has deliver over 14% annual returns since 1979 while executing the same strategy today that it has been perfecting for the past forty years. In particular, it now trades at a much lower than typical P/E ratio due to several recent “disappointing” earnings reports, which I put in quotes marks because profits are rising but the recent reports have been at a lower rate than the proverbial Wall Street wants, and therein lies the opportunity for the long-term investor to capture double-digit compounding. … Read the rest of this article!
When evaluating a business, I pay close attention to the ability of the prospective business to raise prices that it is able to charge for its good or services each year. Along with improved improved technologies/lowered costs, increased sales, and share buybacks, this is the remaining element that can lead to increased profit per share.
Arguably, pricing power is the most significant factor in identifying a buy-and-hold investment because it actually is the manifestation of a competitive advantage. With share buybacks, the only requirement is that there must be cash somewhere on the balance sheet that can be used to lower the share count outstanding. With lowered costs, the competition often benefits from the same technological development, so it is rarely proprietary and/or competitive benefits to the business itself. Increased sales is closer to measuring the competitive advantage of a business, but sometimes, it could just be that a healthy … Read the rest of this article!