When McDonald’s stock was trading in the $90s during 2014 and 2015, I was incredibly struck by the obviousness of the high risk-adjusted returns that would await investors from that price point. While I did not specifically know that each $90 share would go on to produce $106 in capital gains and $18 in dividends over the coming 4-5 years, I could identify the vast real-estate holdings on the company’s books, the immense cost-advantage inherent in controlling one-fifth of the United States chicken market, and an absurdly high marketing budget and entrenched cultural advantage as the cheap go-to fast food source that functioned as an additional competitive advantage. With a P/E ratio that got as low as 15x earnings, it was only a matter of time before the superior returns would come.
Nowadays, when an investment opportunity is spotted, someone will say something like: “If it’s so obvious, why isn’t … Read the rest of this article!
Even though I’ve generally anointed The Coca-Cola Company as the signature stock that I associate this website with, I’m opening myself to the possibility that perhaps Colgate-Palmolive should be the quintessential company that I reference here.
At this point, I realize we’re arguing degrees of perfection in the business model. But the reason why I’m considering the possibility that Colgate-Palmolive should become my primary exemplar is this: there are two factors that make a company a quality investment. First, there is the quality of current profits. And secondly, there is the long-term growth prospects for those profits.
In terms of quality of the business model, Coca-Cola and Colgate-Palmolive are nearly identical. They sell well-branded products that people buy regularly, and they do it at a cheap price. The returns on shareholder equity for both companies is enormous; in the Wild West days, you would need a ski mask and pistols … Read the rest of this article!
Benjamin Graham warned that investing and the pursuit of wealth through markets and publicly traded business ownership involved a very important contingency. Namely, it was non-negotiable that the investor would not put himself in position where he would have to sell stock out of necessity. Most financial analysis focuses on developing the temperament to withstand selling when the market is low. Equal time should be devoted to making sure that a forced sale does not occur due to an unexpected car repair bill, home expense, or some other life event that requires a withdrawal from your investment accounts.
If you have to make a hardship withdrawal from your 401(k) during a year like 2009, decades of accumulated wealth could be lost in an instant due to insufficient planning for adversity. I say that not as a judgmental statement, but rather, none of my articles on my investing will actually lead … Read the rest of this article!
If you’re looking to take your game to the next level, here’s an excellent habit to develop: Anytime you encounter a data point or statistic that tells you about the supposed quality of a given investment, quickly follow that up by asking the question, “Is there any countervailing force that will offset this?”
I’ll give an example. If you read analyst reports about Altria (which was called Philip Morris up until about five years ago) anytime between 1983 and now, you would have encountered this line dutifully added in the “risk” section of the analyst reports: Gross tobacco volume shipments in the United States are declining by about 3-4% annually.
This is a permanent structural change in the tobacco industry. It is a very real risk of tobacco investing, and the analysts are right to note it in investor presentations. Yet, relying on this fact to make an investment decision … Read the rest of this article!
I am a little bit wary of when there is a large rise in capital flying into the markets because it suggests the possibility that assets could be trading at an inflated mark. Often enough, “good days” are not recognized until they are followed by days that are decidedly not good days and then held up as comparison between the two.
In the most recent Allianz Report on Wealth Trends in 2018, it was noted that each dollar generated in the U.S. economy results in 17 cents flowing into stocks and bonds as investments, whereas in 2010, it could only be said that 10 cents were doing the same. During the last time U.S. investment per dollar earned was this high (1999, 1989, 1969, must be a year that ends in “9” thing), it did coincide with moments that seemed to be identified as market highs in hindsight.
The million-dollar … Read the rest of this article!