If you’ve been reading personal finance articles for a while, you’ve probably come across the different studies that compare one’s overall sense of happiness in relation to the amount of household income that they are able to generate. You may have seen Malcolm Gladwell’s figure about how the slope of money buying happiness is the greatest around the $75,000 mark, and then money is able to buy happiness at a much slower and slower pace after that.
I never paid a whole lot of attention to those types of studies because I’ve always had the gut intuition that money is a super big deal when it comes to the basics (shelter, transportation, food, etc.) and once you have those basics covered and a little walking around money in your pocket, then the quality of your relationships with others as well as sense of personal satisfaction and accomplishment with how you … Read the rest of this article!
Did you see Charlie Munger’s quote on Benjamin Graham during his recent fireside with the Wall Street Journal?
I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to Warren — who discovered him at such a young age and then went to work for him — Ben Graham’s insights changed his whole life, and he spent much of his early years worshiping the master at close range. But I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.
… Read the rest of this article!
BBB-rated debt is the lowest-quality debt that is considered “investment grade.” Anything below that is what we call “junk debt” or “junk bonds.” BBB-rated debt can be worrisome because it actually shows up in the portfolios of American pension funds, endowments, charitable trusts, and high-yield bond funds like the Fidelity Capital & Income Fund, Vanguard High-Yield Corporate Fund, Blackrock High-Yield Fund, and Blackrock High-Yield Bond Fund.
In 1980, BBB-rated debt accounted for 8% of fund offerings.
In 1990, BBB-rated debt accounted for 18% of fund offerings.
In 2000, BBB-rated debt accounted for 23% of fund offerings.
In 2010, BBB-rated debt accounted for 37% of fund offerings.
In 2019, BBB-Rated debt accounted for 52% of fund offerings.
And these are only the figures for the United States. If you count “global high-yield bond funds”, over 53% of it as classified as junk-bond status.
This is problematic for … Read the rest of this article!
In 1991, Old Dominion Freight Line, the less-than-truckload motor carrier, had its IPO at a split-adjusted price of $1.76 per share. The company only had debt amounting to 2% of its total capital structure, and it was earning stated returns on equity of 16%. With the debt stripped out (i.e. the DuPont analysis in action), the unleveraged returns on equity were around the 15% range.
Just two years prior to the Old Dominion’s IPO date, Charlie Munger was lecturing the savings and loans institutions about the fact that “over long periods of time, companies will provide performances that largely track the underlying, unleveraged return on equity of the firm” and even indicating that boring, staid businesses with strong returns on equity were one of the best places to look for a good deal.
Since 1991, Old Dominion stock has returned 17.5% while delivering unleveraged returns on equity between 15% and … Read the rest of this article!
One of the general truisms for investors during a sharp market decline of 20% or more like we saw in 2008-2009 is that, as long as you are a net buyer of solvent companies, you are bound to do well. The only type of scenario in which that wouldn’t be true is if you had a late 1990s type of situation where some companies became so expensive that even a 20-30% price decline didn’t make those companies cheap, but rather, took them from grossly expensive to slightly expensive.
Anyway, the question I’ve set out to answer is this: When there is a significant stock market decline, what is the most intelligent course of action that should follow?
First of all, I should note that if you avoid selling during market declines, you’re already ahead of the curve. And if your impulse is to buy more shares when you see the … Read the rest of this article!