Well, Visa’s had a heck of a day. At the time I’m writing this, the price of Visa stock is up $20 per share (almost 9%) to $234. The cause for ebullience? Good earnings, and continued excellent prospects ahead. The company’s profitable margins continued to increase, going from 61% last year to 64% this year. Volumes are up 11%, year over year. The company is repurchasing an additional $5 billion worth of stock. Annual earnings per share growth still hovers around the 15% mark. The China State Council approved plans to open banking clearinghouses, and successful penetration of the Chinese market could prove highly lucrative to Visa shareholders.
The sharp price action today, incidentally, reveals yet another virtue of having a business ownership mindset where buy-and-hold is not only a given, but the starting premise from which all person investment decisions flow. Price gains that are the result of fundamental … Read the rest of this article!
Lately, I’ve been studying the companies that don’t have perfectly linear records of dividend growth, but have a strong tendency to give owners lots of cash for decades on end, especially when adjusted for the amount of money you have to invest (e.g. I’ve been looking at the companies that typically offer an initial yield north of 5% or so and offers a dividend that is generally higher every business cycle compared to the last).
My studies keep bringing me back to BP, because the company is beyond huge (it’s going to generate $14.5 billion in net profit this year, about 50% more than Coca-Cola as a frame of reference), has often served as Britain’s proxy equivalent to Exxon Mobil as the stock that you hold forever as you pass it down from generation to generation, and is one of the fair value stocks left in the market because people … Read the rest of this article!
The average business in the United States earns a return on equity of 14.5% right now (historically, American businesses have earned return on equity around 12.0%). In 2000, Microsoft was earning return on (unleveraged) equity of 36.0%. By coincidence, in 2019, Microsoft is also earning return on (unleveraged) equity of 36.3%.
Over the past nineteen years, Microsoft has managed to grow profits from $8 billion to $36.5 billion annually. While some of this is attributable to new products and greater penetration across various global markets, the greater percentage of Microsoft’s growth can be attributed to the greater velocity of Microsoft purchases that occur. In 1999, the average Microsoft consumer made a Microsoft purchase every 18.5 months. Nowadays, it is 7.5 months, and the figure is moving in the direction of 1 month as Microsoft has moved towards charging many personal and commercial businesses a monthly service cost for its host … Read the rest of this article!
It’s one of the most intriguing questions when contemplating long-term portfolio planning: What role should finance stocks play when you’re planning to buy things that you intend to hold for 10+ years? On one hand, the demand for things like asset collecting (mutual funds, ETFs, etc.), short-term credit (credit cards), and longer-term lending (bank stocks) is an area that will have perpetual demand. There will always be people directing other people’s investments, there will always be people borrowing money on credit, and there will always be people needing long-term loans to start a business, continue funding a business, buy a home, or whatever requires an infusion of meaningful capital.
On the other hand, financial firms carry a management risk—you can easily overleverage yourself to improve near term results, while setting yourself up for total implosion in the event that an extended economic downturn shows up. If you’re selling cookies and … Read the rest of this article!
When investing, it’s important to get the question you’re trying to answer right. When I discuss investment opportunities that look particularly intriguing, I am not making the statement: “This is the cheapest price the stock will ever see.” I don’t attempt to answer that question because it’s something I never could get right—it involves predicting what *other people* will do at a particular point in time, and at best, it’s something that would never amount to more than speculation.
Instead, I try to answer this question: If I were to purchase the stock today, what would be the amount of profits that the company will be generating 10+ years from now, and then relate that answer to (1) my degree of conviction and (2) the price of the stock today.
Take something like Warren Buffett’s purchase of Wells Fargo throughout the financial crisis. During the absolute low of 2009, the … Read the rest of this article!