Takeunders of Publicly Traded Stocks: Assessing The Risk

In 2009, Warren Buffett bought Burlington Northern Santa Fe for a price of $100 per share in a combination of cash and stock (the mix depending upon the election of the Burlington shareholder). In the ten years since that acquisition, Berkshire Hathaway has increased more than three-fold, which is great, but Union Pacific (the closest proxy for Burlington) has increased more than eight-fold. 

Calculating alternative universe scenarios inherently involves speculation, but it is reasonable to project that an investor sitting on $100,000 in Burlington Northern Santa Fe stock in 2009 could have been sitting on $815,000 in BNSF stock today rather than $325,000 in Berkshire Hathaway stock due to the acquisition. 

In 2009, … Read the rest of this article!

2019 Stock Investors Looking Like 2007 Stock Investors

Shockingly, when an American investor holds a stock for fifteen months without receiving any capital appreciation, he is inclined to deem the investment a failure and sell it (source: “Investment Mistakes of Individual Investors and The Impact of Financial Advice”). When super-investors like Warren Buffett, Charlie Munger, and Seth Klarman state that successful investing comes down to temperament, this is what they mean. You cannot build wealth if you demand that every stock you purchase increase in value within the immediate years following investing. 

An important case study to me is that Microsoft stock traded somewhere in the $20-range every single year between 2000 and 2013 before embarking on an enormous … Read the rest of this article!

Small-Cap Index Funds Are Good Investments, But With A Caveat


I’ve been trying to work my way through reader questions that also would be good material for inclusion on this stock, and I reached an intelligent question from a reader that wanted to know why I don’t write about small-cap index investing on this site all that often, given what he called the proof of their permanent superiority as investments. The “proof” he was referring to is this: According to research conducted by Ibottson & Associates measuring the 1926 through 2013 time period, an indexed collection of small American companies delivered returns of 12% per year. A similarly indexed collection of large American firms delivered annual returns of 10% per year over that … Read the rest of this article!