If I had to make a list of the obstacles that can prevent people from successfully applying some of the sound investing principles found in Benjamin Graham’s early writing, one of the spots would be reserved for lack of patience—stocks that are unpopular can sometimes remain unpopular and underpriced for a long period of time, and it can become tempting to sell a stock simply because the price of the company isn’t moving forward as fast as you’d like (by the way, a lack of patience can also be a problem with companies that move upwards too fast—Exxon Mobil turned $100,000 into $1,800,000 over the past twenty-five years, and I’m sure a quick gain from $100,000 to $130,000 in 1989 or 1990 brought some investors out of the stock).
But it is selling stock before they get a chance to deliver returns for investors in line with actual business performance … Read the rest of this article!
If it weren’t for oil stocks, as well as my recognition that there are quite a few companies with superior growth rates worth mentioning, I would spend a lot of time talking about just how cheap IBM has gotten in the past two years (and also bring home the point that Benjamin Graham, David Dodd, and Warren Buffett were right when they said that true value investing is not something many people are going to be able to practice in real life because companies can remain cheap for quite a few years, and heck, Abbott Laboratories spent most of the 2000s trading at a discount before the rapid rise in the value of healthcare stocks at the same time that Abbott Labs was spinning off Abbvie). Buffett, personally, chose to get around this point by owning operating companies that gave him regular profits to invest in the stock market, so … Read the rest of this article!
Charlie Munger once wisely pointed out that it only takes one idea to build substantial wealth, noting that he estimated 75% of Berkshire Hathaway’s real wealth came from approximately one dozen investments over the past fifty years despite the company owning thousands of operating companies. Jesse Livermore, at the end of his life, once remarked that the real money that gets made over a lifetime is the result of sitting and compounding rather than selling and shuffling through various investments.
Between 2008 and 2012, MUFG Securities accumulated 13,868,474 shares of Visa (split-adjusted) at an average price of almost $21 per share. This was a total investment of approximately $300 million out of the company’s $4.5 billion overall portfolio, or approximately 6% of the client’s total overall investment capital.
Like many other investment managers, the portfolio managers at MUFG Securities no doubt recognized that Visa was and is the world’s largest … Read the rest of this article!
There are some aspects of Benjamin Graham’s “enterprising investor” philosophy that have no appeal to me, because they don’t suit my style and also because I don’t believe that I have the skill set to execute in real life—for instance, Graham describes one type of enterprising investor as one who buys in low markets and sells in high markets. The reason that style does not suit my personality is because stock prices tend to track business performance (at least loosely) and the price of a stock is usually at its highest when its business performance is at its best. I’d want to be around reaping the benefit of Nike’s 16% dividend hike or Visa’s string of dividend growth north of 20%, not moving out while you are reaping the most fertile harvests of a company’s business cycle.
The second, and more logistical, reason why I don’t follow Graham’s first definition … Read the rest of this article!
Over time, if a company trades at wildly different valuations, the purchase price of the stock is going to mean that investors in the same company are going to have very different experiences with their holdings. For instance, investors in tobacco manufacturer Altria have seen the price of the stock fluctuate between 10x earnings and 20x earnings at various points in the past five years. Those investors are going to have very different experiences.
On the other hand, there is the well-known blue-chip stock Johnson & Johnson. The investor community generally understands that the company is a powerhouse with unassailable consumer brands (Band-Aids, Listerine, Johnson baby shampoo, etc.), medical device and equipment manufacturing, and a drug pipeline whose irregular yet high growth is “smoothed out” by the first two business categories.
Due to the widespread knowledge that Johnson & Johnston will most likely , Johnson & Johnson has traded at … Read the rest of this article!