Two Recent Purchases

I made two purchases yesterday, and I detailed them for my subscribers over on Patreon which you can access by subscribing here. One of the purchases covers what I believe to be the only mega-cap American stock that can be fairly said to be 1/4 to 1/2 undervalued based on both common-sense and traditional value investing metrics (and I always love it when those two methodologies point to the same direction). The post is a bit longer than usual, coming in at 2,700 words which is approximately 9 pages double-spaced. If you are thinking about subscribing, this would be a good one to join as the two stocks covered fall within the category of good old-fashioned income investing which is the bread-and-butter premise of the blog. … Read the rest of this article!

The Difference Between Hershey And Coca-Cola Right Now

In the 1980s and 1990s, one of the reasons why it was enjoyable to be a long-term shareholder of Coca-Cola stock is that the soda giant was able to grow volumes while simultaneously raising the prices of its drinks. Since around 2005 or so, Coca-Cola has struggled more so to grow volumes at the same time the company decided to raise prices—the company has resorted to holding prices steady or instituting temporary price hikes coupled with reductions (e.g. raise $1.25 soda to $1.50 then back to $1.25 so the $1.25 seems cheaper and the eventual $1.50 seems less lofty because it’s an already reached high).

By the way, that entry paragraph should not seem like significant criticism of Coke—one of the reasons why I am selective about the companies I cover extensively on this site is that I take difficult business conditions into account when doing my write-ups. Considering that … Read the rest of this article!

Why Some Excellent Companies Would Make Disastrous Personal Investments

In 1923, a lawyer from Columbia University named Robert Lee Hale wrote the charmingly titled “Coercion and Distribution in a Supposedly Non-Coercive State” to argue that there is a significant gap between the theory of a how is supposed to work and how it actually gets applied in practice. It was Hale’s work, along with the Supreme Court opinions written by justice Oliver Wendell Holmes, that helped give rise to a school of philosophy called legal realism in which you focus on the real-world effects of laws rather than regarding laws as self-executing principles that get properly applied as intended.

A similar shift is taking place in the field of investing as The Dalbar Institute has led studies showing that investors actually reap returns of 3-4% over 20+ year measuring periods in which the stock market delivers 9-10% annual returns, providing data ammunition that confirms behavior economics and … Read the rest of this article!

Warren Buffett’s End-Game With Berkshire’s Apple Stock

Warren Buffett’s investment in Apple stock is particularly interesting because it is the only example of a Berkshire investment in a large-cap stock that is both repurchasing shares aggressively and does not require Berkshire to sell the stock at certain levels do to pragmatic legal reasons. For instance, he would never allow the Bank of America, Wells Fargo, or American Express holdings to ever eclipse more than 20% of each stock even as they repurchase their own shares because it would activate the “financial strength” (sometimes called “source of strength”) doctrine that requires the parent entity of a failed financial institution to pay for liabilities. 

In other words, if you own 19.9999% of Bank of America or less, and the bank were to make some awful loans that resulted in $100 billion losses, the result would be a bankruptcy and the value of your shares would diminish to $0. That … Read the rest of this article!

Why Kellogg Stock Gets Ignored By Blue-Chip Investors

In 2012, Kellogg sold $14.1 billion worth of cold cereals, cookies, crackers, waffles, snack bars, pastries, and those Lord-knows-what things you put into a toaster. In 2013, Kellogg sold $14.7 billion. In 2014, Kellogg sold $14.7 billion. And, over the course of 2015, Kellogg is expected to sell $14.7 billion worth of its food. The revenue growth has been sluggish, and absent a large buyback program to act as a countervailing force, this explains why Kellogg does not get nearly as much coverage as other companies in the blue-chip sphere.

On conference calls, Kellogg executives have described the breakfast tastes of Americans (who contribute $950 million towards the $1.4 billion in annual profits at Kellogg) as “evolving.” In plain English, Americans aren’t tearing down the aisles for more cereal year after year, and General Mills, Nestle, and the discounted store brands have proved to be worthy competitors. And it shows: … Read the rest of this article!