Edward Jones: A Financial Reputation That Exceeds Reality

Edward Jones enjoys an excellent reputation among its clients. It wins award after award for great service, and managed to expand beyond its humble origins in Des Peres, MO to build thousands of branches across the nation that offer individually tailored solutions for people that want to have a personal relationship with someone as they invest. The comfort that many investors feel with their Edward Jones advisor, however, is unwarranted.

As is often the case, the devil lurks in the details. Or as Edward Jones likes to call it, their “preferred product partners”, which we will get to in a minute.

If you hand over your money to Edward Jones, you will often read documents that mention you will be paying between 1.0% and 1.5% annually in expense fees, depending on the size of your account. If you have a million-dollar estate, you would expect Edward Jones to receive $10,000 … Read the rest of this article!

Some Large Blue-Chip Stocks Are Better Than You Think

Two factors right now are interacting to provide a distorted view of valuations for investors that make decisions based on historical P/E analyses of large U.S. stocks. On one hand, you have the growing trend of international profits contributing to the overall earnings of large U.S. multinationals. The average S&P 500 company currently generates 42% of its profits overseas. That matters because of our second factor: In the past twelve months, the United States dollar has gained almost 25% in value compared to the global basket of currencies index.

Normally, overseas profits do not require a separate distinction unless you are trying to analyze the amount of cash available for buybacks and dividends because foreign profits sometimes get trapped overseas to avoid the 35% repatriation tax. During the early 2000s, the United States dollar only lost about 5% in total against global currencies during the period 2002-2006 period between the … Read the rest of this article!

A Goldmine Charlie Munger File

I get e-mails from people all the time looking for good reading material. Most of you have already red the basics like The Intelligent Investor, One Up On Wall Street, or all of Warren Buffett’s letters to Berkshire Hathaway shareholders. Beyond that, most recommendations hinge upon the specifics of the person asking. Some people think they want investment advice, but really what they need is a good estate planning book. Others need to read Dividends Don’t Lie to understand why some industries with high dividend payout ratios can have safer dividends than those with lower payout ratios. Other people are too focused on numbers and probably need to find something like The Speed of Trust.

Tonight, I stumbled upon a goldmine that is likely to provide some value to anyone reading it. I found a PDF that links to all of Charlie Munger’s letters to Wesco shareholders between 1983 and … Read the rest of this article!

Arbitrage: Brown Forman A Shares and Brown Forman B Shares

It is not terribly unusual for some companies to create a dual class structure for the stock. Hershey, Google, and Ford immediately come to mind. In every example of this I have ever studied, the purpose is to keep ownership control in the hands of a select few that want to maintain control over the company by scaling back their investment in it. It’s a controversial practice—people think that investors with $500 million worth of stock should wield 10x as much influence as someone with $50 million in the firm. Others find the practice tolerable because investors have notice of the arrangement at the time they make their investment, and plus, the original founding families that own the firm through the decades may have more of a long-term orientation than some random guy that gets his hands on a large block of stock.

Brown Forman, one of the most legendary … Read the rest of this article!

Business And Life Lessons From Nintendo

I do not believe that I have ever written a finance article advocating the purchase of gaming stocks like Activision or Electronic Arts. It’s not that video games aren’t profitable—far from it, intellectual property that costs a few bucks to manufacture per disk and can be sold for $50 is a great way to make money while putting down a small amount of initial capital.

Instead, the challenge is sustainability. When Nestle sells a cookie, I can make intelligent guesses about how many cookies are going to be sold several years into the future. For the past century, the world consumes about 4.5% more cookies each year, and the Nestle Tollhouse usually sells 4% more cookies than the year previous. If someone is in the habit of buying 6-8 cookie rolls per year, that behavior is likely going to continue indefinitely. Through technological advances, boom and bust cycles, and the … Read the rest of this article!