Day: April 4, 2020

Tracking Error In The S&P 500 And Your Wealth

 

As recently as 2015, Macy’s traded at a price of $76 per share while having trailing annual profits of $1.6 billion. It had almost $2 billion in cash, a fully funded pension, online sales growing at a clip of 15% annualized, and appeared to have recovered from the worst of the Great Recession when the price of the stock was punished down to $7 per share. 

However, Macy’s management observed that nearly all of its peers were repurchasing large chunks of stock with its cash flows, even borrowing money at low-interest rates to do so. As Warren Buffett said during his 1992 speech at Notre Dame’s business school, the dumbest reason to undertake an action is because your peers are doing so.

And Macy’s decisions, particularly in relation to its liquidity reserves, bears that out. Macy’s took on a total $4.6 billion in debt, with over $1 billion if it … Read the rest of this article!

McDonald’s Stock: Your Best Bet For A Real Estate Investment

 

In Grinding It Out, the story of McDonald’s, Ray Kroc explained the financial engineering that drove the company to prosperity in its early days: “The formation of Franchise Realty Corporation, was to my mind, a stroke of financial genius. Franchise Realty was the supreme example of a guy putting his money where his mouth is. We started Franchise Realty Corporation with $1,000 paid-in capital, and Harry parlayed that cash investment into something like $170 million worth of real estate. His idea, simply put, was that we would induce a property owner to lease us his land on a subordinated basis. That is, he would take back a second mortgage so that we could go to a lending institution (in the early days it was a bank) and arrange a first mortgage on the building; the landlord would subordinate his land to the building. I must admit that I was … Read the rest of this article!