The 1987 Crash: The Historical Memory and Quiet Buying

For most of 2019 and early 2020, I didn’t have much to say about the stock market in general because most of the stocks worth buying and holding for a lifetime were trading between 20x earnings and 30x earnings, or even in some cases a valuation above that.

I am generally skeptical when most mega-cap companies trade at valuations north of 20-22x earnings, because with very few exceptions, it means that a stock is becoming overpriced. As someone who appreciates the underlying business that is owned by the common stock, I cannot help but grow uneasy when a stock price (already at 20x earnings or greater) grows father than its underlying earnings. Usually, a piper must be paid at a later date. Sometimes, the correction is slow and gradual, with earnings growing faster than the stock price for a period of years. Other times, some global or firm-specific event causes … Read the rest of this article!

Americans Aren’t Taught About Cash Liquidity Anymore

When I was kid growing up in the Midwest, I remember the 4th of July parades that would feature World War II veterans throwing out candy and waiving with banners at the crowd. At some point in the early 2000s, we stopped seeing those floats as the members of the Greatest Generation died off. With every  passing of a generation, we often lose the unique wisdom that only those members possessed.

For those who lived through the Great Depression, the importance of liquidity was self-evident. They saw banks close. If they were adults engaging in financial transactions before 1933, they actually witnessed their life savings disappear when banks became insolvent. A man like J.P. Morgan was able to rise in stature because he said, “You can trust me, I personally own much of AT&T, Western Union, U.S. Steel, International Harvester, General Electric, and every railroad so if you bank … Read the rest of this article!

The Kraft-Heinz Deal Through The Lens Of Anheuser Busch

From an owner’s perspective, the advantage of having 3G operate your business is that a higher percentage of revenues become net profits that can be paid out to shareholders as dividends free and clear. The downside is that you cannot cut your way to prosperity, and eventually, you have to come up with growth initiatives.

Let’s look at what 3G did to Anheuser Busch since taking over. Even though the ADR of Anheuser-Busch began trading on July 1st, 2009, I am going to compare 2010 to 2015 because the 2009 recession distorts the picture of what 3G management does because the demand was unusually low for Anheuser-Busch products that year.

In 2010, Anheuser-Busch sold $36 billion in beer. It made $4.0 billion in profits. About 11% of revenues went to the bottom line as net profits. This is essentially a snapshot of what Anheuser-Busch … Read the rest of this article!

More Spanish Flu Stock Market Investing Anecdotes

We are going to hop on the anecdote train and take a spin back to 1917 during the, yep, you guessed, Spanish Flu. I don’t know if many of you are familiar with the career of Phil Carret, but he was a somewhat famous and very successful investor who ran the Pioneer Fund. He lived to over the age of 100, and reportedly experienced over 30 boom markets and corrections during his lifetime. He was well-known to Berkshire Hathaway shareholders, as he purchased Blue-Chip Stamps stock in the 1960s at the same time as Warren Buffett and Charlie Munger.

In a 1995 interview, he mentioned that he only encountered two great investors in his lifetime—Warren Buffett and…his college friend at Harvard, Fred Abbe (Class of 1914). Abbe was known for rarely making an investment, and when did, he would purchase a dominant blue-chip stock at a beaten down price and … Read the rest of this article!