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!
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!
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!
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
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!