I’m working my way through the excellent John Ferling book “Jefferson and Hamilton: The Rivalry That Forged a Nation” which devotes tens of pages of ink to Alexander Hamilton and Thomas Jefferson’s differences on the economic relationship between the working man and his government.
Hamilton loved the rise of American cities which could harness efficiency through large markets. Want to become a dentist? Do it in a city with 100,000 rather than 1,000 because there are a million more cavities for you to fill. Want to build up factory resources? Same premise, do it where adding 200 workers only requires you to find .2% rather than 20% of the population. Ease of scalability is the proven formula for improving living standards dramatically within a generation.
Meanwhile, Jefferson had his mind on the yeomen farmers that would be displaced by the rise of centralized industrialization. The consolidation of power and resources … Read the rest of this article!
As the day goes on, I hope to publish some more posts specifically in response to the day’s trading events triggered by the British vote in favor of Brexit.
But I’d like to offer you two thoughts before you participate in any activity related to a British stock selloff:
First of all, the British stocks that fell over 20% immediately upon the Brexit news are unusually low-quality names for large caps. Things like Barclays bank? Yes, the fall from $11 to $8 is interesting, but the bank’s internal controls and stability of deposit base are unimpressive. Remember this: Barclays also traded at $8 in 1996.
As in, if you’ve been a buy-and-holder for that time period, you would have only compounded wealth at a 3.5% over the full course of multiple business cycles. This is a company that is frequently cheap for a reason. You’d be sitting on an 85% … Read the rest of this article!
From the end of World War II through 2007, coal industry stocks returned an average of 6.8% per year. Peabody, Patriot, Arch Coal, Alpha Natural Resources, and Walter Energy returned 8.7% over the same time period. It sounds almost crazy to express now, but for the second half of the 20th century, you could meet your investing goals by owning coal stocks.
Had a kid born in 1989 that started college in 2007? Someone that purchased $150 of coal stocks each month would have earned 8.9% returns and built up a college fund of $79,500 by the kid’s first year at the university. This information doesn’t seem to compute. Coal stocks + $150 per month = Financial Goal Realized is not an equation that improves our intuitive confidence in the rationality of math. It just doesn’t seem to add up.
Although coal stocks never outperformed for the Dow Jones Index … Read the rest of this article!
Although I’m going to use the specifics of Apple to discuss some investing specifics, my intent is that you’ll see the broad contours of how I evaluate investor psychology and the growth potential of mega-caps that operate in nearly every country and have cumulative revenues in the billions of dollars.
Number One: The margin of safety principle really works. Does BHP Billiton have business results that merit it beating the S&P 500 from 20% to 2% since April 7, 2016? No. It’s just that the expectations got so low that reversion to the mean was inevitable. Does Conoco’s business performance suggest that it ought to be up 40% compared to the S&P 500’s 13% gain since February 10th, 2016? No. But while the dividend was being cut, the expectations for Conoco got so low that reversion to the mean was bound to propel it upward.
You should be very hesitant … Read the rest of this article!
Fascinating comment by Warren Buffett in a Q&A session with Notre Dame business school students about why Donald Trump’s Taj Mahal filed for Chapter 11 bankruptcy in 1991:
“The big problem with Donald Trump was he never went right. He basically overpaid for properties, but he got people to lend him the money. He was terrific at borrowing money. If you look at his assets, and what he paid for them, and what he borrowed to get them, there was never any real equity there. He owes, perhaps, $3.5 billion now, and, if you had to pick a figure as to the value of the assets, it might be more like $2.5 billion. He’s a billion in the hole, which is a lot better than being $100 in the hole because if you’re $100 in the hole, they come and take the TV set. If you’re a billion in the … Read the rest of this article!