There are two insights from Benjamin Graham’s classic “Security Analysis” that I believe are appropriate to keep in mind today.
- “Putting excessive weight on recent past history, as opposed to a rational prior, is a common judgment error in psychological experiments and not just in the stock market.”
- “Investors may very well equate well-run companies with good investments.”
There is no doubt that we are living through a period of unusually high enthusiasm for investing right now. Based on the 20%+ gain in the S&P 500 in 2017, it would have been difficult to devise a diversified common stock portfolio last year that did not deliver at least double-digit annual returns.
As a result of these recent stellar returns, you are beginning to see extreme enthusiasm for investing in high-risk junk. If the media coverage of Bitcoin in recent months doesn’t strike you as a modern incarnation of … Read the rest of this article!
A cornerstone of Jeremy Siegel’s research in “Stocks for the Long Run” is that high-tech investments have a strong tendency to fizzle out over time. If you look at the best performing businesses over the past sixty years, they tend to sell products that are similar to what was being sold in the 1960s.
Colgate-Palmolive has been one of the best performers since 1956, and it is still selling toothpaste and soap. 3M is on the list, and its famous Post-It notes are still around. Pepsi is still on the list, and America continues to eat potato chips. A bunch of oil companies–Exxon, Shell, and Chevron–are on the list, and they’re still selling and transporting oil, chemicals and natural gas.
Selling the same goods or services over and over again becomes a competitive advantage for three reasons. First, when a company keeps selling the same thing, it tends to gain … Read the rest of this article!
Over the past several months to a year, exchanging U.S. dollars for Bitcoin has been such a fruitful endeavor that the purchase of cryptocurrencies have entered the public consciousness and many young men in their 20s and 30s have been profiled on CNBC as well as the largest financial websites to publicly disclose their newfound wealth.
Most of the analysis focuses on whether Bitcoin is the real deal–i.e. will Bitcoin become a store of value analogous to gold or hard metals, and then appreciate against other currencies due to a projected lower inflation rate?
Less attention has been dedicated to analyzing the psychology and cultural backgrounds of the individuals that are drawn to trading Bitcoin and other cryptocurrencies. What conditions have allowed this speculative bubble to flourish?
For the longest time, I was always amazed by the fact that people got so caught in the dotcom … Read the rest of this article!
My entire investment writing career has occurred in the context of the United States thirty-year treasury yielding 4.5% or less, often dramatically less (think 2% to 3%). Similarly, a stock market boom has also accompanied most of the past decade.
This has meant that certificates of deposit have yielded 1-4%, depending on the amount and length of time that the money must be locked up until maturity. Corporate bonds haven’t yielded much higher, unless they had weak earnings or a credible risk of impending bankruptcy. The stock market isn’t much compared to the corporate bond landscape.
And yet, time after time again, income investors desire investments with high starting yields. And yet, I don’t think investors realize how typically unsustainable a high-yielding investment often turns out to be.
Some illustrative data points:
- Of the 122 stocks that traded on the New York Stock Exchange on January 1, 2000 that yielded
… Read the rest of this article!
Target Corp. does not, and has not, grown its profit. This year, it is expected to make about $2.4 billion. That is the same amount of profit that Target earned in the recession year of 2009. As recently as 2015, Target was earning $2.9 billion per year in profits. These downticks in profitability are even more concerning when you consider that Target is perpetually opening up new stores—the implication being that the same-store sales profits are declining at a greater rate than the amount of new profit generated by the new locations.
And yet, despite this absence of profit growth, Target stock (TGT) has managed to deliver earnings per share growth for its investors because it has systematically repurchased its own stock.
In 1999, each share represented 1/900,000,00th of the company. Today, each share represents 1/545,000,000th of the retailer’s overall profits. More recently, Target has reduced its share … Read the rest of this article!