What The Sequoia Fund Teaches Us About Long-Term Investing

For those of you who are students of stock market history or have been on the investing block for a while, you may know that there was a period of transition between when Warren Buffett ran his private partnership for select investors and when he began using Berkshire Hathaway as his wealth-building vehicle.

During this period of transition from a partnership to Berkshire, Warren Buffett became disillusioned with the high prices in the stock market at the time. During the late 1960s and early 1970s, the major firms in the stock market were going through their “Nifty Fifty” days. This was a wild time when Coca-Cola traded at 40x earnings, Johnson & Johnson traded at 30x earnings, Pfizer traded at 28x earnings, and even Procter & Gamble traded at 28x earnings.

Buffett had no desire to invest new money in such an environment, so he shut his partnership down with … Read the rest of this article!

Financial Strength Before An Economic Downturn

Do you know what was the most prosperous food company during the Great Depression? White Castle.

And not for the reasons you’d think. The well-known fast food chain that sells hamburger sliders was one of the most incredibly conservative enterprises I have ever studied. In 1929, it was loaded with $32 million in cash. None of the restaurants have ever been franchised. It had an explicit policy of only opening a new restaurant location when it could do so from its cash on hand, and rarely rented any machines. Everything was paid for in cash.

The financial strength of White Castle during times of calamity explain why the business is still around almost a century later.

During ordinary and good times, everyone talks about the benefits of leveraging to accelerate growth. It is now common practice in business schools to teach that the lowest amount of capital contributed to a Read the rest of this article!

The Rocket-Ship Investments Of The Future

One of the most important insights that I have had over the past several years is that I have come to appreciate that the the scalability of “things” compared to “services” often serves as an important divining rod for identifying future investments that are the most compelling. The reasons is because the production of cheap widgets (or, more accurately, widgets with a low marginal cost) can lead to ramped-up production and high returns on capital because there is not an equally corresponding increase in expenses.

For instance, if someone launches a software firm like Adobe, which makes the famous PDFs, the costs of creating a distribution channel for the future of Adobe software is fixed. It does not matter whether there are 5,000 customers or 500,000 customers using the product–the costs are generally the same (except for the negligible data costs of tracking the subscriptions). Very real wealth gets created Read the rest of this article!

A Subtle Investing Tip From Warren Buffett

For those of you who are aware of Warren Buffett’s long-time investment in Coca-Cola, you may know that he has turned a $1 billion investment in the late 1980s/early 1990s into 400,000,000 shares worth over $16 billion today, and that is not included a growing cash dividend that Buffett has received over the past 20+ years, which would make the returns on this investment substantially higher.

If you are a student of the dotcom stock market of the late 1990s, you may be aware of the absurd valuations placed on many companies, including large-cap blue chips that had moved well past their 20% annual growth days. In the case of Coca-Cola, the company traded at over 60x earnings for much of the 1998 calendar year. When a blue-chip stock that has a future earnings per share growth rate of around 10% gets investors willing to pay $60 for each dollar … Read the rest of this article!

What Ryan Braun’s Season-Ending Suspension Can Teach Us About Personal Finance

For those of you that follow baseball, you may have caught wind of the recent news that Milwaukee Brewers Ryan Braun recently received a season-ending suspension (65 games) for his link to the Biogenesis Lab that violated league policy concerning performance-enhancing substances (as of my writing this on July 23rd, 2013, the specific details regarding dosages has not been publicly disclosed). But what is noteworthy about Braun’s case is that it yet again proves the trope “it’s not the crime that causes the biggest headache, rather, it’s the cover-up).

If you have watched ESPN at all in the past 24 hours, you must have seen the February 2012 clip of Braun playing the victim card after his urine sample reportedly contained excessive amounts of testosterone, while Braun proclaimed his own innocence and facilitated the firing of the lab technician for improperly transporting Braun’s urine sample.

http://www.youtube.com/watch?v=kPKurzzwGxg

When something Read the rest of this article!