If you wanted to accumulate $1,000,000 worth of Johnson & Johnson stock over the past twenty-four years, there are two straightforward ways that you could have accomplished it: some variation of lump sum investing or dollar-cost averaging.
(1) If you wanted to make an investment in Johnson & Johnson stock on August 19th, 1989 that would be worth $1,000,000 today, you would have had to set aside $43,000 in 1989. That would be roughly the equivalent of coming up with almost $100,000 in terms of today’s purchasing power.
(2) You could have initiated a dollar-cost averaging program. To have $1,000,000 today, you would have had to put $432 into Johnson & Johnson stock every month since 1989. That would have been about $125,000 in nominal dollars, which would be time-consuming to adjust for inflation (setting aside $432 per month in 1989 was really the equivalent of setting … Read the rest of this article!
Benjamin Graham’s famous question that all investors should ask themselves before making any purchase decision (On what terms, and at what price?) even applies to the game show “The Price Is Right” as well.
Check out this recent anecdotal article written about contestants from the famous game show:
One of the mainstream appeals of a show like “The Price Is Right” is that it allows financially illiterate people the opportunity to receive a good or service that they could not otherwise afford. Even though it is irrational (and in some ways even perverse), no one wants to see the guy with a fully funded 401(k), a hundred grand in emergency savings, and a taxable portfolio stuffed with blue-chip stocks take home a $75,000 Jaguar. You want that car to go to the widow raising two children on $40,000 per year because you know that if they do not win … Read the rest of this article!
There are about a dozen large-cap publicly traded businesses that I have wanted to cover in depth, but have perpetually declined to do so because I wanted to wait for an opportunity for the stock price to be fair (or better). Kimberly-Clark has now reached such a price point at $104 per share.
On the consumer side, Kimberly-Clark is most famous for being the diaper maker that is responsible for Huggies, Pull-Ups, GoodNites, Kotex, Lightdays, Depend, Poise, and Little Swimmers as well as tissue brands such as Kleenex and Viva (Kleenex is one of those brands that has proven so successful that people don’t customarily ask for a tissue but rather say ‘Gimme a Kleenex.’”
These brands, as you might expect, are stodgy and recession-resistant. It doesn’t matter what the economy throws at you; you’re going to pay an extra $0.40 for Kleenex rather than the generic tissue.
… Read the rest of this article!
One of the interesting things to analyze from an aerial view is the difference between how strategies are taught in the classroom and how they are executed in reality by those with real world experience. For instance, in business schools across America, students are taught that it wise for a company to take on debt in a low interest rate environment if it can earn higher returns on capital with that money when adjusted for the interest rate payouts. Of course, old-school operators understood that you cannot go bankrupt if you do not owe anybody anything and tended to eschew debt in good times because it could turn into a noose that drains cash flow in bad times.
An education in “comparative economics” offers a similar divergence between how things work in theory compared to the real world. In textbook economic theory, you are supposed to focus on what you … Read the rest of this article!
One of the statistics that I often think about, and have mentioned with some frequency on this site, is the fact that the average equity investor compounded his wealth at 3.49% annually from 1990 through 2010 while the S&P 500 Index posted annual returns of 7.81% during that time frame.
To check out the study yourself, click here: http://www.thewpi.org/pdf_files/dalbar.2012.roccy.pdf
When I pursue investing, my long-term assumption is that I will achieve returns somewhere between 8-12% annually (assuming 3.5% annual inflation). If everything goes right, and companies like Coca-Cola, Johnson & Johnson, and Procter & Gamble are able to replicate their former glories (in terms of earnings per share growth) due to a combination of population growth, share buybacks, and price increases/productivity increases, then I imagine that figure will lean closer to 12%. If I make some big mistakes along the way like buy a decaying tech stock or a bank … Read the rest of this article!