Professor William Dukes, a WWII soldier that survived combat and later became a distinguished tenured professor at Texas Tech, passed away in June 2015. One of his special side projects at Texas Tech involved studying “sin stocks” and examining (1) whether they generated superior returns; (2) why they generated superior returns; and (3) what type of investors owned these stocks.
Professor Dukes concluded that yes, sin stocks generated 2.8% extra annual returns per year since 1973. And these stocks tended to be owned by private investors that remained outside the limelight and institutional funds that are run by small committees. According to Professor Dukes’ survey of money managers that declined to make investments in tobacco, gaming, and alcohol, the most cited reason was “It wouldn’t look good to clients and the media.”
Dukes speculated that small committees of institutional money would feel comfortable putting money in Altria or Philip Morris … Read the rest of this article!
Although the current sensibility of the time is that America has too many MBA financial engineers running companies and not enough skilled operators with the good horse sense to grow revenues, much of America’s corporate history was filled with the opposite concern. People used to worry about founders and controlling families having no idea how to allocate surplus capital–especially when it came to stock buybacks.
There were three reasons that could explain why a founding family would have trouble figuring out the buyback price.
The first reason is sentimentality–you know those studies that show how we overweight the commercial value of our possessions because of the sentimental value we place them? Well, if we are willing to value an old coffee mug we’ve had for ten years at $5 when it is worth $1, imagine how someone is going to value a business that is the source of all of … Read the rest of this article!
One of the mistakes that I frequently make, and I am working to fix, is that I tend to only analyze assets as they are at the moment rather than taking into account what they will be–specifically, the invisible aspect of a corporation’s deal-making potential.
You may remember earlier this summer when I voiced disagreement with the professional analysts covering Anheuser-Busch that were projecting 9% annual growth at the giant brewmaker. I looked at the amount of costs already wrung out of the company, saw the anemic revenue growth, and figured there was no way earnings could grow at a rate of 9%.
What I didn’t factor into my analysis was this: The invisible, intangible deal-making ability of Anheuser-Busch executives to make an acquisition that would bolster earnings per share because the subsequent cost-cutting at the acquired company would be greater than any share dilution necessary to executive the deal. … Read the rest of this article!
In the age of coronavirus, many individual stocks have
experienced significant volatility with their stock price and some investors
have encountered meaningful discrepancies between the buy and ask price of a
Most stocks that are discussed on this site are highly
liquid blue-ship stocks. This means that the price of the stock tends to trade
in penny-by-penny increments. For instance, if Coca-Cola stock is trading at
$48.32 per share, there is probably someone offering to buy the stock around
that range and also someone trying to sell the stock around that range.
However, with thinly issued stocks such as micro-cap banks,
the gap between the bid and ask price can be quite significant. In particular,
the ask price of the stock may sometimes appear to you to be triple or even
quadruple the most recent sale price of the stock. When you see this, you might
wonder whether … Read the rest of this article!
In December of 2001, the Journal of Finance published a study titled “A Rose.com by Any Other Name” by Michael J. Cooper, Orlin Dimitrov, and P. Raghavendra Rau that studied the bubblicious effects of companies renaming themselves something with dot.com in the name. The price of stocks adding .com gained an average of 53% above companies without the dot.com in the corporate name, and the authors concluded the following: “We argue that our results are driven by a degree of investor mania–investors seem to be eager to be associated with the Internet at all costs.” The fact that the Nasdaq took fifteen years to return to its 2000 high is a shorthand way of describing the bubble conditions that existed at the turn of the millennium.
On March 4, 2008, the professors Shih-An Yang, Robert C.W. Fok, and Yuanchen Chang wrote a paper titled “The Wealth Effects of Oil-Related Name … Read the rest of this article!