The Highlight of The Chevron Earnings Call

Patricia Yarrington, the CFO at Chevron had a great quote during the last Chevron earnings call:

“But the value of the Permian and its tremendous economic capabilities and its capital efficiencies provide great flexibility because of its short-cycle, high-return attributes. Yes, other parts of the portfolio have to compete for capital against that. So I think it raises the bar on where that incremental dollar is going to go. Permian will get the first call but we will manage it as a portfolio, and over time you should still expect us to have some significant other projects but we can pace those projects quite nicely I think and match against the opportunities the Permian provides for us.”

The Permian Basin is one of the bright spots in Chevron’s asset base. The total development cost per barrel is only around $18, making this one of the all-weather spots where Chevron operates … Read the rest of this article!

Passive Income Built During Recessions

On Monday, March 9th, 2009, at approximately 4 PM, someone out there successfully placed a buy order for 10,000 common stock shares out of Starbuck’s then existing 1,460,000,000 ownership pie. This amount of overall ownership was a drop in the bucket. It only gave some guy an ownership claim on 0.00000684931% of the Seattle-based coffee empire. This wasn’t even a large enough investment position for the management to have any idea who you are if you were to show up at the annual shareholder meeting.

But yet, there was something quite special about making an investment in Starbucks on that day. The price of the stock was only $4.15 per share.

I really have no idea what people were thinking as they discarded a company with 15% annual growth for two decades as though the stock certificates were a parasitic piece of trash. The profits of $500 million were actually Read the rest of this article!

Should You Buy S&P 500 Index Funds Right Now?

I just saw the news reported in the Wall Street Journal earlier today that Vanguard has received $250 billion in net inflows so far through October, compared to $236 billion in net inflows through all of 2015. About $200 billion of those Vanguard inflows have been invested in index funds.

I understand the collection of events that have caused index funds to be fashionable. The industry of financial advisors has always been a bit slithery and morally suspect, and the net results from holding an ownership interest in the S&P 500 has a fantastic track record of late.

Post recession, the S&P 500 has returned 14.8% annually since 2009. The S&P 500 nearly doubled between 2009 and 2012, and then has returned 13% annually since 2012. Given that index funds at places like Vanguard have such low fees, these cited results are a close approximation of the results actually achieved Read the rest of this article!

General Electric Stock: Baker Hughes, Synchrony, Dividends

I am preparing a write-up on the new General Electric/Baker Hughes oil services colossus that will be publicly traded, but I was struck at how the significant reshuffling of the business is setting General Electric up for high single digit growth a few years down the road at the expense of lower dividend growth now.

The very first question we should ask ourselves as we analyze General Electric’s asset reshuffling decisions is this: Is it all necessary?

My view is that the answer is no.

At Synchrony right now, the profits are $2.1 billion. That profit is base is expected to grow to $3 billion in the next five years. Incidentally, this makes Synchrony one of the undervalued stocks in the market. Also, the sale of the $25 billion portfolio in commercial assets to Wells Fargo represented another $700 million in net profits

Right now, General Electric makes $13.3 billion … Read the rest of this article!

Private Equity May Grab Your Future Wealth

After I recently lamented the strong performance of Exxon (XOM) stock despite the price of oil being in the $40 range and the necessity for the oil giant to take large write-downs, I speculated that the rise of indexing strategies in the stock market means that people will be sending through automatic buy orders without much regard for whether the fundamentals of the business deserve increased demand for the stock.

A reader forwarded me an on-point discussion of this topic between a young Bill Ackman and Charlie Munger that took place as part of “The Buffett Essays Symposium” in 1996.

Ackman offered the following question/observation to Berkshire Vice Chair Charlie Munger: “We’ve heard a lot of discussion about how institutions and individuals use index funds. But to the extent that more and more capital becomes indexed—and if you think about index fund managers as really being a computer, … Read the rest of this article!