This is probably the most important topic that I’ve yet to ever discuss in any of my financial writings: 100% profit growth does not lead to the same results for every type of business.
Let me give an example: Let’s say that over a century ago, you were Mr. Pemberton, and you started Coca-Cola. When you were growing your soda business, you were doing a magnificent thing because you were the owner of a business that could be capitalized at thirty, forty, fifty times profits.
Every time you doubled your profits, you were getting significantly richer. If you made $100,000 in soda profits, you could sell it for $3,000,000-$5,000,000. But if you doubled … Read the rest of this article!
Between 2003 through 2013, Microsoft stock traded in the $20s. The company’s stock price performance history is one of the most illustrative examples of how stock price performance and underlying business performance can differ dramatically. Even though the price of the stock did not increase during this ten-year period, the profits per share climbed from $0.97 to $2.65 per share. Profits were tripling while the stock was stagnating, which provided another example that we cannot control the “when” part of stock price movements but should be satisfied that we have performed our task when we have identified and purchased shares in great businesses whose profits are growing.
Since 2013, profits have continued to … Read the rest of this article!
York Water has not missed a dividend payment to its shareholders since at least 1819. As of May 7, 2019, the water utility company went on record with its 594th consecutive dividend payment, a quarterly dividend of $0.1733 that was paid to shareholders on June 28, 2019.
For people who picked up the investing bug, companies like York Water were traditionally great investments because they performed in lockstep with the S&P 500 but were an incredible source of regular income to boot.
People tend to discount it during periods of peace and prosperity, but an investment is only as good as it will be during the worst economic conditions that it will face … Read the rest of this article!
Reader “Matt” from this site recently pointed out one of his favorite investments to me: The Vanguard Equity Income Fund, which has an expense ratio at 0.30% and has the stated purpose of owning common stocks that either offer a starting dividend yield above the S&P 500 average or possesses a dividend growth rate over the S&P 500 average.
The Fund consists of 159 stocks that have the following blended characteristics: A P/E ratio of 16.7, a return on equity figure of 19.8%, a collection of companies that are growing profits at 11.3%, and a turnover rate of 34% (that’s a little bit on the high side for me—I prefer finding those rare … Read the rest of this article!
Two thoughts for the day:
Number 1. Here’s the problem with contrarian investing: even if you read the books and agree with the abstract notions of doing things like “buying fifty-cent dollars”, it’s hard to actually execute on that in real time.
If someone wants to engage in value investing with the big ole’ American stocks, you’d find yourself working towards Citigroup and Bank of America, two companies that will eventually merit textbook entries on wealth destruction when college students in 2045 read about corporate (mis)management at America’s leading financial institutions leading into the 2008 financial crisis.
But you already know that story. I’ll give you an optimistic tidbit that you might not … Read the rest of this article!