When I read an annual report, I search for anything that may compromise (or, if I get lucky, enhance) the value of a company’s common stock that would otherwise not be known by merely looking at a balance sheet.
Since it is better to be more specific than to generalize, I’ll give an example. I recently noticed that XPO Logistics (XPO) has received heavy investments from its management and staff (who own 18.7% of the stock), Orbis Investment Management (that owns 22.3% of the stock), Jacobs Private Equity (17.3% of the common stock), and Spruce House Investment (13.9% of the common stock).
In the case of Spruce House Investment, a New York hedge … Read the rest of this article!
If you own 100 shares of General Electric, you collect $92 per year in dividends as part of the current terms for owning 100/10,042,192,011 of the business. When your typical investor collects that $92 check, he is probably not thinking about the mind-boggling vastness of the company that generated almost incomprehensible revenue to produce that dividend check.
When GE shareholders rightfully got spooked in 2009, it wasn’t the vastness of the industrial empire that caused the Buffett bailout and first-in-seven-decade dividend cut—it was the fact that $80 billion in revenue was being generated by a poorly capitalized, low-quality real estate and credit card empire whose liquidity was contingent upon rising commercial real estate … Read the rest of this article!
In 1982, the former CEO and heir to Johnson & Johnson gifted a massive block of Johnson & Johnson to fund the Robert Wood Johnson Foundation. The Foundation is a charity dedicated to providing grants that serve the purpose of “encouraging healthy living.” The charity was initially endowed with $560 million in nothing but Johnson & Johnson stock.
When Wall Street saw this singular investment, the pitch was easy to make. It is really easy to approach the trustees and say, “Gee, that’s awfully risky having all that money in just one stock. Sure would be a shame if something happened to it. Why don’t you let us give you a hand and … Read the rest of this article!
Office Depot has had an ugly business model for the past two decades. The company has only had one seven year stretch in its corporate existence (2000-2006) in which profits grew. Other than that, the company see-sawed along a trajectory of “two steps forward, three steps back, two steps forward” for most of its existence. Even Home Depot’s glory days, however, had more to do with financial engineering (borrowing debt to reduce the stock count through buybacks) rather than actually growing a healthy business.
Specifically, throughout the 2000 to 2006 period, profits had only grown from just under $300 million to $396 million, but the office supply company leveraged the balance sheet to … Read the rest of this article!
During the late 1980s and early 1990s, Warren Buffett built Berkshire Hathaway’s famous 400,000,000 share position in the largest beverage provider in the entire world, Coca-Cola (KO). At the time, he spent a little more than $1 billion of Berkshire Hathaway’s funds to make the initial investment, which has the same purchasing power as $1.8 billion today.
During this 30+ year time horizon, Berkshire Hathaway shareholders have seen the value of the $1 billion holding increase in value to $21.8 billion, but more subtly, they have collected $3.1 billion in total dividends during this time. In some respects, the dividend figures are understated in multiple ways.
First, they are understated to the extent … Read the rest of this article!