Amazon Stock’s Exceptional Price History Meets Value Investing

The stock price history of Amazon stock is truly an amazing sight to behold. Shares of AMZN, which traded at $42 as recently as 2008, have compounded at an eye-popping 43% annualized over the past nine years to turn every $10,000 invested into $190,000. Jeff Bezos has followed Warren Buffett’s advice and filled Amazon’s pre-existing moat with alligators, piranhas, and spiked fences awaiting on the other side. Heck, they’re even securing patents for Star Wars-type processing centers that hover above the atmosphere.

And yet, if you are a student of the value investing espoused by Benjamin Graham, you can’t help but notice one fundamental fact about Amazon that makes it exceedingly difficult to value. It has no profits! There is this yawning, widening, maddening gap between the revenue and stock price history of Amazon and the lack of profit growth at the colossal online retailer.

Revenues have grown … Read the rest of this article!

The Subtext of Financial Advice and Investment Media Coverage

Some of my friends do the tsk-tsk lament when politicians are not sufficiently wonkish with their policy proposals. I recommend against the pearl-clutching routine because I point out to them that people with graduate degrees are only 5% of the U.S. population and are not the intended audience for most stump speeches. When I want sophistication and nuance, I look to the legislation being offered, and usually, it’s there.

It is an important life skill to recognize that not every bit of information that you encounter is intended with *you* specifically in mind as the beneficiary. At best, this imbues you with the virtue of humility. At a minimum, it will you make you a more savvy processor of information.

I ask that you keep this in mind when you read business and investment-related commentary because the goals of most sites is not to help you build a passive, intergenerational … Read the rest of this article!

Oil Stocks: The Next One Hundred Years

I want to address one of the more insightful questions that I have received about oil stock investing. It generally goes like this: Does the non-renewable nature of petro-carbons pose a significant risk to the long-term survival of oil majors like ExxonMobil, Chevron, Royal Dutch Shell, BP, Total SA, and ConocoPhillips?

This is a smart risk to consider. If you own an asset, and if you reinvest into it over the course of your lifetime, you should be fixated on the risk of whether there will be something leftover for you at the end of your compounding period. In the past, I have lamented the path of Wachovia investors who receive large chunks of dividend income in the 1980s, 1990s, and early 2000s only to find it all collapse from $40 to $2 in the fall of 2008. All your years of compounding and delaying gratification didn’t mean squat because … Read the rest of this article!

Monthly Dividend Stocks Are Gimmicky

Between 2007 and 2009, approximately 34% of American stocks that pay dividends quarterly cut their payout at some point during the recession. The part I find worthy of examination? The fact that 56% of stocks that paid monthly dividends ended up cutting their payout during the recession. The same corporations that suggested you should invest in them for their cash flows had a disproportionately higher likelihood of slashing their payouts than the regular American companies that made no special promises about the future of their dividends.

How should we analyze this?

My view is that many companies have opportunistically recognized that the ability for savers to use their funds to create a meaningful monthly cash flow has been severely compromised in the past decade. There are no savings accounts or U.S. bond investments paying out 5% anymore. Adjusting to the circumstances, many of these investors took up the purchase … Read the rest of this article!

The AT&T Dividend Shouldn’t Be Chased

Most of the long-term wealth in the stock market gets made by searching for one of two things. Either the accumulation of assets selling at a discount, or the purchase of securities trading at fair prices that have unusually have earnings per share growth rates. For long periods of time, AT&T stock has tended to fall in the category of undervalued because the investor community thinks it is too big to deliver any subsequent growth. But when the dividend of AT&T goes below 5%, history has shown us that the subsequent returns are usually below expectations and confirm the conclusion that the stock shouldn’t be bought when it is overvalued because it can’t just “grow out of it” like you could by overpaying for an investment in something like Visa or Nike.

What Are The Risks With ATT Stock?

You have got to get the price right. This part is … Read the rest of this article!