One of the most important insights that I have had over the past several years is that I have come to appreciate that the the scalability of “things” compared to “services” often serves as an important divining rod for identifying future investments that are the most compelling. The reasons is because the production of cheap widgets (or, more accurately, widgets with a low marginal cost) can lead to ramped-up production and high returns on capital because there is not an equally corresponding increase in expenses.
For those of you who are aware of Warren Buffett’s long-time investment in Coca-Cola, you may know that he has turned a $1 billion investment in the late 1980s/early 1990s into 400,000,000 shares worth over $16 billion today, and that is not included a growing cash dividend that Buffett has received over the past 20+ years, which would make the returns on this investment substantially higher.
If you are a student of the dotcom stock market of the late 1990s, you may be aware of the absurd valuations placed on many companies, including large-cap blue chips that had moved well past their 20% annual growth days. In the case of Coca-Cola, the company traded at over 60x earnings for much of the 1998 calendar year. When a blue-chip stock that has a future earnings per share growth rate of around 10% gets investors willing to pay $60 for each dollar of profit instead of $20, you know you are heading towards trouble (because even if profits grow, you will get whacked by a justified drop in valuation as investors regain their sanity to pay about a third as much for Coca-Cola’s profits after the dotcom bubble as they were willing to pay during it).
Originally posted 2013-07-25 08:38:01.
For those of you that follow baseball, you may have caught wind of the recent news that Milwaukee Brewers Ryan Braun recently received a season-ending suspension (65 games) for his link to the Biogenesis Lab that violated league policy concerning performance-enhancing substances (as of my writing this on July 23rd, 2013, the specific details regarding dosages has not been publicly disclosed). But what is noteworthy about Braun’s case is that it yet again proves the trope “it’s not the crime that causes the biggest headache, rather, it’s the cover-up).
Originally posted 2013-07-24 06:35:22.
Jeremy Siegel’s research into initial public offerings, which found that IPOs underperform the market by four percentage points annually during the five-year stretch following the IPO, speaks to the elevated valuations and hype that occur at the time of the offering. Most notably, Warren Buffett’s 1990s talk to Florida MBA students mentioned that Coca-Cola IPO’d in 1919 at a price of $40 per share, and then fell by over 50% to $19 per share the next year. For your own research, pull up the stock performance history of companies that have had an IPO at some point over the past decade and you will typically see the price droop in the years following the IPO.
Walt Disney is one of my favorite titans of the 20th century because he was a dude that had to keep plugging away to find success in life.
Did he have the creative control of some of his early animations and characters before Mickey Mouse stolen away from him? Check.
Did he spend much of his early life being mocked by his peers (and even his own father) for being a doodler and painter instead of following the social expectations of what constituted “normal” for a young boy and adolescent? Check.
Originally posted 2013-07-23 14:36:45.