Secured Bonds Investing: A Warren Buffett Secret

William Wrigley, Jr., the founder of the eponymous gum company that bears his name, is one of the greatest students of efficiency and pragmatism that the business world has ever produced. Wrigley was a young man with the equivalent of $1,000 in his pocket who moved to Chicago to become a soap salesman, and the William Wrigley Soap Company also provided baking powder with the purchase as a gratuity.

Finding that the customers preferred the baking powder to the soap, Wrigley changed his business to the William Wrigley Baking Powder Company and repeated a new iteration of his formula, this time giving two packs of gum as a gratuity to the baking powder purchases. You can guess what happened next. The gum outsold the baking soda! At that point, presumably sick of changing the name, Wrigley began to sell of his gum under the “Wm. Wrigley Jr. Company” umbrella.

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Why I Do Not Own Lorillard

Lorillard is probably the most attractively valued domestic tobacco company stock that investors could buy today. You’ve got a company that is buying back about 15 million shares of stock each year, raising the dividend by a rate around 10%, and the company is using its free cash flow to move into the e-cigarette market. Oh, and the Newport brand, which makes up 87% of the company’s sales, remains remarkably strong. The company trades at a little over 13x earnings, and gives investors a dividend yield over 5%. Any way I run the numbers, it seems that investors should experience total returns of at least 10% annually over the next 5-10 years, and considering that you have a growing 5% yield, it seems reasonable to think that at least half of your total returns will be in the form of cold, hard cash from the dividend.

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Originally posted 2013-06-06 19:34:44.

U.S. Bancorp Stock’s Perpetual Stability

With the tenth anniversary of the financial crisis upon us, I have been thinking about the sneaky way in which the bank fortunes of shareholders can be wiped out in a single turn of the investment cycle because lending institutions are so incredibly leveraged that a sharp uptick in unallocated-for defaults can wipe out decades of equity in a matter of months, if not days.

I took the 2008-2010 financial crisis as an important exhibit of the fact that balance sheets always matter, and eventually, leveraged trash collapses into the heap. On the upside, banks and other institutions with strong balance sheets can provide an often neglected source of real, sustainable wealth because no one pays attention to them during the good times when the relatively more leveraged institutions are prospering and during the bad times chastising the collapsed entities for their lack of prudence makes a better story than commending the diligent for their efforts.

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A Lesson From The Grandfather of Warren Buffett


Take a minute and read this letter in its entirety. I promise you won’t regret it. It is a letter written from Ernest Buffett (Warren’s grandpa) to his son Fred (Warren’s uncle) in 1939:

Dear Fred & Catherine:

Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash. I have known people who have had to sacrifice some of their holdings in order to have money that was necessary at that time.

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Originally posted 2013-06-06 11:59:42.

Why Dairy Queen Franchises Lead To Riches

With the exception of McDonald’s, Dairy Queen franchisees have quietly amassed the most substantial wealth out of any food franchise that operates at more than 1,000 locations in the United States.

It has been intriguing to study how much Warren Buffett chose to emulate Ray Kroc’s early years at McDonald’s in drafting the incentive systems that exist at Dairy Queen. Instead of opting to build wealth at the expense of franchisees, Buffett chose to build wealth by giving his franchisees a chance to reap significant gains for themselves. In other words, instead of trying to extract as much as he could from a fixed pie, Buffett chose to create a incentives that encourages Dairy Queen franchisees to expand the size of the pie as much as possible.

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