You know how everyone in the investment community loves to rag on IBM stock? Well, there’s nothing new about that. In fact, this lament might be something you have in common with your grandfather.
When part of President Roosevelt’s New Deal legislation included the Social Security Act of 1935, Wall Street got excited by the lucrative contract that IBM secured to process social security checks upon the program’s inception in January 1937.
Unfortunately for IBM shareholders, the contract contained a provision that demanded IBM perform the government services at cost if more than 3% of social security payments were made in error during the first year. By January of 1938, the independent congressional inquiry found that 4.7% of social security payments were not processed correctly.
As a result, IBM stock fell almost 20%. This wasn’t merely the result of IBM’s lack of profit regarding social security check processing, but rather, … Read the rest of this article!
Warren Buffett did the investor community a great favor by introducing the concept of an “economic moat” when explaining what types of businesses are so superior that they can be purchased and held passively for long periods of time and riches will subsequently abound. In his annual letters, Buffett has defined a moat as “the ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.”
Often times, a strong brand name is the source of what gives a corporation an economic moat. But a laziness, or at least a false equivalency, has arisen in recent years in which the terms “commonly known brand name” has become interchangeable with the concept of an “economic moat.” An economic moat only exists when a business has a competitive advantage over it competitors which is usually either pricing power or an economy of … Read the rest of this article!
The worst investor fraud since Bernie Madoff appears to be upon us. Yesterday, managers at the New York based hedge fund Platinum Partners have been arrested as federal prosecutors allege the occurrence of a $1 billion fraud. Mark Nordlicht and has partners spent the last decade giving their investors nearly 20% annual returns, with those returns being fueled through return of other investors’ capital in response to withdrawal requests rather than actual investment returns.
Although the Platinum Partners clients may be able to receive some recovery through a combination of SIPC, insurance, and the distribution of remaining assets, this remains a worst-case nightmare for those who entrusted a meaningful portion of their accumulated savings to the stewardship of the Platinum Management team.
For the millions of Americans who have financial advisors, the natural follow-up inquiry is: How can I prevent my family from falling victim to the fraud of a … Read the rest of this article!
If you have a strong balance sheet, and you aren’t shipping out most of your profits to shareholders, you can withstand an extended period of challenging business conditions and still create shareholder value.
Even though keeping adequate cash reserves and running a business with a hyper-focus on prudence remains out of fashion, the value of financial strength occasionally reveals itself.
It comes to my mind every time I take a look at Bed Bath & Beyond (BBBY) stock. For the past ten years, the company has become yet another victim of Amazon as customers learned that they kind find the exact same home furnishings at a cheaper price than they’d get if they visited a physical Bed Bath & Beyond retail location.
That is why, even though Bed Bath & Beyond has opened an additional 700 stores and nearly doubled its store count over the past ten years, company-wide profits … Read the rest of this article!
I have written before about the excellence of The Vanguard Wellington Fund (VWELX) which has delivered returns of 8.3% annually since 1929. When you consider that the imperative of the fund is extreme safety and quality, those returns are quite impressive because of the all-weather nature of the fund. It is a balanced fund, which commits Vanguard to putting 30-60% of its assets in government and high-grade corporate bonds and the rest in low-risk blue-chip stocks.
My view is that it is an ideal holding for those who want to preserve wealth, get a little bit spooked by volatility and/or possess general ignorance of stock-specific investing, and prize stability for their accumulated savings. It is not intended for venturesome accounts or people that want to be rich by age 40 investing a few thousand here and there, but it is intended for people that want to protect what they got … Read the rest of this article!