My Recommendation: Look To Berkshire Hathaway

Berkshire Hathaway is sitting on an overwhelming amount of cash. It overshadows just about every other company I study in terms of raw, untapped earnings power. As of last quarter, Warren Buffett had $62 billion in cash sitting on Berkshire’s balance sheet. The market capitalization of the stock is $360 billion, meaning 17.2% of your purchase price is sitting in cash alone. If you buy a share of Berkshire for $145, your look-through portion of cash is $24.94 per share. The only other companies in similar situations are tech giants like Microsoft and Apple where the long-term business model is subject to rapid changes in technology in a way that Berkshire Hathaway is … Read the rest of this article!

Before You Write Wal-Mart Stock’s Obituary

In the 1990s, no stock contributed more to the earnings per share growth rate of the S&P 500 than Wal-Mart stock. It had been an elevator upward delivering 16% annual earnings per share growth throughout the decade, fresh on the heels of delivering 31.5% annual growth between 1972 and 1990. From 2000 through 2012, the party continued, as Wal-Mart grew earnings per share from $1.40 per share in 2000 to $5.02 in 2012. Although the best gains came to Wal-Mart’s early investors, participating in the growth of the business between 1972 and 2012 had been a blessing for any investor that chose to buy Wal-Mart outright instead of investing in something like an … Read the rest of this article!

Why Visa Stock Rises Faster Than American Express

Visa and Mastercard are distinctly different from other credit card companies like American Express and Discover Card. When you swipe something on your Visa or Mastercard, you are not actually using cards issued by Visa or Mastercard. The card itself is issued by a bank or financial institution somewhere, and the Visa and Mastercard brands represent networks that the issuing card joins. Anytime you make a purchase, the merchant has to pay a fee to the issuing bank by the end of the day, and the financial institutions have to share this fee with Visa and Mastercard.

Visa was created by Bank of America back in the 1966 to act as a way … Read the rest of this article!

My Big Investing Mistake of Omission

One of my favorite speeches of Charlie Munger, which Warren Buffett co-opted when he spoke at Florida University, was the story of how to turn $40 into $5 million. It was a story about Coca-Cola stock, and the conditions that can lead to super large financial rewards based on modest financial investments. The premise is this—you need a product that is super cheap to make and possesses enough brand equity that people will buy it deliberately on a regular basis.

Even before I encountered this story, I knew that the beverage industry has been a very lucrative place to make money if you want to make an initial investment and then grow richer … Read the rest of this article!

The S&P 500 Has Been Draining Investors Since 2005

When people buy shares in an Index Fund, they assume that they are buying shares in the largest companies available in the United States. You look at Apple, see its $700 billion market capitalization, compare it to the 4% allocation in the S&P 500, and figure it sounds about right. And for much of the 1950s, 1960s, 1970s, 1980s, 1990s, and 2000s, this was true. But in 2005, the S&P 500 shifted from selecting stocks based on market capitalization to selecting stocks based on a market capitalization with a formula that takes into account the free float of the stock.

The consequence is this: Those precious businesses with high insider ownership do not … Read the rest of this article!