The general theme of my investing articles has been this: Buy healthcare. Buy energy. Buy consumer staples. There may also be a place for tobacco, telecommunications, and utilities depending on your moral sensibilities, desire to receive dividend income while giving up long-term growth, and willingness to deal with the lid on growth that results when you have to rely upon regulators to achieve rate increases.
Some things, like long-term retail investing, are debatable. Equally credible arguments can be made in favor of long-term investing in companies like Walgreen, Wal-Mart, and Target. Others can point to Woolworth, A&P, and Sears to make the opposite case. And then the buy-and-holders can point out that the Sears spinoffs of All-State, Discover Card, Morgan Stanley, and Lands’ End made it a superior investment (stock calculators no longer accurately report this information because they treat spinoffs as one-time special dividends and then reinvest it into … Read the rest of this article!
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 in the coming years without having to do anything. Diageo, Anheuser Busch, and Brown Forman all have long records of growing profits per share and dividend payouts that are significantly higher each decade than the previous.
Pepsi … Read the rest of this article!
From an owner’s perspective, the advantage of having 3G operate your business is that a higher percentage of revenues become net profits that can be paid out to shareholders as dividends free and clear. The downside is that you cannot cut your way to prosperity, and eventually, you have to come up with growth initiatives.
Let’s look at what 3G did to Anheuser Busch since taking over. Even though the ADR of Anheuser-Busch began trading on July 1st, 2009, I am going to compare 2010 to 2015 because the 2009 recession distorts the picture of what 3G management does because the demand was unusually low for Anheuser-Busch products that year.
In 2010, Anheuser-Busch sold $36 billion in beer. It made $4.0 billion in profits. About 11% of revenues went to the bottom line as net profits. This is essentially a snapshot of what Anheuser-Busch looked like when it … Read the rest of this article!
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 not.
Absent a hurricane or natural disaster in the near-term that cause Berkshire’s insurance subsidiaries to make large payouts, Berkshire should generate $20 billion in cash per year based on the company’s current earnings power (it is … Read the rest of this article!