Path dependency is a very important concept. It’s something we constantly think about, and thus, we’ll take a small detour to explore it.
Acquisitions have the elements of a zero sum game. Both buyer and seller need to feel that they are getting a good deal. The seller has to convince his board and shareholders that they are selling at high (unfairly good) price. The buyer needs to convince his constituents that they are getting a bargain. Remember, both are talking about the same asset.
We look at options “insurance” the same way we look at any asset: It can make sense at one price but make no sense at another. As you will see, at today’s price they make a lot of sense.
Just as the well-meaning economists of the Soviet Union didn’t know the correct price of sugar, nor do the good-intentioned economists of our global central banks know where interest rates should be. Even more important, they can’t predict the consequences of their actions.
My biggest problem with “The stock market will do this” headlines is that they turn investors into degenerate gamblers.
This is no different than the Beanie Baby mania of the late 90s. Beanie Babies were released in a limited quantity (the key word), and thus the price kept going up.
As a shareholder, you do well to place more emphasis on risk than on reward. Corporate management usually does the opposite, and this is why most large acquisitions fail.
Tesla is an uninvestable stock, not just because of its high valuation but also because it fails a fairly basic quality test, which I shamelessly borrowed from Warren Buffett.
Tesla may or may not be around in five years. Mass producing a car is an incredibly difficult, capital-intensive undertaking.
I’ve been asked about Bitcoin a lot lately. I’ haven’t written anything about it because I find myself in an uncomfortable place in agreeing with the mainstream media: It’s a bubble. Bitcoin started out as what I’d call “millennial gold” – the young (digital) generation looked at it as their gold substitute.
Absent a new category of products, Apple is turning into a fully ripe stock.
I have previously explained why my firm is investing in pharmaceuticals stocks, despite the sector being a favorite punching bag of politicians. I noted that we have recently added to our existing positions in Amgen, Allergan, and Gilead Sciences, and I promised that I would unveil two new positions this week.
The bulk of U.S. stock gains in this long-running bull market are due to one variable: the expansion of the price-to-earnings ratio.
It is still not too late to structure your portfolio to weather the global storm. The key is to own quality.
The introduction of the shiny new i-Object, will definitely be exciting; and as an Apple junkie (I own so many Apple products it’s almost embarrassing) I’m excited for Apple. But I’m less excited about Apple stock than I’ve been in years, and the current valuation demands more clairvoyance than I possess.
Stock market performance has not been driven by the improving health of the global economy. Just as negative interest rates are not a positive for the continued health of the economy, current stock market performance does not augur rosy future returns for stocks. In fact, the opposite is true.
While the company is run by very talented people who will do a great job getting us excited about the categories of products they are already in, the company’s genius died with Steve Jobs.
Masayoshi Son doesn’t do anything small nor does he do things in a simple way.
Tesco is a great example of how one should be very careful judging a company’s fundamental performance by looking solely at the performance of its stock.
Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.
The Roman philosopher, playwright, statesman and occasional satirist Lucius Annaeus Seneca wasn’t talking about the stock market when he wrote that “time discovers truth,” but he could have been. In the long run a stock price will reflect a company’s (true) intrinsic value. In the short run the pricing is basically random. Here are two real-life examples.
Here are some of my takeaways from this year’s weekend in Omaha.
I bet if most of us really focused, we could cut down our workweek from five days to two. Performance would improve, our personal lives would get better, and those eventual heart attacks would be pushed back a decade or two.
We are having a hard time finding high-quality companies at attractive valuations.
I was supposed to give a presentation at the GuruFocus conference in Omaha, a day before Berkshire Hathaway annual meeting. I was more nervous than usual. I agreed to give this presentation because I wanted to push myself to explore a brand new topic. I wanted to zero in on the investment process.
if you are overcome with fear of missing out on the next stock market move; if you feel like you have to own stocks no matter the cost; if you tell yourself, “Stocks are expensive, but I am a long-term investor”; then consider this article a public service announcement written just for you.
Will my son become a value investor? I don’t know, but I hope that some of the values of value investing will rub off on him and he’ll treat the stock market not as a casino but as a place where you buy businesses at a significant margin of safety
This article will be quite different from my previous ones. I am not going to talk about the stock market, particular stocks, the economy, or the new president. Instead I’ll talk about life.
With his typical rhetorical gusto, President Trump has declared, “Pharmaceutical companies are getting away with murder.” My firm has been increasing our allocation to those “murderers,” and despite Mr. Trump’s comments, we are very comfortable with our positions in the long run (which lies beyond what may end up being a very volatile short run).
Macro forecasting has been disapproved of by value investors, and for 20 years this attitude paid off. The economic climate was favorable, the stock market was in overdrive and price-to-earnings ratios were expanding. Macro did not matter – until the housing bubble and financial crisis. Value investors who had had their heads in the sand got annihilated.
Investors enjoy the unique luxury of choosing problems that let them maximize the use of not just their IQ but also their EQ – emotional intelligence.
We had a lot of great experiences in Russia – mainly from family and friends. But at the same time it was also full of injustice, powerlessness, discrimination, lack of choice, and Russian-like poverty. In America, our past was a great motivator and none of the problems we encountered felt insurmountable. We feel very blessed to be here.
Trump’s ascendancy brings a lot of uncertainty – something the market is ignoring, for now. The business-oriented pragmatism that it loves today comes with nationalistic and protectionist “job creation” rhetoric that may result in trade (or even conventional) wars. U.S. foreign policy, trade, and military alliances that have been in place since World War II are being questioned by the new president.
During the past six years, the Federal Reserve neatly groomed, manicured and then finely polished investment slopes for all asset classes by lowering interest rates to unprecedented levels – providing a substantial accelerant that indiscriminately drove valuations of all assets higher.
Guy Spier published a book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment. It is not a traditional investing book. In fact, I’ll say that differently: This is the most untraditional book on investing you’re likely to encounter.
The article is very long. It is long for two reasons: first, it is was originally a two-part article that I folded into one; and second, I am dealing with the very complex topic of investing in today’s global economy. I wrote this article a year ago, and some themes like “be careful of MLPs” are not as relevant anymore, but overall it is still a very useful article for the world we face today.
The rise of the consulting industry, armed with cheap computing power and an abundance of stock-specific data, has harmed the industry, because according to them, a “value” investor is one who holds statistically cheap stocks and a “growth” investor is one who holds statistically expensive stocks. The truth is somewhere … well, actually it’s a lot more complex, and the consulting industry’s crude segmentations don’t capture it.
The article I will share with you today was in the works for over a year. I sat down to write it several times, and every time, until the last time, I walked away with just an incomplete paragraph or two. Just like any article about today’s global economy, it is an open-ended article. When I shared a draft with my father, his response was, “So What?” I answered … see the answer in the P.S. section.
Here is how Dale Carnegie puts it: “When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bristling with prejudices and motivated by pride and vanity.”
“I don’t know.” These three words don’t inspire a lot of confidence and will not get me invited onto CNBC, but that is exactly what I think about the topic I am about to discuss.
If you own stocks solely for their dividends, you are ignoring the other parts of the stock market equation that, though they are less shiny (and less tangible) than dividends, are just as important to your future returns.
I use Coke to demonstrate the importance of differentiating between a good company (which Coke is) and a good stock (which it is not), and the danger of having an exclusive focus on a shiny object – dividends – when you are analyzing stocks.
The election is over. I am left with two very contradictory feelings.
Negative and near-zero interest rates show central banks’ desperation to avoid deflation. More important, they highlight the bleak state of the global economy.
