Intel has the problem of being a capital intensive enterprise. When you see how many new multi-billion dollar plants they are building beware it is an expense considerably more than the company was worth being invested going back not too many years. Few companies on earth can afford to this. In Oregon that built one plant that will cost 4-8 billion dollars and then embarked on doubling the size. Those kinds of expenses and not just in oregon but world wide would weigh down any company even as large as Intel is and it does not make the company a great long term investment in the way something like an auto parts distributor is because they have no big necessary capital expenditures and they can buy their competitors to expand and they have no great future capital expenditures. So why hold intel? In the history of the world there has never been growth like Intel , Microsoft, Cisco, (AOL before it sold to time warner) You can compare the south seas bubble to these charts and the percentage gains now are closer to geometric ptrogressions in the main up phases than even the market build up before the 1930s crash. This compuoter driven economic reality we have is really unprecedented. When the ancient Romans conquored their competitors and took spoils there was no geometric progression and even the growth of Philip Moris before it became Altria and other spin offs does not look like intel's original upside charted geometric progression. Then they had tiny capital investment to begin with maybe with the share price under a dollar per share. Now if we end up with self driving automobiles and self controlled robotic machines of all sorts there are going to be more than just two computers in each car. Every car will become a cell phone tower to relate to each other car on the road with or with out a human driver and computers will monotor the road conditions ahead of all traffic and computer chips are going to be more compon place than today. Intel has way too much competition but that does not mean that we won't need their output. Computers don't last more than 5 years on average so an other buying cyucle will come. I don't know how long cell phones last before needing to be replaced. Demand is worldwide and it is going to grow. We are now in an era where it is like the last days when just a few people in rural areas did not have land line telephones. My assessment is that Intel's capital investment could pay off and it could even result in a new geometric progression of growth just more unlikely than the first one and the concern is that in 20 years a single chip with have super computer capacity and a longer life span than chips to day and that the cost will fall to pennies for the very best from the high margin prices intel gets today. Do you have a super computer in your smart phone now? No so chances are after they come out most people on earth will pay an excessively high profit margin to get one of the new phones with the chips in it. The last time my computer broke down it was just about five yeasr old like the one that died before it. So don't count on HP going out of buisiness either.
It would be quite a super monopoly to combine Burlington Northern Santa Fe and Union Pacific....the anti trust people would only let it happen if Obama got ten percent of the shares. A East to West coast to coast rail road? Might make sense but probably does not because the panama canal just became a big Chinese shipping highway. So maybe watch for one of the big shipping companies or container port companies to buy Union Pacific....Unlikely with the renewed invorated value of these rails. One that could be interesting though is a Canadian US non duplication agreement....or shared tracks for one way rail highways. We have Burlington Norther and Union Pac on either side of the Columbia river in Oregon and Washington. If they had an agreement to use both sides of the tracks the system could go one way with loops on the bridges making transportation faster though the columbia gorge bottle neck and maybe further east and west too.
The Real Secret Of Warren Buffett's Performance [View article]
Yes if the efficent market hypothesis is correct the way to beat Warren Buffet by being Warren Buffet would be to create a Warren Buffet Index? You can often purchase shares Buffet owns at lower prices tha Buffet pays realizing that what he does pick is his investment screen and to suplement that you can buy Berkshire Shares when they are at low end of the price range and put them in the index as a key component. What you won't likely get is the upper level statistical outliers in your portfolio which are smaller cap stocks than Buffet is generally interested in in new unproven industries. You won't have apple in your portfolio from five to ten years ago and you won't have google in your portfolio or a company that does all new genetic drug testing/ genome screening which might or might not prove to be a crucial part of the medical health care system as time goes on. You could have added IBM long before Buffet added it. If you were to have a personal or private index fund or Buffet ETF my guess is that it would be best to have something like 30 percent berkshire shares purchased at the lower range of trading, 50 percent buffet shares either with a buffet premium paid because he picked them first or after they correct in price once the correction comes and then add smaller cap stocks that buffet won't buy that come close to having the buffet screening characteristics that he won't be competing with you to buy. You can find those stocks by those smaller companies with increasing revenues but investor disapointment because higher revenues don't translate to higher earnings per share. Occasionally you find the market selling Amgen type stocks when they are younger and having difficulty keeping up with demand because they have insufficent factory space and systems to churn out the demand the market wants. Or you can find stocks like philips petroleum just spun out of a company break up where no one seems to know how to price it at a 30 percent discount. That maybe where ABT is now having spun out of Abott Labs? If not that there are companies just waiting for larger companies to buy them up. It was hard to guess that BUD was a buy out target. Not so hard to imagine the Kraft spin outs being buy out bait. There are companies waiting for Philip Morris International to buy them out at higher prices and you can kind of guess that because Philip Morris might be dependent on buying from them. CRDN was an obvious sweet morcel for a buyout . MMM a great suiter and parent company now but it could have also been Honeywell. MMM is better because it keeps CRDN as a basic materials provider in a a sense. MMM may not be at a price Buffet would buy it at at the moment. for the 20 percent look for companies that the giants would like to add to their industrial ownership portfolios and look for companies that might look to have owners interested in selling out eventually.
5 Stocks Billionaires Are Crazy About [View article]
The price levels/ price range already reflects this sentiment. Billionaires are a component of the market that can move it by a few percentage points on low volume days unless they have a controlling interest or some possition they have to report to the sec about.
The Secret Of Warren Buffett's Alpha [View article]
I found a book a long time ago talking about why insurance stocks could outpace the general market given tax advantages and their float of insurance policy money. Yes that is some of Buffet's source of leverage and of course leverage is essential in times of inflation. Pretty much everyone who joins the Forbes 400 and 500 in real estate gets there because of the coupling of leverage and inflation . Warren Buffet could have done what Sam Zell did on steroids with insurance float and a number of insurance companies do put their investment float into real estate. Insurance companies that make mistakes with their float can pay dearly for those mistakes. Buffet seeks companies with monopolistic power whether he owns them as whole entities or in shares of publicly traded stocks. Making less mistakes with capital and avoiding companies with high present and future re-capitalization needs he gets more than a leg up on his competition. If you visit most Dairy Queen restaurants, unlike McDonalds where everything is new, the equipment and interiors tend to date back 20 years or more with very few new capital investments. Buffet also reduces the universe of stocks that are viable for holding to a hand full of stocks. When he says he missed the walmart opportunity in the beginning he means he definately considered ownership early in the major growth phase but all things being limited he chose to invest what always is limited capital in to something that seemed better. His investments in walmart came much later and a at time where the dynamics of the company were much more mature and much more predictable but only at that point a whole new international force in progress. Walmart is now still in that international push phase which promises a much larger company in the span of say 20 years. Imagine a trillion plus market cap company with over 12000 stores worldwide....hard to imagine. Then again it is hard to imagine the number of McDonalds outlets worldwise, subways worldwide and yum brand stores world wide. It is not impossible and more than propable. Buffet pretty much waited until one of the original heirs of Sam Walton died in a plane crash depressing the share value. Not sure that had everything to do with the new interest but there was a new potential large block of ownership that might materialize on markets at that point. Those are interesting percentile charts showing where Warren Buffet fits in. It is not an entirely new possition though. The Rothschilds occupied that zone in their market hayday so did JP Morgan. The interesting thing about the markets today is that companies have recently been exposed to some of the lowest interest rate cost leverage in memory. That leverage with possible inflation is going to drive this market to unseen levels almost regardless of stock quality or value. The ultra low interest rates may not be low considering possible deflation but there is strong evidence that deflation will not be allowed and inflation will be welcome. This time inflation will be different because computers can adjust for it second by second thoughout the entire economy and companies flush with really low cost debt for leverage will find their financial power increasing once inflation retires any cost to be paid for borrowing. A huge transfer of wealth from this pheneomenon has already started. Home prices are likely to surge because of 2-3 percent mortage rates. Evidence in some markets is already showing up. Oh by the way warren buffet has one more form of leverage which is tax planning leverage. It traditionally worked for real estate investors because government tended to exempt real estate loan interest from taxes ....game you too can win.
Berkshire Hathaway's Headline Looks Great But Operating Earnings Down [View article]
Imagine Berkshire Hathaway as a take over target . At present it might be worth as much as 260 billion dollars. Kind of expensive to make an offer for all the shares until you realize the parts of the company might be worth over 300 billion dollars sold off in individual pieces. I would even advise a company like Apple computer to make such an offer if its market cap grew to be a trillion plus dollar company. The logic is exactly the same as what happened when AOL enticed Time Warner to buy it out except that BRK.A /B would be worth more than the company buying it , I expect Apple computers will come out with the I-care to compete with the Android self driving car. Still all apples businesses are cyclical. Berkshire Hathaway is like buying the land and never selling it realizing it will produce rental income forever more. It would take more than a few giant banks to pull that off. It would actually be an excellent investment for a very large sovereign wealth fund compared to US Treasuries except that keeping good management there is worth more than a break up and sale of the bits and pieces. I rather suspect a break up of the company during my life time. There are few businesses that have survived either anti trust or old age as giant conglomerates.
You can't go by the charts with intel. They are doubling the size of a huge new 3 billion dollar facility in Oregon. They are not making this investment just to lose money but because they know they have some pretty amazing prospects on the way. Expect in the future to a lot of interactive robots in your future including your self driving cars, taxis, cooks, house keepers, gardners all with intel inside. All computers over 5 years old are already obsolete and guess what? they tend to break at about 5 years so wait and see a huge new buying cycle especially after the recession totally subsides. Intel is building facilities all over the world some of which lower their cost and improve efficiency. They are not moving in the direction of having factories like these mothballed as obsolete facilities. The thing most interesting is the expansion of the market with another 4 billion people or more in Asia and there you are talking about x number of chips per person round the world. Oh and with all the Obama drone activity you can expect a lot more drones and other robotic soldures being manufactured for national defence in a variety of countries. There is going to be a prolfieration of micro electronics like few people have ever imagined. You see the drones even taking over for other weapons now wait till there are more drones than servicemen in the army, navy and airforce. Not they won't all fly but they will come packaged on racks the way they did in star wars ready to deploy instead of men and women on the front lines.
How To Get A Piece Of The Increased Spending On Luxury Fashion [View article]
I just did a brief analysis on LVMUY not an indepth analysis and made an interesting observation. At least 1/3rd of the brands are golden. Right now they are all expensive consumer retail items with a limited retail base of customers . That is now and not later. Imagine if coka cola cost $15 for a 16 oz bottle and imagine it really had no competition and those who could afford it would pay for it and those who could not afford it would like to . Well then imagine the company reduces the price while increasing production for a larger base of consumers. You see that with one brand in US shopping malls called Saphora. The company might have a lot more value based on a certain algorithem where high valued brands can just be held off the market long enough to keep the price and profit margins higher than say PG or Coke mean brands. With apple computer these days margins are exceptionally high so long as new releases keep coming out . Old releases can fall in price with the competition. That is not true with a super sublime producer and in some cases direct retailer like LVMUY. I would love to own internatinal brands where a high profit margin can be maintained for a few centuries while production can actually go up with of course new chinese consumers added to the base daily. COH is not diversified the way LVMUY is. Lvmuy can spit into 5 different profitable separate companies with ease and even increase value to shareholders. Most of their brands are marketable and they have the ability to artificially limit supply by witholding production from the market simply by having control of any secondary market which never materializes with specialized agents.
The Irony Of Knight Capital's Decline [View article]
There is something very wrong about the Knight Capital mess and what is clear is that Knight is not fully responsible. When I saw the eye popping story that the SEC would not let Knight correct the computer errors that caused the errant trades the first thing that came to mind was the word corruption. This is the same SEC that let Bernie Madoff run as long as they did and the same SEC that seems powerless to do something about a horrible total fraud like what happened at MF Global. Talk about crony capitalism and corruption. My word is my bond on wall street just as Knight's is but the fact of the mater is every day in my life on line I like everyone else experiences some kind of computer error. If the error was not intentional why should the firm be held responsible as if it were and why not allow it to undo the trades? What got stolen at MF global was intentional and look at how the darling bs artist who ran it is still being coddled because he was once governor of New Jersey. Oh it is also true that Bernie Madoff was a big democratic party supporter. Now we see LVS being persecuted for possible money laundering by third parties in their casino just after Sheldon Addelson gives big bucks to Romney. Solyndra turns out to be a big money give away with no net value and there are higher salaries going out to execs there to settle the bankruptcy and the SEC is pleased but now the SEC sees communist full spectrum red when there is a computer error in a world increasingly full of computer errors. What is clear is that the country and the markets are probably better off or just as badly off without the SEC as with it. When Jon Corzine gets life in prison for fraud and bunks with Bernie Madoff I think i might slightly change my opinion. This idea that accidents are intention goes on and on where ever lawyers are making the rules. Here in Oregon the weather beaches a ship and the state prosecutor goes after the ship owner for polluting the environment demanding "clean up costs" What? The same state of Oregon will sink a ship for a reef and charge no one for the cost of that . Welcome to the Soviet States of America. And one more thing about computer errors costing you money. The government and the lawyers will aim those rules at deep pockets almost exclusively which has a sort of ring and jingle to it like a Mexican police shakedown for cash. Capital should be fleeing the US as it might be as safe now down in Mexico or China with advantages of maybe being able to have a compture error without being held liable when it could otherwise be fixed. All things being equal the SEC and it's behavior should be the cause for a Knight Capital lawsuit just because the way this was done was unfair. Computer crashes are not like car crashes unless we decide to make them that way. I have mistakenly made trades I had to pay for and fixed the problem on occasions . As I said we can expect more computer errors and pile ups in the future and I don't think we want to live in a financial world where inadvertent mistakes cannot be corrected. What happens when the power grid goes off line or if hackers sabotage the systems? Are we all going to be stuck with portfolios we did not create or manage? The SEC is full of it. This behavior is as bad as when they looked past dealing with Bernie Madoff as someone worthy of an investigation before he had a 60 billion dollar ponzi scheme going.
Coca-Cola: Have A Coke And A Smile, Or A Pepsi And A Frown [View article]
the charting services do a fairly lousy job at going back in time with companies that spin off units. the old sears corporation spun off things like the discover card, coldwell banker, dean witter and maybe more so if you look at the present sears stock charts easy to find online they don't really tell the whole story. something like that just happened with Conoco Philips that spun off Philips 76. The long term chart for conoco disappeared just as the long term chart for the older philips petroleum may have also disappeared. another company that does not show all data is philip morris international and atria. spin offs included a lot more than meets the eye with the chain of present numbers.
Coca-Cola: Have A Coke And A Smile, Or A Pepsi And A Frown [View article]
which is more valuable having the frintos and lays potato chips at subway restaurants, all 30,000 outlets , or the beverages? Don't be too down on Pepsi. Pepsi is more than it seems if you go back in time and re-chart the company proformance including spin offs like YUM brands--the company is not so bad. Coke was better when it looked worse in the past but try spinning off the beverage unit at coke and see what you have left....
A Look At How PCP Inflates Earnings Through Acquisition Accounting [View article]
Yes they inflate earnings by retaining earnings to make acquisitions rather than pay out dividends. There is good reason to believe that a lot of commercial planes around the world will need to be replaced because they wear out. What could be catastrophic might just be missing expectations by a penny or three cents. Not. What would be catastrophic is if the Chinese managed to steal their business. With a truly catastrophic decline in share price shareholders would probably find their shares converted to Honeywell, GE or some other aerospace conglomerate like UTX so there is always a safety net.
Coca-Cola (KO) CEO Muhtar Kent says the company will start tapping into its $13B stockpile of cash, with a focus on capital expenditures at the top of the list. Strategic bolt-on acquisitions could be in the offing and investors could also see a higher dividend payout along with share buybacks. [View news story]
It is more complicated than that. Shareholders are being asked to increase the number of shares issued in a very big way. Is the company moving in the direction of very low finance borrowing costs from equity dillution when they can be borrowing at historic low rates with bond issues/ bank loans? Is coke doing what other large us companies are doing--building a mirror image in china/asia that may ultimately break away? When GM promises 600 new dealership franchises in China you buy the stock....at rock bottom prices per share....Not sure what Coke's plans are to raise so much more capital by issuing more shares in such massive numbers and hope this is not some plan to over compensate management/ employees.
So Aflac (AFL) wants to be a player. The company brings on Timothy Stevens to head its newly created post of global head of trading. Stevens - formerly of BlackRock - will report to CIO Eric Kirsch, who came over last year from Goldman Sachs. Also joining is Brad Dyslin - who worked with Kirsch at Deutsche Bank - to be global head of credit at Aflac's just-opened investments office in NYC. (PR) [View news story]
They always were a "player" Insurance companies have two sides one is the Insurance policy side that assesses risks that they insure and the other side is the side that assesses risks and rewards of investing the contract float money. They may or may not be in trouble now with euro denominated debt which may mean they had bad outisde player advice and may need to cut some losses. The Euro is a little speculative now. Warren Buffet uses the insurance business for the float and is definately a "player" he will buy commodities and curriencies on occasion. Aflac might be better off hiring the types of managers that Warren buffet is testing now. If Aflac is really hit by a euro failure it could become a berkshire hathaway company with buffet recapitalization in exchange for control. It appears Aflac was taking more risk to get its higher annual returns than some other insurance companies because of real higher risk that are only now exposing themselves. There is clearly a lot of investment competence at Aflac. The risk they will take huge permanent losses is probably low. I had been worried about what a catastrophic earth quake in Japan would do to the company and was happily supprised to see that they could survive and continue to thrive after one actually happened. The quake did not hit Tokyo which would have been a much larger shock. It is clear that Aflac can take big shocks and survive because they manage risks effectively . A lot of that may be due to contractural coverage for earth quakes. It is easy to get euro risk insurance too by legitimate hedging means with financial contract exposure. It the yen or euro collapses then the company can counteract losses making the cost of the contracts worth paying. when currencies are hit usually they recover later. Japan is the most in dept country per capita so they do have risks there too.
Kraft: Spin-Off To Spread Shareholder Value [View article]
These spin off deals can work out very well. Kraft was a spinoff I remember from Philip Morris MO... Philip Morris is actually the best preforming company over the long term in terms of a number of different measurements of success. I am not sure how it compares to Microsoft, Cisco , Intel and other companies that grew at an astronomical rates in their time of growth spurt. Philip Morris spit into Philip Morris international and Kraft and both of those sub units have appreciated the way you can anticipate the kraft spin offs to do the same. The Kraft spin offs are also bait for other companies to aquire because they are smaller more financially bite size chunks. Companies like Unilever and Nestle may still be interested even with big euro problems because they have huge us business with US dollar accounts for reinvestment. Private equity may also be interested with bank loans for aquistions with debt and tax advantages . Kraft could me worth more as the sum of it's parts. The down side might be too many new managers taking a cut out of gross income per share. The upside maybe efficiency in greater specialization of each component spin off. When the spin offs happen there are also refreshed point of origin accounting for each spin off and this can appear to enhance shareholder value. When the COP / philips petroleum spin off occured recently. There was a lot of confusion . Eventually once both parts of that company pay a separate dividend people will have an immediate sense of how they value the spin off shares which originally had a strange unknow stock symbol and no financials going back half a century or more like the original company and added to that no known dividend return--as a result those new shares were selling for less than they are probably worth for a period of time and maybe still
What To Do With Intel's Stock [View article]
Time For Rail Consolidation [View article]
The Real Secret Of Warren Buffett's Performance [View article]
5 Stocks Billionaires Are Crazy About [View article]
The Secret Of Warren Buffett's Alpha [View article]
Berkshire Hathaway's Headline Looks Great But Operating Earnings Down [View article]
Intel: Is The Magic Waning? [View article]
How To Get A Piece Of The Increased Spending On Luxury Fashion [View article]
The Irony Of Knight Capital's Decline [View article]
Coca-Cola: Have A Coke And A Smile, Or A Pepsi And A Frown [View article]
Coca-Cola: Have A Coke And A Smile, Or A Pepsi And A Frown [View article]
A Look At How PCP Inflates Earnings Through Acquisition Accounting [View article]
Coca-Cola (KO) CEO Muhtar Kent says the company will start tapping into its $13B stockpile of cash, with a focus on capital expenditures at the top of the list. Strategic bolt-on acquisitions could be in the offing and investors could also see a higher dividend payout along with share buybacks. [View news story]
So Aflac (AFL) wants to be a player. The company brings on Timothy Stevens to head its newly created post of global head of trading. Stevens - formerly of BlackRock - will report to CIO Eric Kirsch, who came over last year from Goldman Sachs. Also joining is Brad Dyslin - who worked with Kirsch at Deutsche Bank - to be global head of credit at Aflac's just-opened investments office in NYC. (PR) [View news story]
Kraft: Spin-Off To Spread Shareholder Value [View article]
These spin off deals can work out very well. Kraft was a spinoff I remember from Philip Morris MO... Philip Morris is actually the best preforming company over the long term in terms of a number of different measurements of success. I am not sure how it compares to Microsoft, Cisco , Intel and other companies that grew at an astronomical rates in their time of growth spurt. Philip Morris spit into Philip Morris international and Kraft and both of those sub units have appreciated the way you can anticipate the kraft spin offs to do the same. The Kraft spin offs are also bait for other companies to aquire because they are smaller more financially bite size chunks. Companies like Unilever and Nestle may still be interested even with big euro problems because they have huge us business with US dollar accounts for reinvestment. Private equity may also be interested with bank loans for aquistions with debt and tax advantages . Kraft could me worth more as the sum of it's parts. The down side might be too many new managers taking a cut out of gross income per share. The upside maybe efficiency in greater specialization of each component spin off. When the spin offs happen there are also refreshed point of origin accounting for each spin off and this can appear to enhance shareholder value. When the COP / philips petroleum spin off occured recently. There was a lot of confusion . Eventually once both parts of that company pay a separate dividend people will have an immediate sense of how they value the spin off shares which originally had a strange unknow stock symbol and no financials going back half a century or more like the original company and added to that no known dividend return--as a result those new shares were selling for less than they are probably worth for a period of time and maybe still