April 24, 2014

An $8,000,000 Investment Mistake of Omission

Nike Stock

One of my favorite topics from mental model studies and investments are the tendency of people to focus on mistakes of commission rather than mistakes of omission.  This area has received some press in recent years as a result of people like John Bogle and Warren Buffett talking about the opportunity cost of spending too much on investment expenses, or walking away from a good holding.  Yesterday, Aaron and I went to Dick's Sporting Goods to look at golf supplies and as we made our way back to t … [Read more...]

Mail Bag: Honey Maid Graham Crackers Goes After the Entire $241 Million

Honey-Maid-Graham-Crackers

The potential dangers and rewards of calculated marketing bets on race, gender, and tattoos are the focus of this response ... Dear Mr. Kennon, I'm trying to understand the rationale of the Honey Maid marketing team in taking on several social issues all at once that still divide America. If you aren't aware (I imagine you are given how much you read), they recently began making sure all married couples - including interracial couples, punk rock couples with tattoos and Mohawks, and gay … [Read more...]

Mental Model: Situational Knowledge

Jack Donaghy

Last night, I was talking with Aaron about the situational knowledge mental model and its implication for business innovation.  For those of you who aren't familiar with it, situational knowledge is a type of experience-based knowledge that arises either organically or through training, creating a database of relevant facts and implicit understandings about situations, people, or processes that you may not even be aware exists but that stands ready to be called upon at a moment's notice.  It is a … [Read more...]

How John Maynard Keynes Beat the Stock Market by 8% Points Per Year Between 1921-1946

John Maynard Keynes

The Journal of Economic Perspectives: Vol. 27 No. 3 (Summer 2013) has a wonderful piece on the investment record of John Maynard Keynes, who managed to beat the market by an average of 8 percent per year from 1921 through 1946 by focusing on long-term, high quality dividend paying stocks as well as smaller enterprises that had room to grow.  When he died in his early sixties, Keynes had achieved the rank of one of the richest economists in history, amassing a fortune equal to $30,000,000 today. … [Read more...]

Let’s Play an Intrinsic Value Game for McDonald’s Corporation

McDonalds Intrinsic Value

This afternoon, I was reading some financial news and happened across an article that breaks out the intrinsic value formula for McDonald's Corporation.  It's called McDonald's: Don't Buy for the Dividends and, through the dividend discount model, posits that one share of McDonald's has an intrinsic value of $70.29. First, let me say I applaud the author.  I think it's wonderful that he (or she) is publicly adding to the discourse and providing work product that can be scrutinized as a jus … [Read more...]

Two Approaches To Brand Equity: Coca-Cola vs. Duck Dynasty

Duck Dynasty

Over the past three or four years, we've had several discussions about the huge benefits, and drawbacks, of owning an asset that has a lot of brand equity.  When attractive to people, a good brand can provide pricing power, market share, and set off self-reinforcing benefits like the owners getting to enjoy the economies of scale that come from pushing a lot of volume through the production facilities.  On the downside, when a brand becomes tainted, even through no fault of the owners (the Ayds D … [Read more...]

Everyone In Norway Is Now a Krone Millionaire

Norway Sovereign Wealth Fund

Indirectly, at least.  The Norwegian sovereign wealth fund, arising from the events set in motion in 1969 when the country struck oil in the North Sea, has managed to avoid using the wealth it generates from crude on temporary boosts in government spending, instead conservatively investing it for the good of the nation.  It's grown so large, it now holds the equivalent of 5.11 trillion Krones for the benefit of the nearly 5.1 million folks who make up the population.  It holds 1% of all the st … [Read more...]

A Good Business versus a Great Business: A Look at Carnival and McCormick

Carnival Cruise

There was a question that landed in my inbox from a reader named Jeremy.  He wrote: First off even if you don't reply to this I'm very grateful for the content you provide. It's nice to see some fresh light and an everyday take on different financial situations. Plus I enjoy your enthusiasm! I bought carnival cruise lines a few monthes back for 32 a share. I bought it with the intentions of holding it for years and just wanted to get your take on the company itself. I normally avoid … [Read more...]

A Coca-Cola Christmas

Coca-Cola Christmas Tree Copyright Joshua Kennon

You can tell what I'm studying because I become completely, totally, hopelessly obsessed with it; the recent posts about the structure of the bottlers, the biographies of past executives, the SEC disclosures, the look inside the factories, the custodial trusts for the nieces and nephews and the DRIP for my sister, the discussion of deferred taxes as a way to leverage investment returns without debt, and now, even the Christmas tree.  It's always Coca-Cola.   Growing up, all the old people a … [Read more...]

How Thomas and Whitehead Used Synthetic Equity To Build Massive Fortunes, While Simultaneously Creating Thousands of Coca-Cola Millionaires in the United States

Coca-Cola Plant

In the late 19th century, a man named Benjamin Franklin Thomas decided he wanted to be rich.  He became obsessed with business, investing, and finding a single opportunity that would set him up for life, allowing him to live off his capital.  According to Constance L. Hays in her book The Real Thing: Truth and Power at the Coca-Cola Company, Thomas defined success as "something inexpensive that appealed strongly to the general public," that "could be used up quickly and then repurchased." He tr … [Read more...]