Tidbits

[Spekulatius]

Here is the whole paper from Bessemer about the best performing stocks with the largest cumulative gains. Awesome stuff. Got to survive (for a long time ) to thrive.

Bessemer - stock returns.pdf

 

Tagging @dealraker here.

Edited July 21 by Spekulatius

[formthirteen]

4 hours ago, Spekulatius said:

Here is the whole paper from Bessemer about the best performing stocks with the largest cumulative gains. Awesome stuff. Got to survive (for a long time ) to thrive.

 

Awesome paper. The only criticism I have is that it doesn't say which stocks will give us the best returns over the next 10-50 years, or maybe it does?

[dealraker]

4 hours ago, Spekulatius said:

Here is the whole paper from Bessemer about the best performing stocks with the largest cumulative gains. Awesome stuff. Got to survive (for a long time ) to thrive.

Bessemer - stock returns.pdf 278.59 kB · 24 downloads

 

Tagging @dealraker here.

I think, and my older age thinking (I continually increase the omissions and mistakes in my thinking - and particularly my writing - as I age) may be in error here, that there is some degree of mental advantage infused to your (an investors) brain via holding ownership of businesses for a long time.  What I mean by this is that you do get some insight as to the probability that this or that business is one of sustainable good outcome.  Although I've never really owned tech stocks (I have owned Google for about 20 years) as a whole my long term (40 years plus) returns both in tax and tax free accounts have been pretty steady and over 14%.

 

That 14% has mostly been enabled by owning a few good businesses that were never sold.  But at the same time there's a lack of really poor performers in these portfolios and I think that comes from the knowledge (and/or luck) from owning the better stocks in the portfolio and getting some insight to what makes business have some sorts of long term sustaining traits.

 

I watched an investor who had outrageously grand results for the 2015 to 2021 period, a guy who had bought into the SAAS theme...and he'd basically gone online to promote/interact with his followers, I think with good intentions.  I've made a few posts on his site, quickly he blocked me (I wasn't rude) and within a short period of time literally his entire model was imploding all over the place- even given his earlier wild success (and continued to implode as he went into rapid buy/sell mode on multiple entities not related to his original SAAS mandate).  So in the end he still had good returns since his beginning of 2015 (that he sited in every post he ever made) but literally hundreds if not thousands who took on his method got the downside of his obvious low probability investing style.  Often these late-comers were losing 3/4's of their savings in their retirement accounts and trying desperately to think rationally about what to do was obviously traumatizing to this bunch.  I have had a few write to me outside the site who lost over 80% of their investments based on this investor they become enchanted with.  

 

The way I invest, or at least my perspective of it, is basically "and idiots guide of how to almost guarantee you don't do poorly."  This list in the link that Spek has posted, I do own quite a few of these stocks - my starting point wasn't 1925 but about 1975...and still these businesses did very well and continue to do so.  I have bought a few more of these along the way.  All of them have poor periods of return, growth and success isn't linear.  Instead of bailing out in the poor periods I've chosen just to observe.

 

But in the end, even without the 80-some percent of my portfolio that is either Berkshire or insurance brokers I'd easily be able to retire for decades comfortably with the "other" stocks I inherited in 1975.  That inheritance of those stocks I mention, leaving out the 80-plus percent of the Berk/brokers (I bought all my broker stocks later in 1994), was about $30,000 so it wasn't some huge figure.  But today it is a huge figure, or at least to little ole me it is huge.

 

And yes there are long periods of either low or no success, no returns whatsoever.  

 

Rambling.  

 

 

[Spekulatius]

 I have not much too add except noting that the list contains some fairly poor recent performers like WBA, CVS, BMY and PFE due to the length of compounding , even poor performer can stay on that list for quite some time.

Some industries that have been fantastic performers for many decades like Pharma or drug stores have become much worse business. I doubt that those business will have market leading returns going forward although we have Novo Nordisk and Eli Lilly here. As always, you have to watch how these business evolve over time.

 

Another note is that there is a fair amount of defense companies in that list (Northrop Grumman, Boeing, General Dynamics but no steel or media companies or banks (those have been around for a long time) and only one chemical company (FMC)

[dealraker]

2 hours ago, Spekulatius said:

 I have not much too add except noting that the list contains some fairly poor recent performers like WBA, CVS, BMY and PFE due to the length of compounding , even poor performer can stay on that list for quite some time.

Some industries that have been fantastic performers for many decades like Pharma or drug stores have become much worse business. I doubt that those business will have market leading returns going forward although we have Novo Nordisk and Eli Lilly here. As always, you have to watch how these business evolve over time.

 

Another note is that there is a fair amount of defense companies in that list (Northrop Grumman, Boeing, General Dynamics but no steel or media companies or banks (those have been around for a long time) and only one chemical company (FMC)

Agree that this is not a list for outstanding investing going forward.  But it does suggest that these type businesses exist, that a good business is worth holding.  

 

My ownership of an initial tiny few NSC shares led to - relative to me - huge gains in owning all the railroads.  And reading John Train's books led me to Buffett's quote as to insurance brokers being a toll booth on the world economy.  These type businesses enabled me to avoid  blowing in and blowing out of an endless array of stocks in an attempt to get a quick return.  But many or most want bigger returns than this model suggests is possible via looking at those long term outcomes.

[Sweet]

I was surprised that there wasn’t a single bank on the list.

[Spekulatius]

1 hour ago, Sweet said:

I was surprised that there wasn’t a single bank on the list.

No insurance company either, or mining co’s or retailers (if you don’t count the drugstores WBA or CVS) . Exxon made it in there in the energy sector.

[73 Reds]

18 hours ago, dealraker said:

I think, and my older age thinking (I continually increase the omissions and mistakes in my thinking - and particularly my writing - as I age) may be in error here, that there is some degree of mental advantage infused to your (an investors) brain via holding ownership of businesses for a long time.  What I mean by this is that you do get some insight as to the probability that this or that business is one of sustainable good outcome.  Although I've never really owned tech stocks (I have owned Google for about 20 years) as a whole my long term (40 years plus) returns both in tax and tax free accounts have been pretty steady and over 14%.

 

That 14% has mostly been enabled by owning a few good businesses that were never sold.  But at the same time there's a lack of really poor performers in these portfolios and I think that comes from the knowledge (and/or luck) from owning the better stocks in the portfolio and getting some insight to what makes business have some sorts of long term sustaining traits.

 

I watched an investor who had outrageously grand results for the 2015 to 2021 period, a guy who had bought into the SAAS theme...and he'd basically gone online to promote/interact with his followers, I think with good intentions.  I've made a few posts on his site, quickly he blocked me (I wasn't rude) and within a short period of time literally his entire model was imploding all over the place- even given his earlier wild success (and continued to implode as he went into rapid buy/sell mode on multiple entities not related to his original SAAS mandate).  So in the end he still had good returns since his beginning of 2015 (that he sited in every post he ever made) but literally hundreds if not thousands who took on his method got the downside of his obvious low probability investing style.  Often these late-comers were losing 3/4's of their savings in their retirement accounts and trying desperately to think rationally about what to do was obviously traumatizing to this bunch.  I have had a few write to me outside the site who lost over 80% of their investments based on this investor they become enchanted with.  

 

The way I invest, or at least my perspective of it, is basically "and idiots guide of how to almost guarantee you don't do poorly."  This list in the link that Spek has posted, I do own quite a few of these stocks - my starting point wasn't 1925 but about 1975...and still these businesses did very well and continue to do so.  I have bought a few more of these along the way.  All of them have poor periods of return, growth and success isn't linear.  Instead of bailing out in the poor periods I've chosen just to observe.

 

But in the end, even without the 80-some percent of my portfolio that is either Berkshire or insurance brokers I'd easily be able to retire for decades comfortably with the "other" stocks I inherited in 1975.  That inheritance of those stocks I mention, leaving out the 80-plus percent of the Berk/brokers (I bought all my broker stocks later in 1994), was about $30,000 so it wasn't some huge figure.  But today it is a huge figure, or at least to little ole me it is huge.

 

And yes there are long periods of either low or no success, no returns whatsoever.  

 

Rambling.  

 

 

Stocks are too easy to trade; after all they are mere pieces of paper with an ever-present market quote staring you in the face.  But when you think of stocks the same way you think about owning real estate or even a partnership interest in a private business, the urge to trade all but vanishes.  I've never understood the concept of owning a "tracking position" in a stock.  Is it that difficult to research a company before you own it?  You can't buy a tracking position in a private business interest or a rental property but you certainly wouldn't invest in these without proper due diligence.  You also wouldn't sell them just because something comes along that looks like it might be a better investment - that's when always having some degree of liquidity becomes equally important. 

 

Experience has proven that the most important element of investing success is not smarts, but patience.  To your point, pretend that you buy 10 "forever" stocks and hold them for 40 years.  Also pretend that you aren't the world's greatest stock picker; in fact you are worse than average.  Five of your stocks perform very well (use your 14% CAGR) but the other five stocks go to -0-.  Even if you did not receive a single dividend from any of these stocks, you would have more than 49 times what you started with.  This demonstrates why it is important for young folks to invest early and often.  You don't have to be a great investor.  But in order to greatly improve your odds of financial security you have to invest.

[dealraker]

5 hours ago, Sweet said:

I was surprised that there wasn’t a single bank on the list.

In the early 2000's we had reps from several large institutions come to my little town of Lexington NC to give an investing seminar.  We had some pretty "famous"  (LOL) investors attend including Jimmy Rogers (Mr. Commodity back then) and Fred Stanback (Warren't best man in his wedding).  Banks like First Union (represented in this seminar) were earning 25% returns on equity for good reasons...actually liar reasoning...but still, that's what the financial statements suggested.

 

Mr. Smartass, that's me, stood and questioned bank accounting and... (you guys know full well the "reception" that got me).  But, the story since then and the massive crashes, at least to me, is that banking is just one hell-of-a-difficult business, one not getting better but getting worse.  That does not mean that in the next few months bank stocks will not go up, it is a statement about the long term road of banking---- that the holes to fall in are so many that almost no one except Jamie can navigate.  

 

Imagine JPM without Jamie Dimon.  I began my life as a banking and insurance analyst, I respected the road they travel, the grand difficulties of it all and the few and far between good managers that can survive it successfully.  

 

It is easy to see why banks aren't in the list.  The Bank of Granite, shares of which I inherited 45 plus years ago, was led by John Forlines.  A legendary manager, Forlines was honored and asked to stand up by none other that Warren at a late 1990's annual meeting.  Forlines had well over 2% ROA and 15% ROE (huge equity to assets ratio from retained earnings).

 

Forlines retired in the early 2000's and his successor, a 30 year top manager of the bank named Charles Snipes, bankrupted Bank of Granite within a very short period of time.  

 

Banking 101.  

 

 

Edited July 22 by dealraker

[Spooky]

Really interesting paper and discussion, thanks for sharing. I wonder if it is possible to put together a list of the criteria those 17 stocks have in common to survive for such an extended period of time. Perhaps it would be easier to invert and come up with a list of the items they don't have or do which killed off other companies.

[KCLarkin]

5 hours ago, Spekulatius said:

No insurance company either, or mining co’s or retailers (if you don’t count the drugstores WBA or CVS) . Exxon made it in there in the energy sector.

One criticism: this is a short list, so it is very hard to make any generalizations. The cutoff is 2.4M%. So there are some very interesting companies that didn’t make the cut. I’d like to see a list with at least the top 100.

[Sweet]

1 hour ago, Spooky said:

Really interesting paper and discussion, thanks for sharing. I wonder if it is possible to put together a list of the criteria those 17 stocks have in common to survive for such an extended period of time. Perhaps it would be easier to invert and come up with a list of the items they don't have or do which killed off other companies.

I was thinking the same.  The report did say that the most obvious feature of the top 17 companies is they have survived.  One feature of many that I’ve observed is that produce simple products, items unlikely to be replaced easily.
 

Some have annual returns over of just over 13% annually but they delivered because they’ve been around so long.  In some cases, as Spek said, some of the companies have been struggling, WBA is one, so the annual returns were significantly higher at some point in the past.

 

In an era were technology is so important, are new companies likely to have such a long life?  Probably not.  There might not be a lesson for future stock picking in such a tech dominant time.

 

[Saluki]

2 hours ago, Sweet said:

 

 

In an era were technology is so important, are new companies likely to have such a long life?  Probably not.  There might not be a lesson for future stock picking in such a tech dominant time.

 

 

I'm not so sure about that.  Ships have been around and involved in transporting goods since Ancient Greece. Ships get better, but shipping doesn't, it's a terrible business.  Airplanes are like ships, but Railroads aren't.  If your airline, or ships are making a lot of money, it invites competition, but how would you build another railroad? The country is no longer empty and the government isn't giving you free land anymore. And a lot of new tech has come around in the last 200 years, but there is still no cheaper way to send goods over land than a railroad. 

 

People have been eating wheat since the Mesopotamians were in charge.  That's not going to change, but it's not a great business either without government subsidies.  The list of good businesses that don't change isn't very long, but it requires some thought and a lot of vetting of good management in some cases.  Real estate comes to mind, for instance. 

 

Tech is very profitable, but Google wasn't the first search engine, and Facebook wasn't the first internet site.  The winners seem obvious in the rear view mirror but are hard to predict. With the slow changing industries (Vulcan has quarries in profitable prices, I'm sure some rich people in Ancient Rome were just as fortunate), it requires a lot more patience and sifting through fools gold to find the real gold, but unlike tech companies like Netscape, once you found one, you can ride that pony for the next 100 years. 

[DooDiligence]

11 hours ago, 73 Reds said:

Stocks are too easy to trade; after all they are mere pieces of paper with an ever-present market quote staring you in the face.  But when you think of stocks the same way you think about owning real estate or even a partnership interest in a private business, the urge to trade all but vanishes.  I've never understood the concept of owning a "tracking position" in a stock.  Is it that difficult to research a company before you own it?  You can't buy a tracking position in a private business interest or a rental property but you certainly wouldn't invest in these without proper due diligence.  You also wouldn't sell them just because something comes along that looks like it might be a better investment - that's when always having some degree of liquidity becomes equally important. 

 

Experience has proven that the most important element of investing success is not smarts, but patience.  To your point, pretend that you buy 10 "forever" stocks and hold them for 40 years.  Also pretend that you aren't the world's greatest stock picker; in fact you are worse than average.  Five of your stocks perform very well (use your 14% CAGR) but the other five stocks go to -0-.  Even if you did not receive a single dividend from any of these stocks, you would have more than 49 times what you started with.  This demonstrates why it is important for young folks to invest early and often.  You don't have to be a great investor.  But in order to greatly improve your odds of financial security you have to invest.

 

A small tracker forces me to dig in.

[UK]

"Maduro, 61, is accused of locking up critics and harassing the opposition in a climate of rising authoritarianism. He is seeking a third six-year term at the helm of the once wealthy petro-state that saw GDP drop 80 percent in a decade, pushing more than seven million of its 30 million citizens to emigrate."

[Ulti]

https://www.washingtonpost.com/opinions/2024/08/02/jamie-dimon-2024-democracy/
 

good Op Ed…. JD for Treasury secretary 

[Spekulatius]

This is an interesting substack article about pricing collusion on PVC pipes and conduits:

https://manbearchicken.substack.com/p/pipe-price-fixing?subscribe_prompt=free

[gfp]

36 minutes ago, Spekulatius said:

This is an interesting substack article about pricing collusion on PVC pipes and conduits:

https://manbearchicken.substack.com/p/pipe-price-fixing?subscribe_prompt=free

 

Thanks for posting - that is interesting.  One of my cousins runs a sewer and water business and whenever he asks me about PVC pricing (primarily 20 ft. lengths of schedule 40 PVC pipe in 4" and 6" diameters) I can never figure out why his prices are going up or down while the raw commodity PVC is doing the opposite.  Without looking into it further I figured transportation cost of the pipes must be a major component of their cost for end-users but this article doesn't surprise me.  Prices for fittings are even crazier.  Lately he has been using more HDPE pipes - like you see in large municipal water mains.  They fuse them together by melting the edges and clamping them together.

[Spekulatius]

@gfp Yes, there are certain niches where capitalism seems broken. these products are not difficult to produce, so I don’t think it’s capacity restraints. Transportation costs have not changed that much either.  ATKR is mentioned, which has been discussed here. I think posted their margin evolution before - they went from 25% gross margins to 35%+ gross margins in 6 month during the pandemic. Don’t tell me those were operational improvements.

 

I think the DOJ and Linda should look at those market dislocations rather than airlines which are almost broke , but what do I know.

 

Edited August 3 by Spekulatius

[Sweet]

 

I had an interesting conversation about Intel with my brother this weekend.  In the course of about 10 minutes I got a decent reason why its current woes won’t last.  

 

Intel is a bit of a mess right now, they were having problems with their current generation of CPUs because they were allowed to cool on the press (not sure I’m conveying this accurately) and the chips ended up being oxidised with small bits of rust which made them fail or underperform.

 

This is having an obvious impact on its business because the word is out that this generation of chips are faulty.  Large companies are demanding refunds and / or compensation and / or replacement CPUs.  This has had a big impact on both revenue and income.

 

However the CPU market is a duopoly between AMD and Intel, and historically Intel’s chips have been better.  It is likely that Intel already have the fix because these companies tend to have 3-4 new chips with R&D complete ready to hit the market.  He expects Intel to bounce back in a year or two with a new chip and new architecture if you can look that far forward and he is reasonably confident you can.

 

I had a check at the financials and from 2021 to now the revenue and income have been terrible.  But in 2021 they did 79 bn of revenue and 20bn of income and it was similar the year before.

 

If a turnaround is possible, and revenue can return to where it was then Intel is sitting at 4x PE based on 2021 and 2020 metrics.  At half that performance you could be buying it at todays price for 8x.

 

I asked if Nvidia was a threat to Intel and his answer was not really because Nvidia was dominant in GPUs and GPUs can’t replace CPUs.

 

So it seems CPUs aren’t going away and we have a duopoly company getting wrecked from a cockup in recent chip cycle.  I expect the world is going to have more computers in 20 years from - I think that’s an easy and likely correct estimate.

After the convo I justed wanted to go out and buy a whack of intel but I know I’ve done work to do first.

 

 

[Spekulatius]

There has been a lot of work done here on this thread already as well as from other sources and I think the issues that Intel are facing are much more severe and harder to fix than what your brother describes. I hope he does not put too much money into his thesis (which I think is very flimsy) because it is likely that his thesis is wrong and he could lose a lot of money if that’s the case.

 

In tech, nobody gives a damn about the revenue or business you did 4 years ago, because the issues that INTC is facing have nothing to do with cyclicality, they are all due to secular shifts, their lack of execution and competition.

Edited August 11 by Spekulatius

[Sweet]

1 minute ago, Spekulatius said:

There has been a lot of work done here on this thread already as well as from other sources and I think the issues that Intel are facing are much more severe and harder to fix than what your brother describes. I hope he does not put too much money into his thesis (which I think is very flimsy) because it is likely that his thesis is wrong and he could lose a lot of money if that’s the case.

 

In tech, nobody gives a damn about the revenue or business you did 4 years ago, because the issues that INTC is facing have nothing to do with cyclicality, they are all due to secular shifts, their lack of execution and competition.

I’ve been reading about them, he has no money in it, he’s not an investor.  I just kept thinking if this is true it could be a great investment.  I’m seeing there are several other issues yes.

[sleepydragon]

NVDA send their GPUs to TSM to manufacture. 

If Intel's FAB can make GPUs for NVDA/AAPL etc.., they will have a future because people want multiple sources.  Nowadays, everyone design their own chips. But FABs are capital intensive AND labor intensive.

[Spekulatius]

Lifted from X.com. Sports betting a net negative especially for economically challenged households. Appentky, sport bets are treated as an “ investment “

Edited August 18 by Spekulatius

[dwy000]

14 minutes ago, Spekulatius said:

Lifted from X.com. Sports betting a net negative especially for economically challenged households. Appentky, sport bets are treated as an “ investment “

It's the societal equivalent of lottery tickets but with a more gradual take rate. And less community reinvestment.