Dow Jones Industrial Average (.DJI) climbs to 15,000 for the First Time.
In 1921 DJIA was 64, today it is 15,000.
During this time there was:
- Market Crash of 1929
- The Great Depression
- World War II
- The Cold War
- Vietnam War
- Oil Crisis of 1970s
- First Gulf War
- Wars in Yugoslavia
- September 11th, 2001
- War on Terrorism
- War in Iraq (Second Gulf War)
- Financial Crisis of 2008
- European "Euro" and Budget Crisis
There are many things I didn't mention, and there will be more coming. All these events made the markets to either go down or crash. Yet DJIA still went up from 64 to 15,000 in 92 years.
That is an increase of 23,300% or 6.11% compounded annually.
You will not make money by dancing in and out of the markets. Long term only.
Happy Investing!
Damian
Friday, May 3, 2013
Saturday, April 6, 2013
Harrods Purchase in 2010
In 2010 Harrods in London was purchased by Qatar Holding, Qatar's wealth fund for 1.5 billion GBP.
At the time of the purchase, I thought this is a crazy price to pay. With 108 million GBP profit in 2011, it is not so bad, but still crazy investment.
When Mohammed Al Fayed sold Harrods to Qataris, people said it was an excellent return business for him. Let's look back.
Mohammed Al Fayed paid for Harrods 615 million GPB in 1985, 25 years later he sold it for 1.5B GBP, profit of 885M GBP.
With annual profit of around 40M (annual average from 1985-2010). Mr. Al Fayed made 1B GBP in profit over the year + 885M GBP profit from the sale. Total profit 1985-2010 1,885 million GBP (1.89B GBP). That is not so bad, right?
Well, let's benchmark it to S&P 500 performance from 1985 - 2010.
Al Fayed brothers finalized the purchase of Harrods in May 1985 and Mohammed Al Fayed finalized the sale of Harrods to Qataris in May 2010.
Performance of S&P 500 from 05/1985 to 05/2010 was 551%.
So if Fayed Brothers would decide to buy S&P 500 index fund for 615 million GBP it would be worth in May 2010 4B GBP with NET profit of 3.39 billion GBP. So, it is safe to say that Mohammed Al Fayed lost 1.5B GBP by investing his money in Harrods and not in S&P 500 index fund. Sorry to say, it wasn't such a good investment after all. S&P 500 index funds are usually purchased by middle-class Americans who are saving money for retirement, and given their track record they are better investors than Mohammed Al Fayed.
With Qataris paying 1.5B GBP for Harrods they will be maybe able to increase the sales, increase the profit, but it will all be marginal in the end, they will have some annual yield (IRR) for 6-7%, but that is it. If they ever decide to sell Harrods they will have hard time finding a buyer ready to pay what they paid for it, so they are even in a much worse position that Al Fayed was in 1985.
Why do people do this? I have no idea. There are so many opportunities out there, why do something so irrelevant as this is beyond my understanding. Investing must be unemotional, just because Harrods is for sale or Mona Lisa or Colloseum in Rome is for sale, it doesn't mean anything if the return on your money is not right. We are talking business here and serious amounts of money. There is no room for ego when it comes to investing.
Just imagine if Al Fayed Brothers would buy Coca-Cola shares (KO) in 1985, they would make a return until today (April 6 2013) of 2,640% and their profit would be 16.24 billion GBP (without dividends!) and not 1.89 billion GBP. By not buying KO shares they lost 14.35 billion GBP. Buying Coca-Cola is common sense, it is the safest investment I can think of. Their yield on dividends today would be 90%. Imagine that! Harrods makes net profit of around 100 million GBP today, they would make 550 million GBP net profit with Coca-Cola shares. Lets not forget, Coca-Cola was a much bigger name and easier investment for Al Fayed brothers than Harrods. Apparently, Mohammed Al Fayed source the money for Harrods from Sultan of Brunei for Harrods, so imagine him going to the Sultan and saying "give me 615 million GBP to invest and I will buy Coca-Cola shares and sell them 30 years later." I don't think he would see any money from the Sultan, but buying Harrods, that "sounds" like a better deal, you own the real thing not just some sugared water. The word of business is unbelievable ridiculous and that is why with just some common sense you can make tons of money.
Owning Harrods means nothing in the world of business. Companies that perform and have a collective of intelligent people running them means a whole lot more.
Happy Investing!
Damian
Tuesday, February 19, 2013
Ackman, Icahn and Herbalife
Bill Ackman, hedge fund manager who runs Pershing Square Capital Management made a 1 billion USD short bet against Herbalife (HFL) stock.
He then went public to say that Herbalife is a pyrimadic scheme company. Basically a modern day Ponzi scheme tricking people into believing they will make money selling their products.
Herbalife is just like Amway and Avon, they are multi-level marketing company that sells these products, they say they are great products, but they just sell normal products, nothing special, but make a huge story around their products and motivate people to sell their products by giving them examples of other peoples' successes who on their on now drive Ferraris, villas with swimming pools etc....
In former Yugoslavia, we had a company like that, it still exists today, it's called Zepter. Everybody was selling cooking pots that basically cook the food themselves, it was all a big lie. It had nothing to do with great cooking, it had everything to do with multi-level marketing and money for the few at the top of that ladder. So, I believe, actually I am convinced that Herbalife, Avon and Amway are just like Zepter. Nothing special, no big difference. All of them exist today, even Zepter.
Bill Ackman is 100% right, it is a Pyramid Scheme, and it is a scam. Nevertheless, I don't understand how can you make short bet (that the stock price will go down drastically) and then go public that Herbalife is a scam company. I don't see how SEC can allow something like that.
Carl Icahn, famous Wall Street investor who is long on Herbalife stock, so he bought HLF shares believing the stock will go up, he attacked Bill Ackman for being a cheater, a liar, etc... Obviously, Icahn cares about his money invested in HFL, so he wants to protect his investment, just as Ackman tries to protect his bet against Herbalife.
Who is right?
Overall Ackman is right. Herbalife is a scam and a pyramid scheme.
However, Ackman is also wrong. He made a short bet and then he went public with his vision of Herbalife. I think that is low and I am surprised SEC allows that.
What about Icahn?
He protected his investment by attacking Ackman. He is both right and wrong. I would never ask Icahn for investment advice, simply because he went long with HLF stock, what a terrible judgment of character.
What will happen?
I don't know, but Zepter is still around. I think people don't mind a scam as long as they are sold a story once in a while that they will succeed one day, and whether it is Avon, Herbalife of Zepter, it doesn't really matter, they want to escape their reality for a while and they want to get burned, because promise of money is involved. Just like Casinos, those will never go out of business.
Morally, Ackman is right, but as an investor, he is wrong and he will lose a lot of money on this Herbalife bet. He is also wrong because he was shorting the stock, there is no reason to do this, it is better to look only long, I would much rather own a stock that I believe will return me a huge investment in 20 years then make a short bet that some company will go bust, what a terrible way to invest.
As you see, brothers and sisters, comrades and friends, this is how billions of dollars are used every single day, by people that are no smarter than you. They just make themselves sound smart, but their actions are ridiculous. Smart investing is all about buying a company you want to keep forever.
Happy investing!
Damian
He then went public to say that Herbalife is a pyrimadic scheme company. Basically a modern day Ponzi scheme tricking people into believing they will make money selling their products.
Herbalife is just like Amway and Avon, they are multi-level marketing company that sells these products, they say they are great products, but they just sell normal products, nothing special, but make a huge story around their products and motivate people to sell their products by giving them examples of other peoples' successes who on their on now drive Ferraris, villas with swimming pools etc....
In former Yugoslavia, we had a company like that, it still exists today, it's called Zepter. Everybody was selling cooking pots that basically cook the food themselves, it was all a big lie. It had nothing to do with great cooking, it had everything to do with multi-level marketing and money for the few at the top of that ladder. So, I believe, actually I am convinced that Herbalife, Avon and Amway are just like Zepter. Nothing special, no big difference. All of them exist today, even Zepter.
Bill Ackman is 100% right, it is a Pyramid Scheme, and it is a scam. Nevertheless, I don't understand how can you make short bet (that the stock price will go down drastically) and then go public that Herbalife is a scam company. I don't see how SEC can allow something like that.
Carl Icahn, famous Wall Street investor who is long on Herbalife stock, so he bought HLF shares believing the stock will go up, he attacked Bill Ackman for being a cheater, a liar, etc... Obviously, Icahn cares about his money invested in HFL, so he wants to protect his investment, just as Ackman tries to protect his bet against Herbalife.
Who is right?
Overall Ackman is right. Herbalife is a scam and a pyramid scheme.
However, Ackman is also wrong. He made a short bet and then he went public with his vision of Herbalife. I think that is low and I am surprised SEC allows that.
What about Icahn?
He protected his investment by attacking Ackman. He is both right and wrong. I would never ask Icahn for investment advice, simply because he went long with HLF stock, what a terrible judgment of character.
What will happen?
I don't know, but Zepter is still around. I think people don't mind a scam as long as they are sold a story once in a while that they will succeed one day, and whether it is Avon, Herbalife of Zepter, it doesn't really matter, they want to escape their reality for a while and they want to get burned, because promise of money is involved. Just like Casinos, those will never go out of business.
Morally, Ackman is right, but as an investor, he is wrong and he will lose a lot of money on this Herbalife bet. He is also wrong because he was shorting the stock, there is no reason to do this, it is better to look only long, I would much rather own a stock that I believe will return me a huge investment in 20 years then make a short bet that some company will go bust, what a terrible way to invest.
As you see, brothers and sisters, comrades and friends, this is how billions of dollars are used every single day, by people that are no smarter than you. They just make themselves sound smart, but their actions are ridiculous. Smart investing is all about buying a company you want to keep forever.
Happy investing!
Damian
Saturday, February 16, 2013
CNBC
I don't watch TV. Yesterday, I was at home, I decide to turn on my TV and watch some news. I quickly changed all the channels and came to CNBC. I watched it for 10min and I must say we live in a ridiculous world. It is a theater with actors, everybody seems to know everything yet everything is either a shocking or breaking news, or both. Investing is not a theater, it is a discipline. Without discipline, investing doesn't mean a thing.
If you ever plan to know what is going on in the world of investing, don't watch TV. I suggest reading traditional newspapers, for instance: Financial Times or Wall Street Journal, but most importantly read annual reports. Find a field you really like, like Sports Equipment & Apparel for example, if you understand this business and you are interested to find out more, reading their Annual Reports will be fun. NIKE is a huge company, their Annual Reports are so well written, reading them you can actually learn so much, not just about the numbers, but the culture of their products, their strategies, their marketing, etc... Just please don't watch any TV to find out what is going on in the world of investing. Better yet, don't watch any TV if you want to know what is going on. (period)
Happy investing.
Damian
If you ever plan to know what is going on in the world of investing, don't watch TV. I suggest reading traditional newspapers, for instance: Financial Times or Wall Street Journal, but most importantly read annual reports. Find a field you really like, like Sports Equipment & Apparel for example, if you understand this business and you are interested to find out more, reading their Annual Reports will be fun. NIKE is a huge company, their Annual Reports are so well written, reading them you can actually learn so much, not just about the numbers, but the culture of their products, their strategies, their marketing, etc... Just please don't watch any TV to find out what is going on in the world of investing. Better yet, don't watch any TV if you want to know what is going on. (period)
Happy investing.
Damian
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