In 1979 Mohammed Al Fayed purchased Hotel Ritz in Paris for $30 million.
In 2016 a major renovation of the Hotel was completed. 159 rooms.
Average price of the room per night: $950
Nights in a year: 365
Occupancy rate: 85%
Total revenue: $47 million
Total costs: 40% ($19 million)
Net profit before tax: $28 million
Hotel valuation at the yield of 3%: $940 million
Let's say if somebody would offer Mr. Al Fayed $1 billion he would sell the hotel. But let's go back to 1979, if Mr. Al Fayed decided to invest those $30 million into S&P 500 fund, how much he would have today?
S&P 500 fund: $2.4 billion
Coca-Cola: $1.6 billion + dividends ($2.6 billion)
Berkshire Hathaway: $26.6 billion (as the stock price went up 88,670% since 1979)
Obviously recognising the genius of Warren Buffett in 1979 from London/Paris was not an easy task, but recognise the power of American economy in 1979 was easy, no matter where you were located. So again, every major real estate investment that is shown to us a great investment is actually a bad investment. Harrods is a bad investment. Ritz Hotel, bad investment. Every single real estate investment where you were told is great, is actually a bad investment when comparing to S&P 500 over the same period of time.
Monday, March 20, 2017
Tuesday, March 14, 2017
Harrods
In April 2013 I analysed the investment of Qatari Holding purchasing Harrods in May 2010. The purchase price was 1.5 billion GBP (it was $2.3 billion at that time).
OK, so what would've happened if they had invested those $2.3 billion into a S&P 500 index fund? Well, they would have a gain of 100%. So they would have $4.6 billion. Plus on top of that, they would make 1.8% yield every year from dividends. So in 2010 they would have a payment of $41 million in dividends and in 2016 they would have $83 million in dividends. And when converted back into GBP, they would have 3.8 billion GBP.
Is Harrods worth 3.8 billion GBP today? Well let's see shall we?
Apparently Harrods' pre-tax profit for 2016 was around 150 million GBP, sell that at the yield of 5%, they could eventually sell Harrods for 3 billion GBP.
What if they would invest that money into Berkshire Hathaway, how much would $2.6 billion of BRK.B shares be worth in March 2017? Well they would have $5.9 billion or 4.9 billion GBP, but no dividends.
And what if they would have invested that money into Apple? They would have $9.7 billion or 8 billion GBP. Plus from 2012 they would have dividends of 1.6% yield.
And what if they would have invested that money into Amazon? They would have today $16.2 billion or 13.4 billion GBP.
Was it so difficult to recognise the genius of Steve Jobs in May 2010? Was it so difficult to recognise obsession of Jeff Bezos? I don't think so. Time has shown I was right. You can scroll down and read my comments from 4 years ago when I said Harrods was a bad investment. Whoever recommended this investment to them, they should fire them.
I am sorry, but too much money is being wasted on ego, consultants, and wannabe hedge-fund manager who are just after their 2% management fee.
Damian
OK, so what would've happened if they had invested those $2.3 billion into a S&P 500 index fund? Well, they would have a gain of 100%. So they would have $4.6 billion. Plus on top of that, they would make 1.8% yield every year from dividends. So in 2010 they would have a payment of $41 million in dividends and in 2016 they would have $83 million in dividends. And when converted back into GBP, they would have 3.8 billion GBP.
Is Harrods worth 3.8 billion GBP today? Well let's see shall we?
Apparently Harrods' pre-tax profit for 2016 was around 150 million GBP, sell that at the yield of 5%, they could eventually sell Harrods for 3 billion GBP.
What if they would invest that money into Berkshire Hathaway, how much would $2.6 billion of BRK.B shares be worth in March 2017? Well they would have $5.9 billion or 4.9 billion GBP, but no dividends.
And what if they would have invested that money into Apple? They would have $9.7 billion or 8 billion GBP. Plus from 2012 they would have dividends of 1.6% yield.
And what if they would have invested that money into Amazon? They would have today $16.2 billion or 13.4 billion GBP.
Was it so difficult to recognise the genius of Steve Jobs in May 2010? Was it so difficult to recognise obsession of Jeff Bezos? I don't think so. Time has shown I was right. You can scroll down and read my comments from 4 years ago when I said Harrods was a bad investment. Whoever recommended this investment to them, they should fire them.
I am sorry, but too much money is being wasted on ego, consultants, and wannabe hedge-fund manager who are just after their 2% management fee.
Damian
Friday, March 10, 2017
S&P 500
On March 1 2017 S&P 500 reached an all time intraday high of 2,400.98. Just 8 years earlier on March 6 2009 S&P 500 was at intraday low of 666.79. That is a gain of 260% from March 6 2009 to March 1 2017. Think about that for a while. 260% in 8 years. Will we ever see S&P 500 at 1,300 level again? That is the question that nobody can answer. However, with such amazing gains, one should be cautious that they tend to translate into large setback sometime in the future. There is no question that S&P will be significantly lower some time in the future, but by how much and when, nobody can answer. It is good to keep that in mind when you invest. So we cannot time the markets, and anybody that says they can, they are charlatans and you should stay away from. But what you can do is the following, this is the closest you can get to timing the markets:
Invest a little bit every month for the next 36 months.
Let's say you enter the market (through a low cost index fund) with for example $1,000 in March 2017 when S&P is at 2,400. So if the market goes down in the next 3 years to 1,300 level, your average would be less than 2,400 and more than 1,300. Maybe somewhere in the middle at 1,750. That is very good. Now wait 10 years. Will the markets be higher 10 years after they reached the low of 1,300 (or whatever the low will be). Yes, with almost 100% certainty I can tell you that they will be. What if they go up again by 260% from the all time low to the new high of 4,700. What if you wait 20 years, or 30 years? When I was born 35 year ago S&P 500 was at 123. Now it is around 2,400. That is annual compounded interest rate of 8.85%. This is without dividends, but also without inflation, so let's say dividends and inflation cancel themselves out. Now tell me, which institution can guarantee you over 35 years an annual return of 8.85% inflation adjusted? Zero! Only one person can guarantee you this and that is yourself, by reinvesting back into the market over a long period of time. The trick is to start when you are young, preferably not older than 35.
This is what should be taught to the 5th graders in schools. Teach your kids to start at the young age. I am teaching my son this now. Put $10 every month now into a low cost index fund and increase that by 10% every year until you are 65 years old, he would have a pension only reserved for those who are at 0,01% of the Western population, and this is something that over 50% of the western population can afford. Obviously your duty as a parent is to invest this on behalf of your kid(s) until they are 18 years old, after that they will get a habit that will be difficult to get rid off. Compounded interest is one of the strongest forces known to a mankind.
Invest a little bit every month for the next 36 months.
Let's say you enter the market (through a low cost index fund) with for example $1,000 in March 2017 when S&P is at 2,400. So if the market goes down in the next 3 years to 1,300 level, your average would be less than 2,400 and more than 1,300. Maybe somewhere in the middle at 1,750. That is very good. Now wait 10 years. Will the markets be higher 10 years after they reached the low of 1,300 (or whatever the low will be). Yes, with almost 100% certainty I can tell you that they will be. What if they go up again by 260% from the all time low to the new high of 4,700. What if you wait 20 years, or 30 years? When I was born 35 year ago S&P 500 was at 123. Now it is around 2,400. That is annual compounded interest rate of 8.85%. This is without dividends, but also without inflation, so let's say dividends and inflation cancel themselves out. Now tell me, which institution can guarantee you over 35 years an annual return of 8.85% inflation adjusted? Zero! Only one person can guarantee you this and that is yourself, by reinvesting back into the market over a long period of time. The trick is to start when you are young, preferably not older than 35.
This is what should be taught to the 5th graders in schools. Teach your kids to start at the young age. I am teaching my son this now. Put $10 every month now into a low cost index fund and increase that by 10% every year until you are 65 years old, he would have a pension only reserved for those who are at 0,01% of the Western population, and this is something that over 50% of the western population can afford. Obviously your duty as a parent is to invest this on behalf of your kid(s) until they are 18 years old, after that they will get a habit that will be difficult to get rid off. Compounded interest is one of the strongest forces known to a mankind.
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