3 Things 5-3
05/03/2021 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One It’s Not An Accident, But It’s Not A Guarantee Either Warren Buffet pointed out to the virtual attendees of the annual Berkshire Hathaway shareholders meeting that five of the top six companies in the world by market capitalization are American. In clarifying the significance of that fact he shared a list of the top twenty companies in 1989 versus the top twenty in 2021 (see both below). You’ll notice there were only six US companies on the entire list in 1989 versus 13 today. One of the points Buffet made regarding that fact is that it’s not an accident but rather a credit to our system that American companies have prospered over the last 30 years. But he also added that there are lots of companies that were “the place to be” back then that aren’t on anybody’s radar today. That observation was a reminder of the danger of buying into the hype of stock trading (as opposed to investing) as a way of accumulating wealth. And it was also a reminder that America's greatness, either as an investment opportunity or as a country isn’t guaranteed. In other words, stock prices don’t always go up. So if you’re in the individual stock picking game, do your homework, be patient, and have some humility.
Thing Two If It Sounds Too Good To Be True, It Probably Is I took an inquiry recently from someone who had been approached about a can’t-miss investment opportunity. The essence of the opportunity was this: You put in $300,000 and agree to keep it locked up for 20 years and you receive $49,000 per year and get your $300,000 back at the end of the twenty years. That sounds too good to be true. The quick math on the first year’s “return”, which would be repeated every year, says the investment is guaranteed 16.7% yearly. I don’t know of such an investment (with a guaranteed return that is) for one year, much less twenty. Over the course of 20 years, if the account isn’t touched, other than to deposit the $49,000 annually, the balance will have grown to $1,280,000. The return numbers from this perspective look much tamer. On an annualized basis, that’s roughly 7.5%, which isn’t bad but not record-shattering either when you consider that the S&P 500 has returned closer to 10% annualized over the last 100 years. It turns out in this case that an investment that looks too good to be true in the short term might not be good enough in the long term. As always, buyer beware.
Thing Three Just A Thought "Price is what you pay. Value is what you get. - Warren Buffett