It’s Been Awhile: Annual Reports, Starcraft II, Playoff Hockey, and Berkshire Hathaway

IMG_1033I must apologize for having been absolutely MIA for the last month. My attention from blogging was pulled away by a plethora of other interests. Namely, reading, video games, the great outdoors, and hockey. I just had no energy left to focus on writing much with all this going on. We’re leaving on our great American road trip tomorrow, with the Berkshire Hathaway Annual Meeting as the end destination. Come check out what’s been going on lately.

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Credit Suisse 2015 Yearbook: How Tobacco Dominated Investment Returns over the Past Century (and other interesting tid bits)

tobacco was the best investment over the previous 100 years 2I felt like a sleep deprived kid on Christmas morning. I was recently perusing the Credit Suisse Global Investment Returns Yearbook 2015 and I was irrationally giddy. Pouring over the research, I couldn’t contain my excitement at the amount of data and graphs that were available. For example, does it surprise you that the “sin” industries of tobacco and alcohol were the best performing industries of the previous century in the US and UK? Did you know their was a high tech shakeup in the 1800s where the scrappy, newborn rail industry turned the old canal industry upside-down on its head? I’ll give you a rundown of the most interest aspects of the report.

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The Readings have been Piling Up

IMG_0995For anyone wondering, sorry about the hiatus recently. The piles of paper have been slowly stacking up on my desk and I have what seems like an infinite list of things to read. Sometimes, after working and reading most of the day, all I want to do in my spare time is play Starcraft 2 mindlessly for hours. This leaves little time for writing here. I need to be more disciplined. I need to change this. I should probably stop playing so much Starcraft. I’m sure I’ll be back writing (interesting?) things soon.

A Quick and Dirty, Back-of-the-Envelope Method for Valuing Berkshire Hathaway

the intrinsic value of berkshire hathawayBerkshire Hathaway is a bit of an anomaly when it comes to conducting a valuation of the business. On the one hand, it is an incredibly complex, and often times secretive, operation where getting exact details of quantitative data can be incredibly difficult. For example, if you peruse the annual reports or 10Ks, the income statement will be presented in a very general sense but not provide details on each individual business unit. However, on the other hand, Warren Buffett has dropped a ton of hints along the way in his annual letters on what he believes is the intrinsic value of the business. Seeing as the most recent annual report has recently come out, Berkshire is on my mind. So let me give you an introduction on how to do a quick and dirty calculation to figure out the intrinsic value of Berkshire Hathaway.

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Case Study: Coca Cola as an Example of Analyzing Investment Opportunity Cost with the Earnings Yield

the earnings yield of coca cola (2)Coca Cola, one of the bluest of the blue chips. This is a foundational pillar of any portfolio. Through good times and bad times, Coke pumps out profits and generates wealth for its owners. It’s an easy business to understand: sugar water. It is a fantastic business. There is nothing quite like it. The returns generated by the selling of sugar water is incredible – consistent return on equity in the 20% range, which means loosely that for every dollar of sugar water Coke sells, they are able to generate 20ish cents of pure profit. But I’m not here to give you an in-depth analysis of Coca Cola today. Instead, I wanted to expand on how using the earnings yield can help you think about opportunity costs. Remember that post on how to think about an asset? Quickly peruse that again as it will be a useful primer for what I am about to go over.

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