Category Archive for: ‘Newsletter’
In our internet connected world, great ideas and dashes of capitalism are a recipe for rip-roaring increases in revenue, and few compare with Amazon. With Amazon’s proposed purchase of Whole Foods, we assess what investors might be thinking when owning companies producing little in cash profits, often with risks that aren’t immediately apparent. At Hamilton Point we have done well sticking to businesses that produce sufficient cash to justify owning the shares, and Amazon is not one of them. Just-the-same, we mustn’t ignore Amazon’s disruptive approach and its potential effect on investment decisions we make.
In the late 1970s, one of your writers started working his first white-collar job at One Wall Street for Irving Trust Company. In this newsletter, we reminisce about a lesson learned at a two-day Irving Trust corporate finance seminar in 1979 that featured expert views on subjects ranging from newfangled money market funds and commercial paper (imagine such exotica!) to deeper topics such as venture capital and buyouts. One lasting and simple concept about investing was discussed and will be recalled here since it has timeless application for any investment opportunity—especially as we witness a spate of so-called “unicorn” Initial Public Offerings, the latest being Snap, Inc. (d.b.a. Snapchat).
Many public companies generate more cash from their operations than reasonably needed for future business investments, and an increasing number have been returning excess cash to shareholders via share buybacks. Hamilton Point’s quality-focused investment philosophy leads us to own certain of these publicly-traded companies that are, if you look closely, slowly “going private” by regularly buying back a portion of their shares. The incidence of share repurchases by public companies has been significant in size of late and worth discussing since buybacks can either be a great idea or altogether unwise.
Recent data revealed that Americans drove just over three trillion miles in 2015, an increase of 3.5% over the prior year. Disturbingly, deaths due to highway accidents rose 7.2% over the same period(1). Paralleling this news is heavy experimentation with autonomous/driverless cars that may change transportation as we know it. As we explore this subject, we learn that driverless cars—like many innovations, including those in finance—offer benefits as well as risks in the effort to protect humans from our bad behavior.
One of our passions at Hamilton Point is to lay bare insincere Wall Street habits—one of which is for firms to brag about how many assets they manage. One such trick is to express assets managed as a fraction of something much larger—like, “we manage half of a trillion dollars.” Our point goes beyond the unnecessary embellishment and includes our strong belief that many firms—when boasting about their size—are actually advertising their biggest weakness, which is that they are too big to serve clients effectively.