- Identify Danger.
- Clean out dangerous positions and lowest forward internal rates of return.
- Favor larger cash and short term holdings.
- Come to the Crescent and meet the team for a strategy session.
The parent company of Snapchat successfully launched its initial public offering of stock. Here are the key facts:
$24 billion valuation on a 12 month loss of $515 million and trailing revenue just $405 million.
Priced at $17 for lucky recipients of initial shares, the stock traded firmly above $20.
The extraordinary valuation for a company that is losing money is a warning signal for equity investors and equity index investors. One reason for the spike in SNAP’s price from apparent loft valuation to potentially ridiculous on the first day is that, by definition, index funds are required to add initial public offerings to the appropriate indexes within a reasonable period of time.
Each week the research for the NetWorth Radio broadcast begins with the earnest question: How do we help you, the listener, improve reliability and investment profits. The reason that NetWorth Radio is unique centers on the relationship between financial news headlines and investment strategy. A great example is the predictions that a Trump election would result in a market correction. At this point, clearly, those headlines were a head fake. Investors are constantly exposed to Ron Paul, Stansberry Research and those who predict dire implosions in an attempt to sell publications.
This week began with the release of famed investor Warren Buffett’s Berkshire Hathaway annual report including the much read shareholder letter. Alex Tollen ran a report to compare MGAM performance* with Berkshire Hathaway shares** over the past 9 years. We are pleased to report that we won***! Past performance is not a guarantee of future success, but it is nice to know that the results we have produced for the clients and listeners stacks up nicely against Mr. Buffett’s results.
A key difference is that Berkshire Hathaway does not pay a spendable dividend requiring some investors to “eat their seed corn” during inevitable price declines. MGAM portfolios provide spendable cash flow as a significant part of the return making our trademarked disciplines, in my opinion, a superior choice for retiring and retired investors. With record index highs occurring for nearly 3 weeks in a row, animal spirits and performance chasing appear to be driving investment decisions.
This week’s program examines the apparent recalculation of equity valuations based upon lower corporate taxes. Too much too soon? NetWorth Radio will provide strategy updates on asset categories: safety and income, high cash flow, and growth with income.
*Report A includes only accounts that have been actively open since 12/31/2007 through 12/31/2016. Report B includes all accounts, including accounts opened and closed during the stated timeframe, since 12/31/2007 through 12/31/2016. Past performance is not indicative of future results, all information is unaudited and additional information is available upon request.
**The shares used for comparison were Berkshire Hathaway Class A shares with closing price dates of 12/31/2007 and 12/31/2016 from Bloomberg LP to evaluate stock increase.
***The difference between Berkshire Hathaway Class A shares increase and the increase of Report A for the nine year timeframe; The difference between Berkshire Hathaway Class A share increase and the increase of Report B for the nine year timeframe. Past performance is not indicative of future results, all information is unaudited and additional information is available upon request.
Headline Round Up!
*Is Snap Worth 2X Facebook?
*JOBS! Jobless Claims Hit 44 Year Low!
*ExxonMobil Shifts Strategy Towards Shale. What investors need to know now.
*Distressed Debt Markets?
*Consumer Confidence! Overconfidence?
*Home Price Update: Dallas 5th out of 20 Cities.
*The Amazon Curse: Target Unprofitable, Many Retailers on Death Row.
*Federal Reserve Meeting in March. What this Week’s T-Bill Activity Tells About the Future.
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