Tag Archives: David Gardner

Business, Finance, Occupation & Industry

Revealed: There Might Not Be a Huge Bubble Set to Explode (Our April Fool's Joke Explained)

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By John Reeves and Ilan Moscovitz, The Motley Fool

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It’s time to come clean: We don’t actually have a secret source in Davos, Switzerland, and we aren’t producing batches and batches of Market Goggles.

Yesterday, April 1, was The Motley Fool‘s de facto annual holiday, and our special report, “The Hugest Bubble in History Set to Explode,” was our April Fool’s Day joke. We hope you enjoyed it. (Special thanks to the annoyed readers who, without realizing the day, wrote to chastise us over the word “Hugest” in the headline.)

Bubble, bubble, toil and trouble
With the S&P 500 wrapping up the first quarter at a record high, there are quite a few pundits, of course, who do believe we are experiencing a market bubble right now.

At the website Minyanville, an anonymous source talks of an impending credit crisis, and warns, “When the music stops, there will be no chairs.” The economic forecaster Harry Dent is far more precise, and declares that we’ll have another crash by this summer. And just last Sunday, David Stockman, President Ronald Reagan‘s former budget director, wrote, “When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”

On the other hand, professor Aswath Damodaran, a valuation expert from New York University, recently attempted to value the entire stock market, and he came away thinking “there are good reasons why US stock prices are elevated.” He notes that cash flows are high right now, and growth prospects are encouraging. After completing his valuation exercise, Damodaran intends to “stop worrying about the overall market and go back to finding undervalued companies.”

So, are we in a bubble or not?

We have no idea. It’s likely, however, that the pundits who are predicting a crash in the near future have no idea either.

How much does a chimp charge?
Philip Tetlock, a professor of psychology at the University of Pennsylvania, has studied the performance of pundits, and the results aren’t encouraging. He found that forecasters performed no better than the “proverbial dart-throwing chimp,” and he also discovered that “the more famous the expert, the less accurate his or her predictions tended to be.”

Tetlock did learn that some pundits performed better than others. The better forecasters tended to be “self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence.” The less successful ones were more like our secret source: overconfident, persuasive, and committed to some big, overarching vision.

Insist on accountability
Motley Fool co-founder David Gardner has been talking a lot lately about how we must insist on everyday accountability — whether it’s on a stock pick or a market call — from our financial media. Investors need to be able to know which financial predictions to value, and which ones to discard. That’s why …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

4 Warren Buffett Myths Debunked

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By Steve Symington, The Motley Fool

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Thanks to the 14% rally in shares of Berkshire Hathaway so far this year, CEO Warren Buffett has once again overtaken Spanish retail titan Amancio Ortega as the world’s third-richest person. All told, the Oracle of Omaha now has an eye-popping net worth of approximately $54.6 billion.

It’s only natural, then, for people to explore exactly how Buffett amassed his fortune in their efforts to even partially replicate his success. This widespread speculation, however, has resulted in oft-repeated bits of misinformation. As a result, many retail investors fall victim to persistent myths regarding Buffett’s investing style.

Here are five such misconceptions, and why they’re wrong.

Myth No. 1: Buffett hates share buybacks
In reality, Buffett only loathes poorly executed buybacks, and made as much clear in 2011 when Berkshire announced it would be willing to repurchase its shares at a price of up to 110% of book value. Of course, Buffett fans were understandably confused when that happened, considering it was the first time Buffett had declared his willingness to repurchase Berkshire’s shares since he took the helm in 1965.

Later in 2012, folks were even more confused when Buffett repurchased $1.2 billion of Berkhire’s Class A shares at around 116% of book value, simultaneously raising his limit to 1.2 times. So did this move signal a deterioration of Buffett’s long-standing strict criteria for identifying superior investments? Hardly.

In fact, Buffett circumvented the move when he devoted an entire page of Berkshire’s 2011 shareholder letter to explaining his stance on stock repurchases, with the following paragraph summing things up nicely:

Charlie and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.

Myth No. 2: Buffett only buys cheap stocks 
I find this widespread assumption especially puzzling knowing Buffett himself is often quoted as saying, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

This is exactly how Buffett built his empire and, incidentally, it also helps to reaffirm the notion held by Fool.com co-founder David Gardner that winning businesses tend to keep on winning. That’s not to say Buffett is willing to pay any price for great businesses, but if there’s anyone who knows how to weigh risk versus reward, rest assured it’s him. In the end, the overall quality of the business consistently trumps its price — and rightfully so. 

What’s more, this misconception becomes even more apparent each time Buffett uses Berkshire to acquire new businesses. Sure enough, financial pundits around the world wondered whether Buffett had lost his marbles in 2009 when Berkshire spent $26.3 billion to buy the remaining shares of Burlington Northern at a 30% premium to their value at the time.

More recently, the world thought Uncle Warren went crazy again when Berkshire and 3G Capital acquired Heinz …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

My Top 2 Stocks: Netflix and Intuitive Surgical

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By Anders Bylund, The Motley Fool

ISRG Revenue TTM Chart

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I’m an unabashed growth investor. Not just any old growth, but the kind of earth-shaking hypergrowth that comes with disrupting traditional business ideas. If our Rule Breakers newsletter had a star constellation in the zodiac, I’d be born under it.

So I hope you’re not surprised to learn that 4 of my 15 stock positions come straight from David Gardner‘s growth-focused newsletter. Two more live on David’s side of the scorecard in our Stock Advisor service.

Here’s how I ended up making longtime Stock Advisor pick Netflix my largest holding, and how Rule Breaker Intuitive Surgical became my second-fattest position.

Netflix: Through thick and thin
Video maven Netflix is not just my largest holding but also my oldest. I first got into the stock at $28 per share, way back in 2006. That was when Blockbuster made a serious attempt to kill its newfangled rival, only to fatally weaken its own financial health instead. I had just done several months of intensive research on the movie rental industry, and came away convinced that Netflix had that game in the bag. That’s when I bought my first Netflix shares.

The stock price has multiplied more than five-fold since then, which goes a long way toward explaining its large stature in my portfolio. But that’s not the whole story.

Many investors might have taken their profits and headed for the exits when Netflix traded at $300 per share. I didn’t because I saw even higher values in the years ahead. The all-digital strategy of global domination had barely started to play out in those heady days of early 2011.

Many more might have — and did — run away when Netflix changed its service prices, separated the digital church from its DVD state, and wanted to cram a totally separate DVD service named Qwikster down our throats. This trifecta of management errors played out in a matter of weeks, and the stock lost three-quarters of its value.

I thought about the mistakes and, yes, I briefly considered selling. But CEO Reed Hastings saw the error of his ways, reversed the unforgivable Qwikster mistake (which might have worked just fine in 2013, mind you!), and vowed to tread more carefully when making large changes to the core business plan.

Netflix is still way ahead of the admittedly growing pack of hungry rivals. Everyone wants to rule the just-blossoming era of digital video distribution. So far, only Netflix has found a business model that works, and the company has a lead time of several years as the others figure out its secret sauce for customer satisfaction.

So I stayed. Not only that, but I bought more shares at $83. Hastings has done nothing to lose my long-term trust since then, and I still see outsized value in the stock.

This growth story is just getting started. I’m letting this winner run for the long haul. Quite possibly decades.

Intuitive Surgical: Betting …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

2 Big Reasons to Buy Activision Blizzard

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By Steve Symington, The Motley Fool

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Thanks largely to the positive fallout from its incredible fourth0quarter earnings report last month, shares of gaming specialist Activision Blizzard are up more than 40% so far this year, finally ending a nearly three-year cycle of relatively flat trading during which the market refused to take note of the gaming stalwart’s industry prowess. 

Does this mean, then, that prospective investors have missed the boat? Absolutely not.

To the contrary, investors should have every reason to believe Activision will continue its impressive rise. Fool.com co-founder David Gardner regularly recognizes that winning businesses tend to keep on winning, and in 2012, Activision posted its strongest-ever year, setting records for both GAAP net revenue of $4.86 billion and earnings per share of $1.01.

With that, here are two other big reasons you should consider making Activision part of your portfolio.

All that cash
First of all, Activision managed to generate massive operating cash flow of more than $1.3 billion in 2012. While Activision’s most recent results were certainly helped by unusually strong holiday sales of its games, the company has managed to generate a total of more than $4.8 billion of operating cash flow over the past four years.

In addition, Activision remains intent on returning capital to patient shareholders, as evidenced by its spending $3.8 billion since 2009 on dividends and share repurchases. In fact, just last month the company increased its annual dividend for the third year in a row to its current level of $0.19 per share.

Even so, noting that the company began 2013 with $4.4 billion in cash on its books — more than a quarter of its entire market capitalization, mind you — Activision CFO Dennis Durkin still isn’t content with the company’s efforts to create shareholder value. During the most recent earnings conference call, Durkin said the company “may consider [additional] substantial stock repurchases dividends, acquisitions, licensing, or other non-ordinary course transactions and significant debt refinancing.”

Domination where it counts
Next, while the rest of the world seems obsessed with mobile’s so-called “freemium” games — of the Angry Birds variety with which Zynga built its name — it’s easy to forget that companies such as Zynga struggle mightily only to eke out meager profits.

Meanwhile, Activision doesn’t need to resort to playing online poker to stay afloat. Instead, it’s happy to continue focusing on the tiny details that make its massively popular full-featured games truly great, helping it to dominate the truly profitable core gaming markets.

How, then, does Activision maintain its edge over competitors such as Electronic Arts and Take-Two Interactive ? Rather than relying primarily on the initial sale of its games for profit as EA (with its many sports-centric titles) and Take-Two (with its Grand Theft Auto franchise) do, Activision enjoys massive, predictable streams of recurring subscription revenue from wildly popular games such as World of Warcraft, which boasted more than 9.6 million monthly subscribers at the end of 2012.

Naturally, then, even after all those …read more
Source: FULL ARTICLE at DailyFinance