Where do you protect capital and grow capital? Think back 100 years ago, we had war, inflation, deflation, depression; does it make sense to buy? Putting a million and half dollars into General Mills, it’s worth $37 million before dividend, it is the simple company.
Secondly, Genuine Parts, an auto parts company. I had started following this company in 1967 when he got to Atlanta to visit them, in 1977 putting a million dollars in. Another $35 million plus dividends. The company has no debt today. It will grow to 8% to 10%. If inflation increases, the growth rate steps up.
Where do I put my money? I want to buy lots of good businesses with good cash dividends, and growth. Just think about health and wellness. Think about what will work over the next 10 years (not the next 10 minutes).
Another American innovation and technology is coffee, a technological revolution. The coffee business is $65 billion, had very low growth. All of a sudden, single serve. This happens to be Starbucks (SBUX) but Nestle (NSRGY) dominates the business and everyone else like Green Mountain is coming in with a Keurig and so on. Normally when people think of technology, they think of iPad.
What we do as analysts is that we project out over the next five years the intrinsic value of a company based on the micro and the macro and you adjust. Then you figure out where is the value of the business and miss the market. The psychology of the market on a given day drops sharply lower -- you buy. The price matters in the framework of the return on investment. When you generate a lot of short term gains and you make 15%, you're paying a 40% tax, you keep nine.
If you want to earn a return on your money with inflation at three and you're making zero you're losing 3% a year. But in nominal assets you're doing okay. Where else can I put my short term liquidity and how important is the lack of volatility in my, a certain portion of my asset base? We know — how you going to make money like that? The answer is you don't. You act as a reservoir, safety net and you are basically doing it. What happens if interest rates go to 3% as the short-rate, eventually will be the normal rate, your money market rate will reflect that with a lag.
If i have 100 million customers and I’m Verizon (VZ), do I allow someone to download four Netflix (NFLWX) movies and clog up my highway — they are going to have to charge more. I, as a consumer know as a class a truck going over a bridge through a toll gate will pay more than I in a small vehicle. At some point you have to adjust pricing to handle capacity. Somebody has to get paid to maintain that highway. Secondly they have to come up with new ways to be the gatekeeper for new ideas. Why should Groupon have the right to do what they did and not Verizon?
In 1950 there were seven or eight movie companies. Today, you know, give dream works a little plus, several of the other minor companies. Pixar was a movie company that was part of the Apple (AAPL) organization. How do you do this on a global basis? Content is still king; it gives the consumer what they want when they want it at a price they are willing to pay. Imagine people paid $17.5 per person to see Harry Porter 3d.
The link to the video is here