Monday, November 09, 2009
In this otherwise excellent WSJ story about "Commodore" Cornelius Vanderbilt's 19th century railroad empire as it relates to Warren Buffet's acquisition of Burlington Northern, in which you learn a lot about the history of the railroads as well as that of the stock market, the little, offhand, parenthetical comment highlighted below has stuck with me...
Mr. Buffett's approach to investment often seems to parallel the Commodore's. Vanderbilt accepted no salary as an executive, but took only the dividends on his personal stock. (In his era, investors expected steady dividends, not rising share prices.)It seems that, back in the olden days when money and credit didn't flow quite as freely as they do today (for better or worse), instead of buying stocks in hopes that the share price would go up, investors bought stocks to get a share of the company's profits in the form of a dividend stream.
To prosper, he had to make his corporations profitable, year after year. He bought lines with permanent advantages—those that ran through developed regions that provided local traffic, for example, and that had low grades, which reduced operating expenses. So, too, does Mr. Buffett look to the long term.
That is, good 'ol fashioned income - a higher stock price was a bonus.
Today, investors use company earnings (real or imagined, since accounting has become much more "flexible" in the last hundred years) to determine whether a stock's price is fair, then they root for that price to go higher while receiving little or nothing in the form of dividends.
Isn't there something fundamentally wrong with this sort of "progress".