It’s Boring. It’s Safe. And It Works.

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The Almost Magical Powers Of Great Businesses

It’s Boring. It’s Safe. And It Works.

This is Nikos Daily Journal, a free e-letter from Liquid that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.

The LA Lakers were sold for $10 billion… Was it a good deal for the seller? No… Same investment in McDonald’s would be worth $54 billion… Deere & Co. has been around since 1837… Nothing beats owning a great business… Companies are shedding workers at recession rates…

Jerry Buss made a fortune with basketball. 

Various news outlets are reporting the sale of one of America’s leading sports franchises, the Los Angeles Lakers, for $10 billion.

In 1979, Jerry Buss, a real estate developer, bought the LA Lakers, the LA Kings (hockey), and their stadium (the LA Forum) for $68 million. It was a legendary acquisition, as the Lakers won the draft lottery. They picked “Magic” Johnson and were able to immediately win a championship. The Lakers were the dominant NBA team throughout the 1980s.

In terms of sports investments, Jerry Buss’ 1979 acquisition of the Lakers is very hard to beat. Buss turned $68 million into a $10 billion fortune and created one of the world’s best sports brands. Plus, don’t forget, Buss previously sold the LA Kings in 1988. The price was undisclosed, but NHL expansion teams were going for $50 million at the time. And Buss sold the Forum in a separate deal in 2000 for $20 million. 

So let’s round up and say the total cash out in the Lakers deal was $10.1 billion – on a $68 million investment!

Sounds great, doesn’t it?

No. It was a terrible investment, actually. 

It underperformed the S&P 500 by about $3 billion, as a $68 million investment into the S&P 500 in 1979 would now be worth $13 billion. A similar investment into a great business – Coca-Cola (KO), McDonald’s (MCD), Philip Morris International (PM), The Hershey Company (HSY), Deere & Co. (DE) – would have made even more. 

How much more? 

Well, if Buss had invested $68 million in these companies, instead of buying the LA Lakers, he’d have: 

• Coca-Cola: $20.9 billion

• Deere & Co.: $23.0 billion

• McDonald’s: $54.3 billion

• Hershey: $46.9 billion

• Philip Morris / Altria : $134.7 billion

Plus, of course, owning the Lakers wasn’t a passive investment. Buss had to provide the management and, for many years, cover the team’s operating losses. 

Meanwhile, great businesses don’t require any of that effort. Or additional capital. 

Deere has been around since 1837. Just imagine the enormous amount of wealth it has produced for its owners! And think about all of the wars and depressions that it has survived: 

• Mexican-American War (1846)

• Panic of 1857 (failure of The Ohio Life Insurance and Trust Company

• U.S. Civil War (1861)

• Panic of 1873 (Collapse of Jay Cooke & Co.)

• Panic of 1893 (railroad speculation bust; stocks fell 55%)

• Spanish-American War (1898)

• Panic of 1907 (failure of United Copper; impact of San Francisco earthquake)

• World War I (1914)

• Crash of 1929 (Dow Jones Industrial Average fell 89% over three years; national bank holiday; private gold seized)

• World War II (1940)

• 1973-1974 Oil Embargo (Dow fell 45% in nine months; inflation spiked over 10% annually)

• 1982 Recession (short-term interest rates hit 20% to bring inflation under control)

• 1987 Black Monday (Dow falls almost 30% in one day) 

• 2000 Dot-Com Collapse (Nasdaq falls 78%)

• 2008 Global Financial Crisis (Dow falls 54%)

• 2020 COVID Crash

None of these things bothered the owners of Deere. 

We know Deere has been paying a dividend since 1937. And that dividend has never been cut. Over the long term, Deere’s dividend has been growing at 10% annually. And I’d wager that’s going to continue – no matter what happens with Iran, no matter how much money gets invested in artificial intelligence, no matter how much the Nasdaq goes up or down next year. Or over the next 20 years. 

If there’s one thing I hope you will learn from our work at Liquid is that nothing beats owning a great business. 

Over any reasonable time period, owning a great business is the best way to both grow and protect your wealth. 

The best part? Everyone can invest this way. You don’t need any special access. There’s no VIP lane.

Like we showed you recently when we compared Warren Buffett’s private deals to the best public company analog, everyone can invest this way.

It doesn’t take a genius-level IQ to figure out that it’s going to be awfully difficult to replicate Coke’s distribution network and its brands, or that Philip Morris is very likely to dominate the nicotine business for the next 50 years like it has for the last 50 years, or that McDonald’s real estate empire is impossible to replicate, or that most farmers, if given a choice, would rather have a green and yellow tractor.

Sure, it’s boring. It’s so easy anyone can do it. And it’s safe too.

But where’s the fun in that? 

Look, if you’re looking for risk and thrills, go to Vegas. If you’re looking to build a fortress of wealth, then own the world’s best companies.

Here’s a few from our current recommended lists: Philip Morris (PM), Domino’s Pizza (DPZ), Deere & Co. (DE), Diageo (DEO), Nike (NKE), Hershey (HSY), Uber Technologies (UBER), Coca-Cola (KO), McDonald’s (MCD), Caterpillar (CAT), Johnson & Johnson (JNJ), and Nvidia (NVDA).

Another factor that will help ensure success? Look for “Lindy” businesses.

Long-time readers may remember our research into “Lindy” businesses, which are exceptionally long-lived. Deere, as I mentioned, has been around since 1837. InterContinental Hotels (IHG) since 1777. Colgate-Palmolive (CL) since 1806. Procter & Gamble (PG) since 1837. Stanley Black & Decker (SWK) since 1843. Travelers (TRV) since 1853.

No, an old business doesn’t automatically mean a great business, but when you find a great business that’s been around for decades, it’s usually the safest choice.