This Week in Stock Market History

“There is no better teacher than history in determining the future... There are answers worth billions of dollars in a $30 history book.”

― Charles T. Munger, in Poor Charlie’s Almanack

July 18th, 1968 – Intel is Founded

Intel was founded 52 years ago by Robert Noyce and Gordon Moore with $2.5 million in initial capital.

Today, the company is worth nearly $220 billion, giving Intel has one of the best long term track records for investors that I know of (even rivaling Buffett's return over the last 50 years!).

If you want to read more about how Intel was able to do it - the book by Andrew Grove, "Only the Paranoid Survive", is a great place to learn more. Grove became president of Intel in 1979, and CEO in 1987 and remained at the company until the late 1990s. Under his leadership, Intel became one of the most successful chip builders (and one of the best long term investors for investors!) during that period. Under Grove's leadership, Intel's stock rose nearly 400,000%!

Weekly Wisdom

Lessons from the Pets.com Downfall – What’s the Difference Between a Bad Idea and a Good Idea That’s Early?

As internet stocks heat up again for the second time this century, I think it's worth reviewing what lead to the downfall, and successes, of some of the hottest stocks 20 years ago.

What's interesting to me is how much Pets.com struggled, despite being (what turned out to be) such a good idea. Today Chewy, the online pet store, is valued at nearly $20 billion. Even at its peak Pets.com was worth only a fraction of that. And in fact, if Pets.com survived and was worth what Chewy is worth today, it's investors would have had long term returns higher than Microsoft!

But of course, Pets.com did not succeed. In fact, it is the laughing stock of the dot-com bubble still today.

In this post, we look at what went wrong, and what separated Pets.com from companies that survived and thrived after the tech bubble bursting, like Amazon and Priceline.

What We Are Reading This Week

New Book Alert! - Capital Allocation: The Financials of a New England Textile Mill 1955 - 1985

There has been a lot of ink spilled over exhaustively rehashing the same Warren Buffett topics over and over. This new book is not another example of that.

The book focuses on what the businesses Berkshire Hathaway was buying looked like as Buffett was beginning is research. Everyone knows Buffett's purchase of GEICO was great in hindsight, but what did GEICO look like in 1976 when Berkshire made its first investment? The company was on the verge of bankruptcy, and had a $28 million underwriting loss in the first quarter alone.

The stock was at $3 per share, and priced for failure - But Buffett saw something promising. This book does a great job getting inside Buffett's head decades ago, and breaking down the financial statements that Buffett would have been looking at as he decided whether to invest or not.

$300,000 Net Worth at Age 27? Here's How It Can Be Done

Regardless of your opinion on the "FIRE" (Financial Independence, Retire Early) movement, there is no doubt that building up savings can give you flexibility and comfort that most will never have. I thought this thread on Reddit, by a 27 year old immigrant to the U.S. was great. She talks through the details of how she lived her life and hustled for income to build a savings that most in their 20s can only dream of.

If you have time to read it all, there are several great comments as well.

From 1720 to Tesla - FOMO Never Sleeps by Jason Zweig

"A hot stock doubles and then doubles again in a matter of weeks. Thousands of people who have never invested in their lives suddenly try to beat the market.

That isn’t just a description of Tesla - It’s also what happened in 1720...Three hundred years ago, one of the biggest manias in financial history was at its peak."

I'm a reader of anything Jason Zweig writes. He is best known for his Intelligent Investor column in the Wall Street Journal, but this is part of a new column he is debuting called "Back in Business".

This column compares Tesla, one of the hottest stocks today, to the South Sea Bubble, as massive stock market bubble in 1720 that involved Isaac Newton and King George (and of course thousands of other speculators).

Newton would end up losing the equivalent of $3 million during the South Sea bubble, leading him to pen the quote: "I can calculate the movement of stars, but not the madness of men."

Zweig does an excellent job as always in this article reminding you that history can be one of your best guides when investing.

Until next week, take care and happy investing!

-Matt

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