INVESTING WITH CLARITY® BLOG

Say "Cheese" and Smile!

March 30, 2015 4:04:00 PM

InvestIt's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. - Warren Buffet

This past week has been a great week for our clients and other investors of Kraft Foods. Say, Cheese!

For those investors that have not heard, Kraft is being acquired by a combination of Brazil's 3G Capital, Inc. and Warren Buffett's Berkshire Hathaway, Inc. These two had previously come together to acquire Heinz.

For those investors who have followed our blog for the last several years, it should come as no surprise to you that another company that Nepsis has invested in has been purchased. That's what happens sometimes when you own great companies over the long-run!

As the blog title states, Say 'Cheese' and Smile!

You may be asking, as a shareholder of Kraft Foods, why smile? I mean after all, why would we want to see one of the great businesses we own get purchased? Wouldn't we rather continue to own that business over time instead of someone else so that we could receive the benefits of owning a great company and great brand?

Well, great point!

Of course! There is no question that, as long-term investors, having one of our great businesses being bought out inhibits our ability to take advantage of owning that company long-term! However, in the case of Kraft, we get the best of both worlds!

First, we get to continue to own an iconic brand (always a key to successful investing!). Second, we now get the opportunity to take advantage of partnering with another iconic brand, Heinz, and the leadership and experience of the management team to build a stronger company and brand. This is a tremendous opportunity for our clients and owners of Kraft Foods!

Frankly, there are a lot of lessons that can be learned for investors in the purchase of Kraft.

As I have often said, the key to successful investing is time owning a company, not iming a company.

Meaning, be an investor in a great business over time and continue to invest in that company over time by investing more into the company when the price is weak.

Ironically, when you look at a chart of Kraft over the last year, it would probably frustrate the short term thinker. After all, a year ago, Kraft was trading around $55 a share and bouncing around only to be trading around $62 when the announcement came last week.

Why is this important? As I have often said, stock prices do not necessarily go straight up. Frankly, thank goodness! After all, it is the volatility of a stock price that provides the great opportunity to continue to invest in that business over time.

In the case of Kraft, certainly, there is excitement over the buyout all over the place.

However, as investors continue to look for opportunities while the overall stock market is fairly valued and many company's stock prices may be stretched, it is periods like this that create great opportunities for investors to stick to the knitting and continue to look for great businesses to own long-term when there is weakness in the overall market.

So, I say to our clients, say cheese! Enjoy the short-term move in the value of your ownership in Kraft. But buckle up, because in my opinion, there are going to be a lot more investors smiling and saying cheese in the long run!

 

Mark Pearson

 


Mark Pearson

Mark Pearson

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