Sunday, 21 May 2017

Why Magellan Midstream Partners is one of the best dividend growth opportunities for 2017

Energy output has boomed across the country, and this little-known dividend stock could make investors a fortune.

New technologies have unlocked billions of barrels of oil and gas, even at prices that were once unthinkable. Traders betting the farm on drilling stocks over the past few months earned themselves overnight windfalls.

But when it comes to energy investing, the real money isn’t always in the firms doing the grunt work. “Pick-and-shovel” businesses provide the vital tools and services to a booming industry. Rather than taking the “all-or-nothing” route of searching for the next big strike, selling rigs, gear, and equipment can be a safer (and more lucrative) way to profit.

One of my favorites? Magellan Midstream Partners, L.P. (NYSE:MMP). This partnership owns pipelines, terminals, and processing plants across the country. And while it doesn’t get a lot of interest in the press, it’s one of my top dividend growth stocks for a couple of reasons.

The Top Dividend Stock of 2017?

First, Magellan is on the front lines of “Oil Boom 2.0.”

After a two-year price war with the Organization of the Petroleum Exporting Countries (OPEC), the worst may be over for the U.S. energy patch. American oil producers haven’t just survived the downturn. Rather, they’ve emerged as lean operating machines, which can turn a profit even at low commodity prices.

The West Texas Permian Basin has led this comeback. Frackers have raced to ramp up production over the past year, more than doubling the number of rigs operating in the area. That forced the Energy Information Agency to boost its forecast for U.S. oil production, with output expected to hit a record 9.3-million barrels per day (BPD) by the end of 2018.

It’s good news for suppliers. The boom has created shortages for everything from drilling fluid to rig equipment. In shale country, truck drivers pull down $80,000 per year.

Surging production means more demand for energy related infrastructure, too. You have a desperate need for more pipelines, storage tanks, and processing facilities. Some analysts think that Permian output could outstrip pipeline capacity by the end of 2017.

Magellan has positioned itself right smack-dab in the middle of this boom.

The partnership owns 14,000 miles of pipelines across the Midwest. These lines act like the toll roads of the energy industry, shipping crude from wellhead to market. While wildcatters bet everything on the next big strike, Magellan earns steady fees on each barrel coming out of the ground.

Management has poured millions to expand operations in the region. A newly built pipeline origin point at Bryan, Texas will add another route out of the Permian. The expansion of the partnership’s BridgeTex Pipeline network will increase capacity to 400,000 BPD, shipping West Texas Permian crude to refineries on the Gulf of Mexico.

Executives also wants to build a marine terminal in Pasadena, Texas. The facility will hold one-million barrels of refined products like gasoline, jet fuel, and heating oil. And while the project still needs the green light from regulatory officials, management expects the terminal to begin operations by early 2019.

All of which provides a nice tailwind for Magellan. Executives reaffirmed their earnings guidance on a conference call last week, projecting another round of record profits and distributable cashflows.

Most of those distributable cashflows should get passed on to owners.

Since 2001, Magellan has hiked its payout by about 12% per year. If you had bought and held the stock over that time, your yield on cost would now top 115%.

Today, the partnership sports one of the highest payouts around. Last quarter, management mailed out a distribution of $0.87. On a full-year basis, that represents a tidy yield of 4.7%.

That payout should keep growing. Going forward, management expects to increase the partnership’s distribution by eight percent in 2017. Owners can likely count on a growing stream of income for years to come, especially given the boom in West Texas.



Source: “Evercore ISI Energy Summit,” Magellan Midstream Partners, L.P.

Of course, you can’t call Magellan a sure thing.

Another leg down in oil prices could cut the energy boom out from the knees. Higher interest rates would crimp the unit price, as investors flee risky equities for safer bonds.

That said, I’m not super worried.

Magellan earns most of its profits from tariffs. As a result, these cash flows resemble bond coupons. While oil prices can swing wildly from year to year, the actual volume of crude moving through the oil patch stays fairly consistent.

This payout is also one of the more dependable around. The partnership earns $1.20 in distributable cash flow for every dollar paid out to unitholders. This gives management plenty of buffer room in the event of a downturn.

Executives have also taken a near prudish approach to debt. Other MLPs got into trouble during the last cycle by over extending their balance sheets. Magellan, in contrast, has only $3.51 in net debt for every dollar generated in EBITDA. This leverage ratio represents one of the most conservative in the industry and has allowed management to sail through any downturn.

You can see this model pay off in the company’s financial results; Magellan has never skipped a single payment to unitholders. Through the two recent downturns in the oil patch, executives even managed to increase the distribution.

The Bottom Line on Magellan

Get ready for Oil Boom 2.0.

These drillers have trimmed a lot of the fat from their businesses. If oil prices stay above $50.00 a barrel, output could surge again over the next few years.

Income investors, however, don’t need to bet the farm. Rather than trying to strike it rich on the next gusher, “pick-and-shovel” plays like pipelines provide the surer, safer way to profit. For this reason, Magellan Midstream Partners represents one of my best dividend growth stocks for 2017.

Sunday, 30 April 2017

Be the investor you wish your grandparents could have been.

How many of you wish that your grandpa bought $1,000 worth of General Electric stock during the Great Depression that would be generating $400,000+ in dividends today, allowing you to buy homes outright, fund children’s education by writing checks, and most importantly, inherit the “life infrastructure” that would allow you to dare to be great and pursue your dreams without making decisions based on scraping by and getting the bills paid.

Or maybe you wish your grandpa hid a couple hundred shares of AT&T stock certificates in the sock drawer sixty years ago so that you would be collecting over half a million dollars in annual dividends that you could use to jumpstart your own art museum that would allow you to have almost $150,000 coming your way every ninety days so that you could spend your life purchasing artwork around the world and sharing the beauty with others. That entire lifestyle could have been created *if* your grandmother or grandfather had the foresight to set aside some money that they would not interfere with, opting instead to let compounding work its magical touch.

Once you give a cash-generating asset over 20+ years to run, you will begin to see how even folks earnings a middle-class salary can get on their way to becoming Rockefeller lites.

Consider these scenarios:

If you put $10,000 into Procter & Gamble in the summer of 1970, you’d have $1,750,000 today.

If you put $10,000 into Johnson & Johnson in the summer of 1970, you’d have $2,019,000 today.

If you put $10,000 into Coca-Cola in the summer of 1970, you’d have $1,840,000 today.

If you put $10,000 into Exxon Mobil in the summer of 1970, you’d have $3,980,000 today.


If you put $10,000 into Chevron in the summer of 1970, you’d have $2,150,000 today.

(As an aside: in case you wonder why Exxon and Chevron did so well relative to the other stocks on the list, there is one main differential: the reinvestment of dividends. For much of oil’s industry, it paid a high dividend based on its trading price. You know how BP and Shell have dividends around 5% most of the time? Well, that’s how Exxon and Chevron used to be most of the time, before they began executing buyback programs in addition to dividends. Furthermore, oil stocks rarely get overvalued. Most of the time, you are reinvesting into them at a fair
market price or a slight overvaluation. Over the course of decades, this effect can become substantial as you see above.


The question then becomes: If you wish that your grandparents did something like this for you, then why don’t you be the one you wish your grandparent could have been? Imagine if you took $12,000, set up a trust with the instruction that $2,000 gets put into Colgate, $2,000 gets put into Coca-Cola, $2,000 gets put into Nestle, $2,000 gets put into Exxon, $2,000 gets put into Procter & Gamble, and $2,000 gets put into Johnson & Johnson. That would be a hell of a present for your grandchild in 40-60 years.

Almost everyone you will encounter in your life does not think like this, especially if they are in their 20s and 30s. But if you dare to be great, instead of doing what everyone else is doing, these are the kinds of decisions you can make that will change the entire trajectory and realm of possibilities for your children and their children.

Some people are scared of long-term investing because they think they the stocks they buy might fail. But remember this: even if you bought $10,000 worth of Coca-Cola stock in 1970 and made four $10,000 investments that went entirely bankrupt, you still would have turned $50,000 into $1.84 million. You only need one successful long-term investment over the decades to make your financial life enormously successful. In the words of my financial hero Charlie Munger, “You only have to get rich once.” Why not do something, no matter how small, that gives you a fighting chance to participate in the wondrous effects of compounding 8-12% growth over the decades?

Full disclosure: Long JnJ, KO, Shell & XOM.

Sunday, 23 April 2017

Why shareholders come first

In one of the great twists of 20th century American capitalism, Henry Ford’s attempt to support employees of The Ford Motor Company and the city of Detroit back in 1916 had the unintended side effect of creating case law that put the shareholder returns of the company ahead of all other interests.
Most of us today are used to the notion of measuring dividend yield according to the prevailing price of the stock. If Philip Morris pays out a $4.08 dividend, and the price of the stock is $87.32 per share, we would say that the current dividend yield on the stock is 4.67%. Unless you really get into this stuff, you’re probably not inclined to think “Philip Morris has 1.5 billion shares paying out $6.12 billion.” The concept expressed relates to the same elements, but we often choose to relate the income generated compared to the current price because we are interested in what can be generated by an investment if we buy it today.

That is not how American investors thought in the 1910s. Back then, investors spoke in terms of “capital stock.” It is a nearly identical term used to refer to the cash or property used as the “financial basis to enact and prosecute a business of corporation.” If you wanted to become an owner of a business, you would either give money, a home, or farmland to the businessman that was bringing the company public and in exchange you would receive partial ownership of the business.

If you wanted to become an early owner of Ford Motor Company Capital Stock in 1911, Henry Ford made the company public to the American people under the following terms: 20,000 shares of stock existed with a total capital stock value of $2,000,000. If you wanted a share, you had to pay $100 in 1911. In today’s dollars, that was around $5,800 per share. Under the Articles of Incorporation for the capital stock, Henry Ford promised to pay 5% dividend on that $2,000,000 in capital stock each year. If you owned a share, you would get $5 per year, and Henry Ford would direct the agents of Ford Motor Company to pay dividends on the capital stock so that you would receive a $0.416 capital stock dividend each month.

At the time, The Ford Motor Company was making 18,664 cars per year and was making $4,521,509 in profits. He was only on the hook for paying capital stockholders $100,000 per year, so it is easy to see why he had a replenishing war chest of cash to grow his enterprise. Even after going public, Henry Ford still owned 11,600 shares of capital stock, for about 58% of the company.

There was one thing Henry Ford loved more than seeing black Model T Fords fill the scenic landscape of the Rust Belt: drenching himself in capital stock dividends. As Ford Motor Company grew, Henry Ford used his authority as the President of the firm to make special dividend payments on the capital stock so that he could begin converting all of those lucrative automobile sales into cash on his family’s balance sheet.

The next five years of Henry Ford’s life were extraordinary, from an income generation point of view. He declared $1,000,000 in special dividends on those 20,000 shares in December of 2011. By May of 1912, he declared another $2,000,000. Two months later, another $2,000,000. The following June? A monster $10,000,000 special dividend. In May, June, and July of 2013, Ford made $2,000,000 special dividend payments in each of those periods. By August of 1914, the special dividend grew to $3,000,000. Then, another exceptionally large dividend of $10,000,000 in May 2015, followed by a $5,000,000 special dividend in October 1915. Between 1911, and 1915, Henry Ford ordered the Ford Motor Company to pay out $41,000,000 in special dividends on $2,000,000 in capital stock of the company.
This growth in special dividends was backed by real growth in Detroit’s automotive-producing capacity. By the end of 2015, Ford was producing 264,351 cars and making $24,641,423 in profit per ten months (back then, counting Christmas sales seemed like cheating because they were so unusually high, so especially ethical businessmen would provide ten-month profit figures to give a feel for the business in ordinary times without the gift-giving season boost.)
Although Henry Ford himself owned 58% of the capital stock, and dominated the firm so thoroughly through the sheer force of his personality, he was not legally the entire company. There were other shareholders, and the most prominent were the Dodge brothers–John and Horace. The Dodge brothers voted the same on all corporate matters, and together controlled 2,000 shares of the capital stock, or 10% of the company. These guys made some of the easiest passive income in the 20th century–they sat by while Ford mailed them $4,100,000 cumulatively between 1911 and 1915. Each brother collected $2,050,000 in special dividend income from the capital stock over a five-year period, and that is the current equivalent of receiving $111 million.

Despite receiving torrents of wealth passively while Henry Ford did all the hard work of growing the car business, the Dodge brothers were never quite happy with their status in the company. Henry Ford did whatever the heck he wanted, and never consulted them for administration advice regarding the firm. What was that line they used to say about the Yankees’ minority owners under George Steinbrenner? Something about never truly knowing the meaning of being a silent partner until running a corporation majority-owned by the late New York baseball owner. The Dodge brothers felt disrespected, and quietly built resentment against Henry Ford even as he mailed them special dividend checks galaxies above their expectations at the time of making the investment.
In 1916, the Dodge brothers saw their opening to exact revenge against Henry Ford. On July 31, 1916, John and Horace Dodge were horrified to open the Detroit Free Press and see Henry Ford’s declaration that the Ford Motor Company would stop all special dividends, only pay the 5% dividend on the capital stock that was required, and reinvest all earnings back into the corporation.

Specifically, Henry Ford said, “My ambition is to employ still more men; to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this, we are putting the greatest share of our profits back into the business.” The spigot had been shut off. That $4.1 million collected by the Dodge Brothers over five years, for an average of $820,000 per year, had been reduced to $10,000 per year at the seeming whim of Henry Ford.

The Dodge brothers sued, arguing that Henry Ford exercised his powers arbitrarily, and had decided to run the Ford Motor Company as a charity rather than as a profitable enterprise. The trial court judge in Wayne County, the Honorable George S. Hosmer, agreed with the Dodge brothers that Henry Ford was not driven by shareholder value, noting: “The record, and especially the testimony of Mr. Ford, convinces that he has to some extent the attitude towards shareholders of one who has dispensed and distributed to them large gains and that they should be content to take what he chooses to give. His testimony creates the impression, also, that he thinks the Ford Motor Company has made too much money, has had too large profits, and that, although large profits might be still earned, a sharing of them with the public, by reducing the price of the output of the company, ought to be undertaken.”

Henry Ford’s braggadocio put him in a position unlike any other previous corporate executive. If an American executive wanted to reward employees or donate to charity, he would often justify it through the lens of shareholders returns. He would state charity would generate goodwill and drive sales, or argue that increased employees would build more and grow profits so that special dividends would be higher at some date in the future. But that is not what Henry Ford said at the trial court in Wayne County back in 1916–he said he needed to hire more people and give back to the Detroit community because he had made too much money easily, and the shareholders were being ungrateful and lecherous in demanding more, more, more from the Ford Motor Company. Ford was emphatic in saying that the shareholders had gotten too much, and it was time to think of somebody else.
By the time Ford’s words were reviewed at the Michigan Supreme Court in 2016, the remaining question was: What should happen when the President of a publicly held American company spends the funds of the corporation with no purpose of developing future shareholder returns?
The Michigan Supreme Court gave the following ruling: “A business corporation is organized primarily for the profit of the stockholders, and the discretion of the directors is to be exercised in the choice of means to attain that end, and does not extend to the reduction of profits or the nondistribution of profits among stockholders in order to benefit the public, making the profits of the stockholders incidental thereto.”
The remedy for the Dodge brothers? The Michigan Supreme Court affirmed Judge Hosmer’s ruling that Ford Motor Company must pay out a $19,000,000 dividend to shareholders because the Ford Motor Company showed that it had $54,000,000 in cash with an expected $60,000,000 in profits and expected manufacturing and employment growth expenses of $24,000,000.
It is interesting that the Michigan Supreme Court did not force Henry Ford to lay off employees or forbid him from hiring extra workers. This sentiment reflects the notion that the American judiciary is uncomfortable with telling executives how to run their business–it would be quite the interference to try and figure out whether Ford needed 25,000 employees, 35,000 employees, or 50,000 employees.

But it did establish the concept of shareholder primacy. People always wonder: How come public company executives never say they are doing a good thing simply because they believe it is the moral thing to do? Why not say “Screw it, we are donating $10,000,000 to fight homelessness in our community because it is right, and we must do it.” The answer is that the lawsuit filed by the Dodge brothers in 1916 is still good law in Michigan, and has been expanded throughout every state except Louisiana since then.

Although I find Henry Ford far more sympathetic than the Dodge brothers, I agree with the Michigan Supreme Court’s ruling. The issue for me comes down to authority. When a corporate executive does something like donate to charity, he is not merely spending his money–he is spending other people’s money. If Henry Ford donated $1,000,000 to charity in 1916, he would be donating $580,000 of his own money and $420,000 of other people’s money. People don’t buy publicly traded stock because they want it to be charitable; they want it to generate profits that can be retraced back to them so they can spend it as they wish–and hopefully, of their own volition, they will donate some of that money to charity if they are able.

But the concern is that people have different preferences based on communities and types of charities to support. Henry Ford may want to support Detroit; you may want to support St. Louis, Missouri. Henry Ford may have wanted to support a homeless shelter; you may have wanted to support a scholarship fund at Washington & Lee University. Or, you may have been investing in the publicly traded common stock to generate a profit that could one day pay off your home, fund your retirement, and permit you to upgrade your wardrobe and afford better food. Henry Ford shouldn’t get to spend the 42% of the company’s funds for recreational purposes–he is a steward on their behalf and should take it seriously to act in the collective interest of all shareholders.

The life of Henry Ford is far more impressive than that of the Dodge brothers. Throughout their lives, the Dodge brothers wanted more, more, more and didn’t enter the game themselves but rather profited off of the others that went into the battlefield on their behalf. Henry Ford had a dream and made it real, and he had a very real style and signature personality that enabled himself to be both authentic and fabulously wealthy–something very few men achieve. But on the issue of spending funds for no corporate purpose, Ford was a bit off. It wasn’t his money to spend, and his honesty is to be commended–but it also provided the opportunity for the courts to mandate that corporate executives must make decisions driven by shareholders rather than employees, charities, or society at large.

Saturday, 15 April 2017

Warren Buffett’s Coca-Cola Dividends

When Warren Buffett purchased Coca-Cola stock, a purchase that took place between 1987 and 1994 with the most intensive buying occurring in 1988 and 1989, he managed to acquired 400 million shares at an average price of $3.25 per share. Discussions of this successful investment focus on the fact that the $3.25 has grown into $42 over a 20+ year time span.
What gets less attention are the dividend payouts which are sent to Berkshire’s headquarters as cold, hard cash. Every 90 days, Warren Buffett receives 10% of his initial purchase price back when he gets sent a check for $140,000,000.

The superficially exciting number will be when Coca-Cola’s quarterly dividend hits or crosses the $0.8125 mark sometime in the early 2020s. That will mark the moment when Berkshire Hathaway shareholders collect as much in a given year from their dividends as Buffett initially made to fund the investment. It is not an economically perfect comparison, as you would have to adjust it for inflation, but the quirk of the mind that makes us think in terms of nominal dollars is as good a moment as any to reflect on the lessons from this investment.

If you find a thriving business while it is in its prime, it is stunningly foolish to sell it because it gets a bit overvalued or it goes through a rough period. I suspect the shareholders of Colgate-Palmolive and Nike right now will find themselves in a position in the 2040s that Warren Buffett and Berkshire Hathaway shareholders currently enjoy with Coca-Cola.

According to Yahoo Finance (take it with a few grains of salt!), Warren Buffett’s share count in Coca-Cola would be 1.2 billion right now if he had been reinvesting along the way (of course, reinvesting really just means taking the cash dividend and putting an open market order for more shares every ninety days). At that point, he’d be collecting $1.6 billion per year in Coca-Cola dividends. It’s monopoly money any way you run the calculations, but the results get even more extreme when you apply the three-fold share count multiplier that dividend reinvestment would have produced.
I am thankful that Warren Buffett has held Coca-Cola for all of these decades. It is just about the only publicly known example of a business buying a stake in another publicly traded corporation and holding it in true buy-and-hold fashion. Otherwise, you are limited to the abstract studies of what could have happened. I think this staggering results of a long-term Coca-Cola investment in terms of dividend income alone is important to keep in mind if you are tempted to sell your stake in a business that presently appears to be moderately overvalued. If you have chosen the business well, a small bit of compression is still worth the trade-off in order to achieve an end-game like Buffett has with Coke.
Full disclosure: Long KO

Sunday, 9 April 2017

Why do the rich hoard so many cash?

During the 2008-2009 financial crisis, approximately 1 out of 7 millionaire households liquidated 20% or more of their portfolios. The rest either stayed the course, refusing to part with their acquired assets at firesale prices or recognized the bargains that existed and bought more.
How is this possible? There are quite a few causes, and one of them is cash.
Compared to the middle and upper class, millionaire households have the liquidity to endure crises at an extremely high level.
In fact, devotion to high cash balances is one of the few major differences between households of professionals and entrepreneurs.
In the Brookings white paper “The Wealthy Hand-to-Mouth”, author Greg Kaplan points out that an astounding 83% of professionals earning salaries between $85,000 and $215,000 have less than one month’s cash available. The rest is spent or invested. The advantage is that money gets put to work and started compounding quicker, but the downside is that any loss of employment will almost immediately require the sale of assets on whatever terms Mr. Market is willing to offer. Considering that job loss correlates with recessions which correlates with stock market declines, the loss of employment may very well occur at a time when assets are selling at a discount.

Entrepreneurs, specifically the owners of local businesses, keep on average 27% of their wealth in cash. Hyper aware of how profits fluctuate at their own business, this segment of society knows how devastating a liquidity crunch can be to personal finances.
Psychologically, think about how much different the process of an economic recession–both in the employment and the investment markets–plays out when you enter it fully equipped with a large stash of cash.

First, the stock market itself takes a more limited toll on your net worth.
If you have a $1,000,000 portfolio at the time a recession hits and takes away 36% of the stock market’s value, like we saw from the summer of 2007 through the spring of 2009, you have to stare at a $640,000 balance. This is the experience of the professional living hand to mouth.
On the other hand, imagine you’re the business owner sitting on the 27% cash position–you enter the recession with $270,000 in cash and $730,000 in a broad distribution of equities. When the recession strikes, the stock portion is cut down to $467,200 while the cash position remains unscathed. Their net worth low is $737,200 rather than $640,000. If their money is collecting interest, the figure is $742,600. The cash position acts as a shock absorber that makes your net worth a tenth higher than what it would be under the full investment scenario.
But more importantly, the difference between the two arises in the degree of offense you’re able to play when opportunity strikes.
If you are the professional in the hand-to-mouth scenario, there is not much you can do to increase your capital available for investments when bargains present themselves. You can only take advantage of the deals in a limited way–whatever surplus you collect from your salary every two weeks.

But the entrepreneurs that fall within the 27% cash position in ordinary times have the ability to really ratchet up their net worth by leaning on their cash hoard. A $270,000 investment during the recession would be worth $950,000 today. If that money were instead fully invested in the hand-to-mouth scenario and never sold, the $270,000 would have grown to $513,000. Of course, the $950,000 figure should be regarded as a theoretical maximum because I am not suggesting that the entirety of a cash hoard be deployed during a recession, but it is a demonstration how the savvy use of cash can ward off the full extent of volatility while also goosing long-term total returns.
It is an underreported aspect of financial planning because it is behaviorally focused. Generally speaking, the white papers published in-house at Credit Suisse or JP Morgan are correct when they point out that lump-sum investing as soon as capital is available will lead to a higher net worth. The glaring exception is when a recession follows shortly after the lump sum investment or cash is deployed judiciously during a period in which asset prices are distressed. 

But these studies also ignore the behavioral satisfaction that occurs when you have cash available to deploy. If you are fully invested, you have to crouch a bit and hunker down to wait for the bad times to pass. When cash is available during these circumstances, the question for the family is: “What opportunity do we want to take advantage of next?” Large cash positions enable you to stand up straight and strut a bit in a way that illiquid households cannot fathom during economic distress.

Thursday, 16 March 2017

The History of Johnson & Johnson

 I have a soft spot for Johnson & Johnson.  What many investors don’t realize is that Johnson & Johnson proper doesn’t actually do anything in the sense that most people think it does.  Rather, it’s a holding company with controlling stakes in 265 individual operating businesses; firms with their own executives, employees, boards of directors, bank accounts, offices, products, and services that do business in every country on the planet.  The parent holding company’s job is to provide operational support for these subsidiary companies, including sourcing low-cost capital through borrowings (it is one of only three industrial businesses with an AAA credit score) and moving money from one to another in a way that allows lucrative opportunities to be seized; e.g., distributions can be declared from a profitable, but slow growing company, and dumped into a new idea that needs to scale quickly.  The holding company itself has increased the dividend payable per share to its stockholders every year, without exception, for 52 years; through recessions, wars, inflation, you name it.
The 265 individual companies that fall under the parent Johnson & Johnson holding company umbrella generally belong to one of three categories:
  • Consumer Healthcare: Things like baby powder, baby shampoo, baby lotion, Listerine mouth wash, Tylenol pain reliever, Rogaine hair loss treatment, Band-Aid bandages, Aveeno face washes, Neutrogena skin care, Lubriderm skin care, Bengay muscle relaxer, Neosporin disinfectant, Pepcid heartburn relief, Nicorette nicotine gum, Motrin, Benadryl, Sudafed, Mylanta, Visine eye drops, and Acuvue contact lenses to name a few.
  • Medical Devices: Everything from sterilization products for hospitals to blood glucose monitoring systems.
  • Pharmaceuticals: World-class drugs treating everything from cancer and diabetes to HIV and schizophrenia.
For example: Have you ever heard of McNeil-PPC, Inc.?  Probably not.  According to Wikipedia, its predecessor was founded on March 16, 1879 by Robert McNeil, who was 23 years old and paid $167 for a drugstore “complete with fixtures, inventory and soda fountain” in Philadelphia.  Decades later, it expanded into pharmaceutical distribution.  In 1959, it was acquired by Johnson & Johnson.  By infusing additional resources into the firm, McNeil-PPC, Inc. setup its own subsidiaries, including one called McNeil Nutritionals LLC.  That latter business entered a joint partnership with Tate & Lyle, the British agricultural giant, to develop an artificial sweetener.  After years of scientific discovery and perfection, the product known as Splenda was born.

If you didn’t know about this, when you visited Splenda’s website and saw “McNeil Nutritionals,
LLC” as the owner, you wouldn’t know some of those earnings are being paid up to McNeil-PPC, Inc., which in turn find their way to the parent Johnson & Johnson company in New Jersey.  If tomorrow, a really promising drug appeared on the horizon, Johnson & Johnson’s parent company could declare dividends from McNeil-PPC, setup a new operating LLC, infuse the cash into it as part of the capitalization structure, reassign executives and talent to get it off the ground, and shave off ten or more years of ramp-up work.

Furthermore, what makes Johnson & Johnson unique is that it is one of the only businesses in the Fortune 500 that explicitly rejects the “shareholder maximization is the highest priority” dogma that arose during the 20th century.  The enterprise is guided by its Credo, which is a work of art.  Quite literally.  The words, engraved at corporate headquarters, were penned prior to the 1944 initial public offering by the firm’s most famous Chief Executive Officer, letting new owners know that, while generating a return for them was important, it was far down the list to serving patients, doctors, suppliers, and employees; the theory being that there are multiple constituents with a vested interest in the prosperity of a firm, and that sometimes, doing the right thing long-term required sacrificing earning power today.  It’s a moral and ethical triumph that, I believe, should be replicated by other corporations and taught in business schools.

Following the Credo is what saved the firm’s reputation during the Chicago Tylenol murders of 1982.  When it became clear someone had tampered with capsules, slipping cyanide in them and killing those who took the pills, Johnson & Johnson immediately put the safety of their customers ahead of the income statement.  They did not attempt to minimize or deny the situation.  It pulled 330 million pills off the shelf and went from 34% market share to 0% overnight, according to Alan Hilburg.  He said they didn’t have a crisis plan, they had the Credo.
The company also immediately retooled their factories to create a visual metaphor for safety, introducing an aluminum tamper-evident seal, plastic coating, and pill capsules that couldn’t be broken apart easily.  Within 90 days, the consumer trust was so high that market share skyrocketed to 46%.
What’s so magical about the Johnson & Johnson credo?  Judge for yourself.

Our Credo

We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit.
We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family obligations. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical.
We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens — support good works and charities and pay our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.
Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.
It’s worked in spades.  Johnson & Johnson has been one of the most successful blue chip stock investments of all time.  The underlying economic engine and incentive systems unleashed by the business model are so superior to most other firms, that even if you bought it at absurd valuation levels, such as during the Nifty Fifty era, you still beat the S&P 500 if you held it for 25+ years.  It has a structural advantage its competitors can’t match.
Specifics are always useful so to give you an idea of real-world numbers, let’s imagine you go back to the early 1980’s when me  and the misses were born.  Say that our parents and grandparents got together and, between them, kicked in $50 a month for us, respectively, by sending a check to the Johnson & Johnson dividend reinvestment program.  It was already one of the biggest healthcare companies in the world.  Nearly every widow in the country owned it.  It had a prominent place in the portfolio of most mutual funds.  This was not some little-known firm but, rather, a global medical conglomerate with the founding family ranking on the then-newly established Forbes 400 list.  This would have taken nearly nothing; hardly any sacrifice; veritable pocket change.
What would we have today had this occurred in some alternate universe?  Ignoring the minor fees which wouldn’t have made much difference, anyway, here’s what each of us would have brought into the marriage property sitting on our joint balance sheet:
    • Mr. Investor: 396 months, at $50 each, for total out-of-pocket savings of $19,800.  It would have grown to 3,719 shares worth around $339,582.97.  I’d be collecting $11,157 in annual cash dividends.
    • Mrs. Investor: 394 months, at $50 each, for total out-of-pocket savings of $19,700.  It would have grown into 3,650 shares worth around $333,272.98.  He’d be collecting $10,950 in annual cash dividends.
Combined, that’s 790 aggregate months of saving, at $50 each, for total out-of-pocket cash contributions of $39,500.  It would have grown to 7,369 shares worth around $672,855.95.  We’d be collecting $22,107 in annual cash dividends.

Here’s the crazier part.  Imagine that our fictional alternate-dimension family handed us the stock certificates today and stopped contributing entirely.  We decided to lock the shares away, ignoring them and never putting any new money into it other than reinvested dividends.  If the firm compounded at less than its long-term average (it is much bigger, after all, so let’s shave off a few points), by the time we were Warren Buffett’s age the stake would have grown to $243,926,664.  That’s not a typo, it’s a quarter-of-a-billion dollars.
Even assuming some higher inflation inputs, the purchasing power equivalent would be just shy of $32,000,000 in today’s money.  Compounding is a nutty thing when you get your hands on a great asset, even in small amounts, and leave those assets alone for almost a century.  I can say with near absolute certainty that Johnson & Johnson will be owned a long time by my family.

How did it come into existence?  By what workings did the modern Johnson & Johnson corporation, with all of its good, arrive on the commercial scene?  Travel with me back in time.

The Birth of Johnson & Johnson

In the 19th century, Sylvester and Louisa Wood Johnson had eleven children.  They were “farmers and cattle breeders in Crystal Lake, Pennsylvania” according to Barbara Goldsmith’s 1987 recounting, Johnson v. Johnson.
One of their sons, Robert Wood Johnson (1845-1910), relocated to East Orange, New Jersey to work with a man named George Seabury, with whom he established a pharmaceutical partnership called, appropriately enough, Seabury and Johnson.  Robert hired two of his younger brothers, Edward Mead Johnson (1853-1934) and James Wood Johnson (1856-1932) to work for him.
In 1883, when Edward Mead was 30 years old, and James Wood was 27, they decided they wanted to be their own bosses.  They quit their brother’s firm and setup a new business called Johnson & Johnson, using a simple logo the latter wrote by hand.  This business prospered.  Robert saw how well they were doing and, again according to Goldsmith’s examination of the family historical record, approached them about working together despite having parted ways not that long ago.  He left Seabury and Johnson, signing a non-compete agreement that banned him from the industry for a decade.  However, in 1886, he sought an exemption from the state that allowed him to discard his earlier promise on the theory that consumers benefited from the competition.

Robert infused his money into Johnson & Johnson and the boys were granted incorporation of their enterprise in 1887.  The “new” Johnson & Johnson consisted of “fourteen workers on the fourth floor of a small New Brunswick, New Jersey, factory”.  Barely a month and a half later, as the controlling stockholder, Robert demoted James from the position of President and assumed the role himself.
A driven, overbearing man, Robert was obsessed with preventing germs and infection, much to the benefit of society.  As Goldsmith put it, “In a time when the post-operative death rate in hospitals ran as high as 90 percent, when the cotton used in surgical dressings was made from the sweepings from the floors of textile mills, the Johnson brothers began to utilize [English surgeon Joseph Lister]’s methods of sterilization on a large scale to produce ‘the most trusted name in surgical dressings’.  Using an India-rubber-based adhesive, the Johnsons manufactured pre-packaged surgical dressings that were the forerunners of the Band-Aid.”
By the time he died in 1910, Robert Johnson had built the Johnson & Johnson company into “a plant consisting of forty buildings” and held 84% of the corporation’s stock.1  All was not lost, though, because back in 1882, he had married a woman named Evangeline who was the daughter of an affluent doctor.  They had three children.
  • The eldest son, Robert Wood Johnson, Jr. was born in 1893.
  • The middle son, John Seward Johnson, was born in 1895.
  • The youngest daughter, Evangeline Armstrong Johnson, was born in 1897.
Though he had little to no interest in his family – all he cared about was the business and couldn’t even be bothered to step away long enough to attend vacations with them – he left the Johnson & Johnson stock to his children.  Specifically, he instructed that his common stock, along with its voting power, be split evenly among the two sons so that each ended up with 42% of the Johnson & Johnson business, and he set aside a small block of preferred stock for his daughter as he didn’t believe women should be involved in running enterprises nor equally inherit; a misogynist belief that ran through the empire up until recent decades when female family members were forced to hand over control of their decision making to their brothers and, at the business, women weren’t even allowed in the executive dining room.
With uncle Edward Mead Johnson already working on his new firm and no longer a part of the Johnson & Johnson he founded (see footnotes), the boys’ uncle and company co-founder, James Johnson, stepped back into the role of President, taking the 17 and 15 year old into his home.  Robert Jr., realizing he was the only living Robert at this point, dropped the diminutive (he would later become “General Johnson” following World War II) and was hired at Johnson & Johnson as a lowly millhand.  Goldsmith says in her research that James used to confide in his daughter at the unpleasant nature of serving as the President of a company he co-founded, yet having to come home to answer to his teenage nephews, who between them were unstoppable due to the combined 84% stake they held.

General Robert Johnson and Seward Johnson Establish the 1944 Johnson & Johnson Family Trusts

It is with these two brothers – General Robert Johnson and Seward Johnson – that the 20th century Johnson & Johnson saga begins.  It is they, and their personalities, mistakes, and behaviors, that caused so much destruction and, in the case of the former, societal good.
For 22 years, James Johnson ran Johnson & Johnson for his nephews, who did things like take trips around the world to scout for new manufacturing plants. He protected and grew the business, churning out earnings and dividends for the stockholders, while providing products that saved lives and eased suffering.  When James died in 1932, the now-experienced-38-year-old Robert Johnson, a brilliant, driven egomaniac, took the reigns of his birthright and named himself President of the firm after coming to agreement with his submissive brother, Seward, that they would always act in concert, and it would be he, and he alone, who sat in the big chair at Johnson & Johnson.
Upon assuming his position, he went about re-telling the history of Johnson & Johnson so that the original two founders, uncles Edward Mead and James, were written out and his late father, Robert Sr., was treated as the founder in newspapers, magazines, and biographies.  One account says that the company portrait of James, who had raised him after his father’s death and loyally served as the President of the business he founded, was shoved in a closet for almost two decades, as if he had never existed.  It was only after his aunt shamed him into rehanging it that it was brought out of storage.

Although he made a total mess of his family, reportedly destroyed his own son before reconciling, and set in motion of series of events responsible for the implosion of the Johnson family clan, General Johnson was one of the greatest corporate executives who ever lived.  He also radically improved civilization through his charitable work.  Today, the Robert Wood Johnson Foundation is the largest health-based philanthropy in the country, with almost $10 billion in assets, distributing around $400 million per annum to do everything from researching ways to develop human capital to finding methods to fight childhood obesity.
One family member described him as charming on the outside but a shark on the inside.  Other than his treatment of women, he followed the Johnson & Johnson credo, which he developed and penned himself, in both spirit and letter.  He would fire anyone, on the spot, who put profits ahead of quality.  He would interview even the lowliest employee so he could figure out what could be improved without the bureaucracy obfuscating his view of ground-level conditions.  He demanded total, complete, and absolute loyalty and control.
General Robert was obsessed, in outcome, anyway, with the power of compounding.  He wanted both the firm, and its stock, to grow so he had a policy of low dividend payouts, reinvesting most profits into growth.  In 1944, he decided an IPO would be the best way to raise capital for expansion, accelerating the rate at which his empire was spreading across the world.  He used this as an excuse to solve three other problems:
  1. Even though he owned 42% of the stock and Seward owned 42% of the stock, Robert wanted majority voting power so he could reign without contest.
  2. He wanted the family to leave the stock untouched so it could compound into a truly impressive amount of wealth.
  3. He wanted the male members of the family to continue holding all of the influence, with the females subjected to them.
He convinced his brother to put 45% of his holdings, or 18.9% of the entire Johnson & Johnson company, into a series of six trusts over which he (Robert) and two “yes-men” associates would serve as trustees including the right to vote the stock (Seward had five children already born and was about to become father to a sixth).  Robert didn’t trust outsiders so he had Johnson & Johnson’s in-house counsel, Kenneth Perry, draw up the trust instruments.  Concerned only with his own power and desire to see the fortune compound, the trust instruments were iron-clad and severe in command, modeled after the now-well-known generation skipping trusts made famous by the Rockefellers.  According to Goldsmith:
  • Each of these trusts contained 15,000 shares of Johnson & Johnson, then valued at $500,000 [Note: This is around $6,779,500 in today’s inflation-adjusted terms.  Also note, one of the heirs insists her trust only began with $250,000, not $500,000, so there is some degree of ambiguity].
  • Seward’s children would receive annual annuities ($6,000 per year, or $81,350 in inflation-adjusted terms) plus discretionary payouts, which Robert clearly didn’t intend to exceed more than token amounts.
  • Each child would have the right to declare beneficiary / beneficiaries for the trust.  Upon their death, the trust would dissolve and the person or people listed as beneficiaries would inherit everything
  • Seward’s son, Seward Jr., would become trustee of his sisters’ trusts upon his 21st birthday, and be entitled to vote their stock on his 33rd birthday.  The women couldn’t be trusted to run their own affairs.
Robert also setup his own, similar trusts for his bloodline at the same time.
The combination of low dividend payouts and high trust retention, along with beneficiaries themselves getting next to nothing relative to the trust value that was accumulating, led to a series of family tragedies, battles, deaths, and scandals that make a Mexican soap opera look tame in comparison.  There was a Polish maid who got her hands on more than $300 million of the family fortune and turned it into $3.6 billion.  There were allegations of rape and incest.  There were drug overdoses and suicides.  There was an alleged murder plot.  There were numerous lawsuits that resulted in tens of millions of dollars going to lawyers.  There were family members who married and divorced as if they were changing coats.  On the plus side, there were staggering charitable donations that benefited civilization.
One of Seward’s children accurately summed up the trusts General Robert convinced his brother to establish as thus: “Those trusts weren’t set up for love and caring, they were done because Uncle Bob wanted to control the vote on ninety thousand shares of stock without experiencing the tax consequences of ownership.  Those trusts were never supposed to take care of us, we were supposed to be taken care of in other ways.  I might sue my trustees.  Every time I ask them for something, they throw it up in my face that they have to protect the remainderment for my heirs.  I wrote them a letter and quoted the trust agreement; it said that this money was being put away for my welfare, my good, not for someone to get after I die.”

The Johnson Family Trusts Were Effective But the Family Culture Was a Failure

The interesting thing about the trust funds that General Johnson had established is they were extraordinarily successful.  They did what they were intended to do – consolidate voting power, transferring significant assets into the grandchildren’s hands as each $500,000 trust blossomed into $600,000,000+ while stopping the second generation from spending it – but the family culture failed due to intractable character flaws of both Robert and Seward.  They hurt, in some form or another, nearly everyone with whom they were involved.  The case study I did of the family fortune for the purposes of learning about the mistakes (and how best to avoid them) is one of the few times I felt physically ill.  Coming from a good family, I can’t wrap my head around the fact people grew up that way, with so much neglect, abuse, entitlement, self-sabotage, and lack of purpose.  There is a brokenness there that seems hopeless.  No amount of capital can possibly compensate for the short end of the stick some of them were handed.  Frankly, I don’t know how a sensible person could grow up in that environment and emerge normal.  I hope some of them find happiness.  While the fortune left behind has done wonders for scientific and healthcare philanthropy, it’s torn asunder their family tree; certainly more of a curse than a blessing in my estimation.
For all of his foresight, General Johnson failed on the wisdom front.  He helped his family amass more money than they could ever spend, but he didn’t help them amass wealth.  In fact, he left them impoverished in a lot of ways that matter.  As I see it, wealth is a combination of several things coming together: Good health, financial independence, achievement, excellence and pride in your work, a loving family that you know has your back and wants the best for you (give me the sound of multiple generations running around laughing and talking, the scent of a roast in the oven, and a good book off in a corner and that’s my idea of heaven), personal integration so you know you’re living your moral and ethical values, surrounding yourself with people who challenge you, an understanding somewhere deep within your soul of who you are as a person that nobody can take away from you – that core identity that makes you who you are.  Wealth is waking up and looking around saying, “There is nowhere else I would rather be, nobody else with whom I would rather be experiencing this moment, and nothing else I would rather be doing.”  Yes, the money is a wonderful tool in facilitating that but that is all it is – a tool.  Alone, it isn’t enough.  It will never be enough.  Money should never be the most interesting thing about you.
In any event, the Johnson family hasn’t had anything to do with Johnson & Johnson, at least in any meaningful sense, for decades.  The $257 billion enterprise is the highest quality, most diversified health care blue chip in the world.  I have little doubt that, all else equal, the probabilities indicate a decent-size block today should be worth an obscene amount in fifty years due to that structural advantage I mentioned, even if there are ugly periods in the interim.  Professional non-family management has had the reins for more than a generation as the Johnson family stake continues to fall in firm importance, crowded out by the shares you, your friends, and your family hold in index funds, mutual funds, dividend reinvestment plans, and brokerage accounts.  If you told me I could only hold ten stocks for the rest of my life, it would be on the list.

Footnotes
1 His brother, Edward Mead, was no longer involved in operations by this point.  In 1895, he started a side business called The American Ferment Company.  In 1897, he left Johnson & Johnson to work on it full time, setting up shop in Jersey City, New Jersey.  In 1905, he formerly incorporated as Mead Johnson & Company; the specialty product being digestive aid.  A few years later, in 1910, Mead Johnson & Company developed a blockbuster infant formula that had the distinction of being the first physician-recommended breast milk replacement in the United States.  The firm ended up moving to Evansville, Indiana, to get better access to the raw agricultural commodities it needed, and grew fantastically.
The role of CEO passed down the line, from father-to-son, for three generations until Bristol-Myers acquired it in a buyout.  The deal, announced in August of 1967, involved an all-stock purchase (both common and preferred) worth $240 million.  Wikipedia, which sources Reckert, Clare M. “Exchange of Stock Set; Merger Deal Set by Bristol-Myers“, The New York Times, August 25, 1967, states that prior year sales were $131 million with earnings of $7.3 million.
In 2009, Bristol Myers Squibb (as it was now known, following other mergers) conducted a two-part split-off (or “carve-out” as it is sometimes called) that involved an initial public offering for 10% of the business.  Mead Johnson, which had expanded to $2.9 billion in sales by this point, raised $720 million in gross proceeds, far exceeding the $562.5 million that had been hoped.  The cash helped strengthen Bristol Myers Squibb’s own balance sheet.  The remaining 90% of the stock was made available to shareholders who were willing to swap their stock in Bristol Myers Squibb for stock in Mead Johnson.  This facilitated what amounted to a tax-free asset exchange and a massive share repurchase.
Today, Mead Johnson is a stand-alone, $18 billion nutritional behemoth. 

Long: JnJ

Sunday, 26 February 2017

The Philip Morris Investment by Fayez Sarofim

Fayez Sarofim is a Houston-based investor that has seen his fortune climb on the coattails of buying-and-holding consumer stock investments. Coke, Nestle, McDonald’s–you name it–he bought it decades ago and holds it on the balance sheet of his Fayez Sarofim & Co. today.

After I published my recent article on Philip Morris International’s recent stock performance, Sarofim’s firm crossed my mind because I know that Philip Morris International (PM) is the investment that catapulted his own way from poverty in Egypt to a gilt-edged life of material success in the United States. To date, Sarofim finds himself sitting on 16,711,214 shares of PM stock.
An aside to precede my commentary: Did you guys see that post on the Mr. Money Mustache website about a year ago when Peter Adeney talks about how it was much easier to build additional wealth once he was financially successful compared to when he was starting out and hungry for it?
It sounds a little bit counterintuitive, but the advantage that comes from pre-existing wealth is that you can afford to take the long view. This advantage was best explained by a character in the Terry Pratchett work “Men At Arms” and is called The Boots Theory of Social Inequity:
“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.”

Put another way, it is a competitive advantage to be able to act upon your intellect and reason. If you calculate that the up-front costs for something are high but are the best option when measured across the entire contemplated use, you want to be able to have the actual cash on hand to pursue the more intelligent option.

The Vimes Theory and the MMM post express a philosophy that I imagine is executed by Fayez Sarofim in the stewardship of the firm’s assets.
If someone only owns 30 shares of Philip Morris International, the lack of price movement over the past four years might make you anxious and impatient. Everyone is talking about a bull market while that stock seems like the proverbial dead money. I’m sure someone on Seeking Alpha is probably putting it on probation or whatever term they use to say “Bad boy!” to their investments nowadays.
So what impulse does this need to get rich quickly trigger? Sell low!

On the other hand, consider how Fayez Sarofim can approach the lack of price movement.
In the past, Sarofim has said that studies of tobacco industry economics have left him breathless because the torrents of cash flows were so tremendous that it could enable Big Tobacco the cash cushion to purchase America’s leading food stocks (which have since been spun off).
He is already extremely rich, so he can afford the long game. He can enjoy the fact that his experience with the stock from a position of wealth is far more enjoyable. Between 2014 and 2016, Philip Morris International paid out $12.04 in dividends. When you own 16,711,214 shares, you do not view this as a “dead money” operation. You got to collect over $200 million in pure cash dividends as your share of profit from the investment. When your cash dividends are so extreme that you could buy hockey teams just by letting the tobacco dividends pile up for a few years, you are not going to fixate on the share price–no one is cursing at their Bloomberg Terminal when their holdings mail them dividend checks with two commas.

But this situation doesn’t only make Sarofim richer in the here and now. He can also look at the fact that Philip Morris International reduced its share count from 2 billion in 2008 to 1.5 billion in 2013 before the global currencies tightened against the dollar. He can see that this situation will temper or reverse, and within the next twenty-four months, Philip Morris will again have the free cash flow to repurchase its own stock. That, in turn, ought to improve earnings growth from 5.5% to 8-9%. That will bring about commensurate capital gains and dividend growth.

Assume that the future expectations in the paragraph above are held by Sarofim and my hypothetical investor. Who do you think is in a better position to actually be around in 2018 and 2019 to reap those higher returns–the frustrated guy with the “dead money” investment that isn’t permitting him to enjoy lifestyle upgrades or the guy that is collecting $70 million per year as the reward for being patient?

Full disclosure: Long KO, Nestle