Drink Beer. Make Money.

In 1995 I took a very profitable beer run when I ventured out to a Kroger on Charlotte Pike in West Nashville and brought home a 6-pack of Sam Adams Boston Lager that had a promotional card attached for a special offer. I could send The Boston Beer Co. $495 and they would send me a stock certificate worth 33 shares of common stock, pricing the stock at $15/share.

IPO, not IPA…

With the Initial Public Offering (IPO) being priced at $20/share for institutional investors, this $15/share offer was a great deal for a beer fan like me (and an instant 25% gain if I wanted to sell on opening day for some bonus beer money). In most cases, small investors are not able to buy shares at the IPO’s fixed price prior to the market offer, but they are forced to buy their shares once trading on the stock exchange begins. Often this will be after the price of the stock has run up due to the high demand of the IPO. I took advantage of the Sam Adams IPO and I filled out the card and sent in a check for $495. A few days later, a stock certificate now worth over $5,000 arrived in mailbox:

Samuel Adams stock certificate
Off to the safe deposit box it goes… © Todd Robbins

Make Money…

Priced today, SAM (The Boston Beer Company) trades at $161/share making my 33 shares worth $5,313! That’s a gain of 973% on my initial $495 investment, or an 11.85% annualized return over 21 years. That is a hugely respectable beer run!  It’s also a great lesson in buy-and-hold investing. How good is this return? The undisputed master of buy-and-hold investing is Warren Buffett, and B-shares of his Berkshire Hathaway debuted around the same time as SAM (in May of 1996).

Out of curiosity I looked up the performance of SAM versus BRK.B and the results are amazing! Almost identical across the same timeframe – granted Mr. Buffett has provided investors a little smoother ride compared to SAM’s bumpy rollercoaster…

screen-shot-2017-03-06-at-6-33-54-am

Tune Out The Noise…

Here’s the humorous part. In 1996 a guy named Reed Abelson wrote an article in the New York Times bemoaning the stock offering by Sam Adams. He referred to it as a “sad fall” because the stock price had dropped to $11.75 in the 2 years following its launch. Sure, a 22% drop is not fun, but we’re in the stock market for the long haul – right? Always!

Here’s the real life aspect. Do not invest money in the stock market that will you need within 5-7 years. 10-15 years is far better. 25 years or more is ideal. Look what happens with a short term view – Mr. Abelson deemed SAM stock a loser after only 2 years and infers that the small investors like me may have been suckered or conned by investing in the initial offering.  Bzzzz….  Wrong….  Long term, baby! In following SAM over the course of my holding the investment, I always liked the company and the way they did business, I believed in their strategy, and I believed in their long-term view of the craft beer market.

A Patriot…

The story behind the story is where we miss the great thing behind this IPO by Sam Adams. As I said, normally the little guy (sorry, but in the investing world that’s you and me) is blocked out of an IPO, and fewer than 5% of an initial public offering is made available to purchasers of individual shares. James Koch, Boston Beer Company’s founder and CEO, is a true patriot and he made over 25% of the IPO shares available to drinkers of the beer – retail investors. The is unheard of! At $15/share for individual investors versus $20/share for institutional investors (the big guns), his idea to keep the small players in the game cost him over $5,000,000 in opportunity plus another $1,000,000 in costs to market the $15 IPO to consumers. ”I wanted to give the people who had made Boston Beer the leading craft brewer in American a chance,” Mr. Koch said. Thank you, sir!

Jim Koch CEO of Sam Adams
A real-life beer billionaire who doesn’t iron his shirt – I love this guy

Now you may or may not be wild about Sam Adams beer but you gotta love the story. Mr. Koch started the company in 1984 in his kitchen brewing his dad’s homebrew recipe. In 1995 he took the company public, and today his little home brew business is worth around two billion dollars. TWO BILLION! Koch himself  made it on the Forbes’s American Billionaire List in 2013. I will lift my glass to that! The American Dream come true. Cheers!

Another big IPO this week…

So the big IPO in the news recently was SnapChat. How has their IPO fared? Priced initially at $17/share before it began trading (the price where the big institutional investors got in) it shot up to $24/share when it opened (the price where the retail investors started buying) and then increased to around $29/share in subsequent trading (the price where the suckers started buying) before falling to $20.64 the following week (the price where many investors started scratching their heads and wondering what just happened to them).

What did happen?  Venture Capital (VC) investors get to buy the stock at $17 before the market opens. Greed and speculation take over as trading begins until the VC investors are able to start selling at $24 – $29/share to eager retail investors who really have no clue what they are doing, they’re just trying to get rich on Snapchat.  Once the VC shares start hitting the market, supply starts to exceed demand and the price plummets. Who gets rich?  The VC investors making 40% in one day. Who gets played? The retail traders.

Screen Shot 2017-03-06 at 8.34.48 PMoh snap…

SNAP is one of those companies where *you* are the product.  They don’t make anything (other than a free app where you can buy “eyeballs” and some kind of “spectacles”) and then they attempt to make money off of you with ad revenue within the app. The company is ridiculously overvalued, priced at over 90x revenue when it posted a net loss of $515 million in 2016 with a negative cash flow of $678 million on the year. The stock’s value is almost 20 times what the company is worth if the doors closed tomorrow and they sold everything off.  It’s a ridiculously expensive toy…

SNAPchat
Puking Rainbows

People buying SNAP immediately after the IPO are chasing end of the rainbow / pot of gold money. Don’t be that guy. If you think SNAP is a Facebook-type investment, wait it out and let the dust settle. If, after 2 or 3 years, you still see the opportunity for a long-term investment, then buy in and stay in for the long haul.

I’ll have more to say about this type of “Snapchat investing”in my next blog entitled “FOMO”. I hope you’ll join me. Until then, I raise a glass to the SAM investor and to the investor smart enough to stay away from SNAP as well.

Cheers,

Todd

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