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All Posts By Chris Hughen

Disruption finally arriving to the textbook market!

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With their massive student debt loads, millennials are no fans of high textbook prices. I agree that this market seems irrational. Of course, this is the outcome when one person (professors) picks the product and another person (students) pays the cost. The list price for the required text book in my Investments class is $282.95. Nuts.

The good news is that disruption is coming hard and fast for publishers. Witness Pearson’s stock which plunged 29.3% yesterday, and it is down 62% since March 2015.

Pearson PLC is based in London but its most profitable division sells textbooks in the the U.S. higher education market. Management had an earnings call yesterday, and their revenue in this market dropped 30% in the 4th quarter. Here is the best line from management: “We also know, as a result of some of our student survey work, that many students would take up a stand-alone eText option if it were priced competitively versus a second-hand print textbook. So that’s what we’re going to do. We are cutting prices on 2,000 digital eBook products right across our portfolio by between 20% and 50%.” (emphasis added)

This is from slide 12 of their investor presentation.

Source: Pearson plc Q4 2016 Sales- Trading Statement Call Jan 18 2017. Note: I added the notation.

Textbook prices are a problem. Change may not be occurring as fast as we would like but it will arrive eventually.

Who made the most $ in 2016?

Photo: “Fortune The Most Powerful Women 2013” by Fortune Live Media is licensed under CC BY-NS 2.0

In 2016, Warren Buffett’s net worth increased by $12 billion, which is more than anyone else in the U.S. Even as the latest technological developments increasingly dominate our lives, the old-school master again showed us how he got to be the 2nd richest man in the world. What is the takeaway for the average investor?

Invest in undervalued companies with sustainable competitive advantages. As Buffett said, “In business, I look for economic castles protected by unbreachable moats.”

Even as Buffett’s firm Berthshire Hathaway took it on the chin this year with its investment in Wells Fargo, his position in the Kraft Heinz company went from $23.6 billion to $28.5 billion so far in 2016. Yes, BRK made almost $5 billion from that position alone. The dominant brands owned by Kraft Heinz reliably fetch premium prices and maintain a sustainable competitive advantage. KHC almost doubled the return on large cap stocks in 2016.

Kraft Heinz vs S&P 500 Index

Berkshire’s position in IBM was another winner with a increase in value of $2.4 billion. IBM successfully transitioned out of the commoditized hardware business into high margin IT consulting and business services, which involve sticky contracts and reoccurring revenues.

Even though Buffett famously supported Hillary for president, BRK’s stake in Goldman Sachs has skyrockets since the election with prospect of rollbacks in financial regulations.