⁠Dimitry Nakhla | Babylon Capital®
Given the $SAVE bankruptcy discussions today, here’s a friendly reminder WHY Airlines are the WORST type of investment you can make 👇🏽

#stocks #investing

WHY YOU SHOULD AVOID INVESTING IN AIRLINES ⚠️

First, let’s take a look at the last 5-year returns of 4 major airlines:

1) $AAL -67% (American Airlines)
2) $UAL -32% (United Airlines)
3) $JBLU -63% (JetBlue)
4) $DAL -34% (Delta)

Why do airlines post such poor results for investors? It’s simple. On average, here are the economics of the sector:

COST OF CAPITAL: ~8%
RETURN ON CAPITAL (ROIC): ~4%

Would you want to own a business that pays $8 just to receive $4 in return?

Of course not. Airlines BLEED MONEY EVERY DAY.

As Warren Buffett asserted in his 2007 Shareholder Letter $BRK.B $BRK.A:

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think AIRLINES ... The airline industry's demand for capital ever since that first flight has been insatiable.

Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989.”

#stocks #investing - Dimitry Nakhla | Babylon Capital®
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We don't think this works when picking businesses to invest in, because LT investor return is driven by ROIC

For high ROIC, we want easy businesses

But we also want high barriers to entry; and these may make the sector look difficult
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