Thoughts On Waste Management And Motif Investing

Includes: WM
by: Roger Nusbaum

Barron's had a bearish piece on Waste Management (NYSE:WM) over the weekend that highlighted lousy growth prospects and was making the case that the now 4% dividend will get harder to maintain. Fifteen or 20 years ago, this was very much a fad stock along with other names in the group.

I don't follow WM or the group so I can't say whether the specifics in the Barron's article are correct or not. But certainly things have slowed down meaningfully. The article creates the impression that the company is primarily in the business of paying and hopefully (from the point of view of the shareholders) increasing its dividend.

There were a couple of comments on the article that sought to disagree with the conclusions drawn. Obviously it is a stock with a story and a set of fundamentals for anyone who cares to form an opinion. Ultimately, either the article will be right or the comments will be right, but there was one comment in particular that I thought was interesting;

As a dividend investor, I'm not at all concerned about a 10-15% slide in appreciation. Appreciation is nice, but tasty dividends trumps all. Interesting point Mr. Brochstein, last year I sold a portion of ED and SO and acquired WM.

You can look at the other comments to see the context of that last sentence, but the first two sentences reveal a thought process that I believe to be prevalent with dividend investors. In past posts re-run on Seeking Alpha, I have had comments that seem to be saying "all I care about are dividends", along with others that don't seem quite so devoted. But my message all along has simply not to put every egg into one strategy basket.

The other tidbit was a post from Josh Brown that carves up something called Motif Investing, which I think I mentioned once before. Basically Motif creates baskets of stocks that target specific narrow themes that might be of interest to retail investors. Brown noted the extent to which this seems faddish and adds an unnecessary later of fees to the investing process. Josh also seemed to think the website is unprofessional and concludes that investors can just pick a couple of ETFs and be done with it.

There was a related tweet that expressed skepticism that any motif created would be very unlikely to be early in the life of the particular theme with the implication being that something like hackey sack stocks (I assume there is no such thing) become popular, run up and then the motif gets created.

There isn't too much there I could disagree with, but the reality is that there are drawbacks to all investment products. Additionally, many get used incorrectly such that the drawbacks are actually magnified than if they were used as intended.

However, if there are drawbacks, then there might be positives too. I think the Motif website implies that you can create your own Motif. This is sort of correct. Per a phone call to the company, for now its customers must choose from the company's universe of 90 Motifs, but you can sell out every holding in the Motif and populate it with whatever names you want. So if I understood correctly every holding in your version of the Pet Passion Motif could be related to hackey sack stocks (if they actually existed).

Many of the names of Motifs seemed just as silly as Pet Passion, but there is a potential application here when you really can create a custom basket of your own. [Especially] once Motif offers foreign stocks, I mean actual foreign stocks, as for now the company only allows for NYSE and NASDAQ ADR trading.

I've had a couple of posts over the years talking about a basket-like product that would be narrower than thematic ETFs that might have four, six or eight stocks targeting things like cement, Nordic banks, Chinese toll roads and a couple of others. These would concentrate more risks than regular ETFs but in most instances be less risky than individual stocks. Perhaps such a vehicle like this should require something akin to options paperwork to placate those who would say this is too risky.

So maybe Motif will evolve into something like I mention above, which would offer more meat on the bone than might be there now.