Bayesian Investing

Investment advisor, long-term horizon, dividend growth investing, life coach
Bayesian Investing
Investment advisor, long-term horizon, dividend growth investing, Life Coach
Contributor since: 2011
Here are a few choice countries that have never defaulted in their history: Canada, Denmark, Belgium, Finland, Malaysia, Mauritius, New Zealand, Norway, Singapore, Switzerland and England.
It is always nice to see someone who actually understands basic statistics -- thank you! Bonus points would have been given for a goodness of fit statistic :)
A very sensible strategy, thanks for commenting.
Hi Dan7256,
Yes, I calculate a value range for every stock I own and every stock on my watchlist. I calculate them using a combination of my favorite metrics: earnings yield vs historical earnings yield (similar rationale to the CAPE), PEG and a Discounted Cash Flow.
One thing I didn't make clear in the article that I should have is that my value ranges are somewhat subjective. They are the values that *I* would be happy to pay for a given stock and not necessarily an attempt to calculate a stock's exact fair value (if that is even possible).
I believe my ranges are reasonable if somewhat conservative and help me have the required discipline to buy on dips and to prevent me from chasing a hot stock.
Hi Richjoy403. Thanks for the interesting question. I know this is a controversial topic for DGIs but for myself I consider the Yield on Cost metric to be almost useless.
It is a nice stat that you can reflect on to see your progress and anything that helps you stay motivated and stick to a sensible investment plan has some value. However, all that matters for making investment decision is current value and future expected value.
I had a phenomenal yield on cost with Enbridge, well into the double digits. Of course, I am not getting that "yield on cost" -- I am actually receiving a current yield of around 2.8%. I believed the stock to be considerably overvalued and that keeping my money in this stock would be an inefficient use of my capital so the fact that I had success with the company in the past did not affect my decision regarding the future.
That is a very good validictus, as mentioned in the article, transaction costs must be kept low. Using DRIPs or a brokerage like Sharebuilder helps a lot for smaller investors.
DCA isn't really about getting a good price it's more about making sure that you don't make a big mistake.
Hi HackFab. Thanks for the compliment and I do something similar where I have an open line of credit tied to my brokerage account for instant transfers. It's not about using leverage, really, just the flexibility.
Hi Emerald. Seadrill does cover their dividend and interest payments but after capital expenditures is cash flow negative. This is readily available in their documents if you wish to confirm.
As for the "lunatic" comment, it was meant to be tongue-in-cheek and I thought that was obvious.
Thanks for commenting.
I tend to agree with the other commentators here that KO is generally better than the bottlers, albeit a little over-priced at the moment.
One exception, I believe, would be the Latin American bottler KOF. Soda is no longer a growth industry for the developed world and KOF has exposure to one of the few growing markets. They are expected to grow earnings by 20% over the next two years, then by around 12% the next three years thereafter. I can forgive the low dividend yield when they have a dividend growth rate of over 40%.
A very thoughtful reason to consider a larger number of holdings, thank you for posting.
I prefer hold 'em because it is easier for relatively inexperienced poker players to play. I find the larger luck factor in the game tends to allow a poor player to have short-term success, encouraging them to continue wagering their money against someone who can easily beat them in the long run.
I do love ABV. I am less enthused with the current valuation.
Hi Will63. Yes, absolutely.
Automatically DRIPing makes sense when you are new, as it is hard to go wrong with blind dollar-cost averaging. It also may make sense for a smaller portfolio that needs to minimize transaction costs.
When you (and your portfolio) are ready, I would receive dividends in cash and reinvest in what seems like the best value.
Hi extreme banker. Your criticism is actually very valid. I started out with a strict DCA strategy but as I have matured over the years, I now have more of a "buy the dip" mentality. And in 2009, a "buy the really scary metldown" mentality.
My main point is that the "buy low, sell high" strategy is a big loser for almost everyone that tries it. I don't try to buy at the lows or sell at the tops. My strategy is, obviously, to acquire attractive dividend growth stocks. I buy when I perceive the particular stock to be at an attractive price and don't worry about whether it is going higher or lower in the short term.
To some extent, we are arguing about differences in degree and semantics.
My point was that by owning dividend growth stocks you are taking on market risk, which is obviously true. My "absolutely false" statement was too strong, as absolutes usually are, and as you have explained quite well. So, yes, I concede the point :)
Thank you for the kind words. It is tough to hold investments that are losing value quickly, which is why it is important to have a well thought out plan that you truly believe in.
I found your first comment interesting. I always found it relatively easy holding stocks in a declining market but holding cash in a rising market drove me nuts.
When I started investing, I strictly DCA'ed into positions completely irrelevant of market conditions. Now, while I still tend to make several smaller purchases, I also value holding some cash at all times. It is simply a fact that a new bear market will come, sometime, and I would like to have some cash ready to take advantage.
Thanks for the comments Craig. I agree completely: finding a plan that works for you is the most important thing.
I was about to raise that point but you made it for me -- thank you!
Hi Richjoy,
There are potential advantages for both concentrated portfolios and more diversified portfolios. I made my case for concentrated but there are many good arguments for better diversification. What really matters is having a plan that you believe in (and allows you to sleep at night).
There is definitely truth to what you said regarding price performance during the great recession. Low beta stocks, by definition, won't go down as much as the market -- but they will go down. To pick two random examples, McDonalds held up very well with a 20% loss, while Johnson & Johnson took a 33% loss.
Taking losses in the 20%-40% range stings and it is cold comfort that the market is down 50%-60%. Investors need to have realistic expectations about how their investments while perform. The simple point that I was trying to make was that in a market decline, dividend growth stocks go down, too.
Hi Trevose_Lion
I like Baytex Energy because of their very attractive assets: low-cost, low-risk, long-life assets in the WCSB. I also like their growth-plus-income model: they have a policy of paying out 50-60% of their FFO to shareholders, which gives a nice 5% yield plus dividend growth as earnings grow (10% increase last year). They use the rest of their cash to grow production and have a target organic growth rate of 8%. This should then equate to a total return of about 13% a year. In fact, Baytex has beaten both goals, as they have grown production by 12% annually since 2003 and have a 5 year total return rate of 24% annualized.
I do like Pembina and own a small stake in the company. They have attractive midstream energy assets that throw off reliable cash flow. With their recent acquisition of Provident Energy, they can now use their pipeline system to deliver Provident's NGLs to oilsands projects, where they are highly valued as diluent. Future growth will probably be tied to oilsands growth. The company has the goal of increasing their cash flow, and dividend yield, by 3-4% a year, so investors are probably looking at a 8-9% total return. Nothing jaw-dropping but, as much as a cliche it is, in this investing environment slow and steady may win the race.
You were close but have just missed Ecopetrol's ex-div date!
I tend to agree with you, TexasRedNeck, TIPS would only be beneficial if there was a sudden, large increase in the inflation rate; or more exactly, the CPI as measured by the government.
Hi Marc. I was using the term "high yield" as a catch all so your criticism about my use of the term is fair. I was trying to warn about interest rate in general and especially as a wake-up call to any dividend investors that may be heavily concentrated in certain sectors (e.g., utilities). Thank you for the insightful comments.
Hi Onlinden. The Credit Suisse Cushing 30 MLP index is currently yielding roughly 230bps more than the U.S. 30 year bond. In theory anyways, if the "safe" yield of the long bond were to increase the market should insist that the MLP yields increase by a similar amount to justify the increased equity risk. This would mean lower prices, of course.
Having said that, "pipelines" is a pretty vague term covering lots of companies with vastly different structures. Some will hold up much better in a rising rate environment than others; it is just important for investors to do their due diligence and understand what risk they are taking on.
And I love your call for aggressive investors to short TLT...if they have the patience to put up with a trade that may move against them for the short to mid-term, I believe that will be handsomely rewarded over the long run.
Hi Tas. I limited my discussion to equity investments but you make a good point about inflation-linked bonds. However, it is important to note that inflation expectations are built into TIPS prices so they will only protect an investor from unexpected inflation. In today's world of central banks gone wild, a little inflation insurance is not a bad idea.
Hi Global Value Investing. I have a copy of another document by the corporation that stated management fees were as suggested in the article. I have contacted Brookfield's investor relations service for clarification, although I suspect the income statement you provided is correct.
Thank you for highlighting this inconsistency!
Hi Global Value Investing. Brookfield does collect $6.47 per share in management fees. In fact, that is how they calculate their intrinsic value: the book value of their assets plus the management fees they collect on those assets.
The two statements you quoted are actually saying the same thing, just in different ways.
I tend to agree with your comment regarding negative returns.
With a stock or a bond, you will never have to mail the company/issuer a cheque either. The worst that can happen is the value of the security goes to zero.
The same would be said of dividend stocks. You may never have to mail a negative dividend but the value of the stock, and its dividend stream, can go to zero.
Hi Dunkmaster. Very important lessons to learn, indeed.
Hi Peter. Both valid metrics for sure. I actually included several more metrics in the original article but the SA editors felt it was a little too verbose.
I am very bullish on Enbridge as a company but the stock price is becoming increasingly out of touch with the company's fundamentals.
Hi dunkmaster. Thanks for the comment. I am not falling all over myself to buy these companies at the moment but as I said, an investor could do a lot worse than pay a good price for a good company.
Hi aretailguy. Most high yield sectors are becoming expensive in my opinion. I would take a look at CSX, ESV, EC. These are higher beta stocks that wont enjoy the same smooth ride as the above companies but represent a good value and have the potential for significant dividend raises.