Seeking Alpha

Brendan O'Boyle

 
View as an RSS Feed
View Brendan O'Boyle's Comments BY TICKER:
Latest comments  |  Highest rated
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    I would imagine that anyone who followed your advice and sold at S&P 1120 last August might disagree with that statement, James.

    I don't mind your staying out of the market, just be careful when you recommend capitulation selling after the market has gone down. Anyone following your advice after the market crash last year would have lost substantial money.

    It's easy to say you are right after a 10% downturn and ignore when you miss a 30% rally. I would enjoy reading your column more if you were honest about your mistakes, no one can predict the market 100% of the time.

    And I should add, saying out of the market is logical if you believe based on evidence the market is not discounting that a major downturn is imminent. However, selling after a downturn has occurred is the best way to lose money in the market. Investors who agree with James should already be out. I happen to believe that growth concerns are overblown, that safe assets are overpriced and that a third year of seasonal weakness will pass, as will Euro fears...

    You do realize that Greece has been in some stage of debt restructuring for 52 of the past 100 years. And Spain for 25 of the past 100 years. None of these years led to a bear market in US equities (unless you count last year).
    Jul 6 09:09 PM | 22 Likes Like |Link to Comment
  • Approaching The Fiscal Cliff As A Nash Equilibrium [View article]
    Just to quickly address this. I believe there is zero chance for any substantive change at this juncture which renders arguing over where to cut spending moot.

    One major reason I think the GOP has more to lose here is that they have lost control of the debate. Obama has succeeded in making the debate about: "tax cuts for the rich, or not," where the GOP could have taken control of the debate by making it about: "out of control spending, or not."

    In my view: he who loses the debate loses the game of chicken (esp because Obama just won an election). That party has more to lose from the cliff scenario, because that party will look guilty for going off the cliff. Thus logically, I think the GOP should yield. When you have more to lose in a game of chicken you must back down, it's really that simple.
    Dec 30 09:29 AM | 18 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    Did I say you left the market at 1120? I said you advised people still in the market to sell at or around 1120 after the market had crashed.

    For example in October you penned, "Is this a bear market rally?" Then you decided that it was and stated that bear market rallies are to be sold.

    So I am emphasizing that many of your writings could be interpreted as very poor investment advice. I will also note that you should be aware of the opportunity cost of your strategy. You mentioned (among others) that investors should wait to purchase AAPL, MSFT, INTC, PEP, etc. last summer. The return on purchasing those 4 stocks would have been 30% by now. So the opportunity cost of your strategy is now approaching the level of your downside target. Just an observation...
    Jul 7 08:58 AM | 16 Likes Like |Link to Comment
  • Does Another Cruel Summer Lie Ahead For Stocks? [View article]
    First an observation on your charts. Yes the S&P has retreated when stimulus stopped, but remember that other factors were in play. 2010 was about Greece and 2011 was set off by the debt ceiling show-down during an economy that was slowing anyway.

    I just wonder if using the fed as a timing mechanism is beginning to lose its usefulness. If everyone sells in anticipation of twist ending the market can only go up once it actually ends.

    Second point is the fed has succeeded in flooring bond yields. This will not change once twist is over. So if you sell, where will you go? I suppose you can hold cash, but we're already 5% into a correction that is probably less than 10%. Or maybe it will be like last summer down 7% before going back to even and then crashing. In which case you will get whipsawed like crazy.

    Personally I think there is only one way to time the market. If you think it's going down big (>30%) then get out sit in cash and bonds and wait. No one has ever consistently beaten the market trying to time corrections. I think this move will be small (<20%) therefore I am staying fully invested. The only reason to get out is if you believe Shilling and ECRI that a recession is imminent. I will note here that the ECRI's own weekly leading index has decisively crossed into positive territory for the first time in a year, the last time it made such a move was Dec 2010 and the S&P rallied another 5% beyond the top of the previous rally. I think 1500 is going to come into play by years end, and even if it doesn't you will see better prices than 1370 to sell, at least back to 1420.
    Apr 15 08:18 AM | 16 Likes Like |Link to Comment
  • Intel Could Be The Next Dow Dog [View article]
    I've seen the same pattern over and over. Revenue warning, EPS estimates come down then by the earning report the number isn't as bad as everyone feared and the stock rallies.

    I bought CMI for 93 and they had a revenue warning sending the stock to 80. Now it's closer to 105, did I panic at 80? No because the market was overreacting. I'm not worried about INTC either. I think it may be dead money until semis turn around, but if you own INTC don't second guess yourself, just keep holding.
    Sep 17 07:24 AM | 15 Likes Like |Link to Comment
  • My Investment Advice: Do Nothing! [View article]
    I don't agree with this advice. Plenty of desirable stocks that the author describes have made mince-meat out of the S&P 500 over the past 10 years.

    Why is this the case? Because by going after strong companies at attractive prices the author's strategy would have avoided CSCO at 100x earnings and many other highly overpriced tech stocks that were spliced into the S&P 500 index and caused disastrous returns going forward.

    Today things aren't as bad, but there are many stocks on the S&P 500 that look very overpriced. Picking a diversified portfolio of dividend growth companies (preferably low beta) that aren't overpriced is a winning strategy.

    In the short term it is quite difficult to beat the market. In the long term if you follow the author's strategy it's actually fairly easy.

    I would add that to avoid trading too much think about the next buy you will make at the end of the month instead of shuffling money that is already in the market. After watching the market this month I think my buy will be NKE, but I'm not planning to sell anything else to get it. I'll wait until my paycheck comes in next week. MCD is also looking very tasty by the way.

    Doing this also gives you some time to think about the investment before you pull the trigger. It's probably good to mull over an idea at least for a week before you make a buy.
    Jul 15 04:13 PM | 14 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    How will earnings season be a major disappointment if 94 out of 500 companies have already priced in below expectation earnings?

    You realize only negative pre-announcements are made and it is likely the other 406 will have earnings in line with expectations.

    The bad news you refer to is already priced in. If you know the future do tell, but otherwise you are stating widely known information. Widely known information is priced in, you can go ahead and ignore it...
    Jul 6 09:32 PM | 13 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    So the market rally had nothing to do with going from decimated to record corporate earnings? Earnings which for all the doom and gloom still hover at record highs?

    Bull markets begin with irrational pessimism and end with irrational exuberance. You can say what you want about the market, but I have yet to see irrational exuberance. High beta stocks massively trail low beta. Treasuries trade at record highs, cyclicals trade low, utilities have higher P/E than tech stocks. If 1420 was a bull market top, it was an extremely sad one...
    Jul 6 10:17 PM | 12 Likes Like |Link to Comment
  • The next economic boom, writes Daniel Gross, will be created by the efficiencies unleashed by America's transition from an Ownership Society to a Rentership Society. It's not just housing - citizens are getting used to the flexibility of renting across a whole range of goods. "The U.S. economy needs the dynamism that renting enables as much as - if not more than - it needs the stability that ownership engenders."  [View news story]
    "It is better to be a owner than a renter. The renter is just pissing money...."

    So property taxes, insurance, interest, repairs, real estate agent fees, etc. aren't pissing away money?

    Renting vs. owning is like any other comparison. It is best to do the one that costs less. In most areas that is now owning, but neither is automatically better.

    The apartment I live in would cost ~2300/month to rent, but my mortgage interest plus taxes plus condo fees are ~1500 a month. I have 150k tied up in the place in equity thus I get ~6.5% return on equity and I save money by deducting the property taxes and interest, saving me another $4k a year. Overall ROE is about 8%, better than the money will do in the stock market or invested in bonds. And this is with the assumption the price of my place never goes up, which won't be true forever.

    For me, owning puts me ahead. For you it could be different, but it's rather simple math to figure out which is better. Renting is not pissing away money, putting a roof over your head will always cost something.
    May 5 01:07 PM | 12 Likes Like |Link to Comment
  • Retirement Strategy: Chasing Yield Is Actually Looking For Disaster [View article]
    KMP Yield 5 Years ago: 8.2% - total return = 117%
    MAIN Yield 5 Years ago: 11.9% - total return = 255%

    Just two examples, but an index of MLPs (AMJ for example) yielded over 7% in 2009 and gave a total return of 199% over 5 years. I can't find an index of BDCs that goes back that far, but I went to a BDC SA post and took 6 at random. The average yield in 2009 was 17.2% and the average total return since then was 186%.

    Of course you can pick BDCs or MLPs with high yields that have done poorly, but you are ignoring similar ones that have done well. I could just as easily pick 6 non-dividend paying stocks that have crashed and burned since 2009 and present a case for how non-dividend paying stocks are a bad investment decision.

    To answer your question: "how else would one show how chasing yield is a poor choice? ," I would want to see evidence that the top 5% of stocks in terms of dividend yield in 2009 scored in the lowest 5% (or at least the lowest quartile) in terms of total return.

    Right now you can do a screen for stocks paying at least 8% (my YCharts screen shows 275 of them). If I bought an equal weighted portfolio of these 275 stocks would my total return really be less than the market over the next 5 years?

    While I don't know the answer to that question you can do this in retrospect. The 3 year total return of those 275 highest yielding stocks is 266% vs. the total return for the S&P 500 of 62%. I don't think there is convincing data that the highest yielding stocks perform the worst.
    Jun 22 11:53 AM | 11 Likes Like |Link to Comment
  • Chart Of The Day, Flash-Crash Edition [View article]
    Cars take you somewhere, where is the benefit of HFT to the average investor? Ok I get a somewhat tighter bid/ask spread and as a result highly volatile stock prices. I think I would rather pay the extra few cents a trade.

    The other crazy thing is they break the trades after the fact. How does that work? You gave a computer algorithm the right to trade real money. When it works you make a profit and when it crashes you take a do-over? The SEC needs to grow a pair and take these guys out of the market.
    Mar 24 03:07 PM | 11 Likes Like |Link to Comment
  • The Selling In PIMCO's High Income Fund Continues [View article]
    The title is not a reference to the tragedy in Newtown, it's a follow up on a previous article titled "the carnage in pimco's high income closed-end fund" dated October 10th.

    If the title came from anywhere it was the previous article.
    Dec 16 05:42 PM | 10 Likes Like |Link to Comment
  • Recession Risk: The Threat Of Rising Interest Rates [View article]
    I'm not quite convinced that the current powers that be have thought about the issue in the context of long term stability.

    Here is the trade off: Make the average outstanding maturity 20 years and you get a 2% interest rate vs. 5 years and you get a 0.5% rate.

    But that means paying an extra 1.5% now on $16T or ~$250B in pet projects that can't get funded.

    Call me a cynic, but it is very easy to understand why the debt is financed on such a short maturity. It is not a coincidence that the average maturity of US debt is 5 years and the election cycle is 4 years. It is because in 5 years it's someone else's problem.
    Dec 8 10:10 AM | 10 Likes Like |Link to Comment
  • Recession Risk: The Threat Of Rising Interest Rates [View article]
    Interesting article James. I agree with you generally on interest rates, but perhaps not in relation to the public sector. For example:

    "maturing long-term high interest debt can always be paid off with financing from low-interest short-term debt."

    I can remember a few factoids about the US public sector debt (I think they are from a Frontline piece I watched). The average duration of a US Treasury note is 5 years to minimize interest payment, and public sector debt is ~$16T. My understanding is not much room exists to push interest payments lower by going closer to the short end of the curve.

    Consider that a 5 year note yields less than 0.5% (so let's assume the US is paying 0.5% even though this is a simplification). If interest rates spike by 2% this will lead to immediate upward pressure in debt service payments and because entirety of the debt comes due with average duration of 5 years this would be felt relatively quickly.

    IMHO, it is the US government that is most exposed here if rates do in fact rise.
    Dec 8 09:27 AM | 10 Likes Like |Link to Comment
  • What Would You Do With A Million Dollars? [View article]
    A few comments for the author:

    1. I don't consider 1M to be sufficient principle to fund retirement. Perhaps if you are content to keep expenses low and you own your primary residence it could work, but the quality of your retirement is going to be adversely effected. With all that free time you will want to take vacations, maybe spend more on pastimes (such as golf, sailing etc.). Quality of retirement is just as important as quantity and you may be underestimating the amount of money you will need.

    2. If you want current income go with KMR not KMI (7.5% distribution vs. under 5%). Consider a few international stocks (VOD or GSK), which pay dividends closer to 5%. I also don't know why a small weighting of a BDC like MAIN is out of the question.

    3. I think limiting any one position to 5% is excessive. This will probably just make you less familiar with positions rather than give higher return. I would say 6.7% (15 total positions) is about right or 10% for high conviction picks.

    4. Consider selling puts for current income for prices that would be too good to miss. For example a stock like PM is on the cusp of raising its dividend and would pay a 5% forward yield at around $80/share. A December put might pay you about 6 months worth of income essentially allowing you to collect the dividend without putting money down unless you get assigned at a 5% yield.

    5. With such a low beta you might consider adding a little bit of leverage, perhaps 1.3x which will raise the income as you can borrow at 1%.

    6. There are a fair number of companies that return over 5% annually but won't show up on a dividend screen as the companies buyback shares rather than exclusively pay dividends. Some of these are actually on your list, but if your stake in the company is concentrated every year there is nothing wrong with planning to sell some shares now and then. I'm thinking specifically of companies like AZO, DTV (although they are being bought out), AWH, TRV, IBM, CVS, DFS etc.

    7. Many of the companies on this list I wouldn't be buying because the valuation is not compelling. I am skeptical of some of the slow growth consumer staples stocks on this list that are trading above 20x earnings. They simply don't have the growth to justify that multiple IMHO. KO, PEP, GIS and some of the others are simply not in the buy zone at the moment. Toward the later stages of the last 3 bull markets certain sectors (tech then banking now consumer staples) stuck out as being overvalued. A 3% dividend yield isn't worth it if the share prices lag the market.
    Jun 7 12:32 PM | 9 Likes Like |Link to Comment
COMMENTS STATS
1,037 Comments
1,321 Likes