The problem is that high yielding stocks, such as REITs, utility, telecom, and tobacco stocks, are actually expensive right now, compared to low yield growth stocks. Have fun paying your higher taxes on dividends. As for me, I'd rather put my money in stocks of companies that redeploy earnings into more growth and return more cash via share buybacks than paying out dividends that gets doubly taxed.
Lifecycle Investing: Good In Theory, Bad In Practice [View article]
Thanks again for your thoughtful comment. I admit that I have a bias to sacrifice present consumption for future consumption, largely due to uncertainty involved. I did not even consider social security or pension in my example, so I can shoot for a bigger nest egg for greater margin of safety (just in case I don't get to have my social security or pension in the future).
Medical costs are frighteningly high. For the reasons you gave, I would strongly favor keeping the nest egg and not buying an annuity. I had no idea insurance cost so much. The high costs of insurance is another reason to save for a bigger nest egg so we don't have to buy that expensive insurance.
On a separate note, there are other ways to prevent a catastrophic medical costs and ending up in that low quality nursing home. Eat healthy (lots and lots of fresh vegetables and fruits, legumes, nuts, seeds, and whole grains; and none of meat, dairy, refined flour and added oil, salt, sugar), exercise at least 30 min a day, avoid smoking, limit alcohol, and have regular screening/preventive care. Also, having a daughter or two is not a bad idea to avoid ending up in that dreadful nursing home.
Lifecycle Investing: Good In Theory, Bad In Practice [View article]
Thanks Robert for your comment! A&N did talk about the effect of stability of one's income on asset allocation, but not so much on amount to save and invest. In particular, if you have a stable income as a government employee, doctor, teacher, etc, you can view your future earning potential as a giant AAA bond, and therefore need to allocate more to stocks. On the other hand, if your income is as erratic as the stock market, e.g. investment banker, your future earning potential may resemble more of a stock or a lower quality bond. As to how much to save and invest, the short answer is as much as possible. The long answer is that you would need to determine how much you need to live on in retirement (e.g. 80% of your current income), factor in a safe withdrawal rate (somewhere between 2-4%) to see how big a nest egg you'd need, adjust for inflation, and finally determine how much you need to save each year till retirement to reach that nest egg (use future value annuity with or w/o growth formula).
For example, say I spend about $15,000 a year now and, to be safe, I want to live on at least $30,000 a year in retirement. For an ultra conservative 2% withdrawal rate, I need to have $1,500,000 in today's dollars. Since I have another 30 years or so till retirement, I need to factor in about 3-4% inflation. We'll make it 4% to be safe. So the future value of nest egg I need is $1,500,000*(1.04)^30 = $4,865,000 by the time I retire in 30 years. If I can save and invest a set amount of money each year, increase that amount by 4% (rate of inflation), and assume that my investments return a modest 8% a year, how much do I need to save and invest? We'll use the future value annuity with growth formula to solve for A: $4,865,000 = A*[(1.08)^30-(1.04)^30... so A = $23,537 a year, or about $24,000 a year. Remember, I'd need to increase this amount each year by 4% to adjust for inflation. Now, if I don't want to adjust the amount I invest, but rather just invest the same amount each year, I would use the future value annuity without growth formula: $4,865,000 = A*[(1.08)^30-1]/(0.08), so A = $42,945, or about $43,000 a year. I used very conservative numbers in this example (the point is to make sure not to run out of money in retirement), but you can use your own numbers. Also, note that for simplicity I did not account for amount I've already saved, but you can subtract that from the present value of total nest egg you need. Hope this helps!
Automatic Vs. Active Dividend Investing [View article]
Interesting article. I have done both through the years, and am increasingly favoring automatic investment now, for several reasons. One is transaction cost. I now preferentially buy stocks automatically via no purchase fee DSPPs. BDX is actually one of my biggest holding. I regard BDX as equal in quality as JNJ or PG, and higher quality than OMI. Another reason is the difficulty in picking stocks, especially lower quality ones. A stock may seem cheap today, but may become expensive 10 or 20 years later, if the lower quality company is not allocating its resources as effectively to grow its business as the higher quality companies. A third reason is that if I don't invest automatically, I get tempted to wait for a better price to buy, and thereby miss the opportunity as the stock I'm interested in takes off. Fisher's admonition not to quibble over eighth or quarters applies here. Then there is time, as you pointed out. It must also be remembered that no stock is really "under the radar", in today's increasingly efficient market. After factoring in all the costs including time spent researching stocks, transaction costs, the higher likelihood of needing to sell a lower quality stock and incur even more costs, I must seriously doubt mine or anyone else's ability to consistently find better stocks actively.
I never recommended shorting Apple or any other stock. I am saying simply avoid it, as well as any other popular stock, sector, or whatever that may be the hot can't miss investment of the day. If you want to gamble your money away, go ahead and buy Apple. That is your inalienable right. Call me crazy, but I'd rather invest my money in tried and true high quality companies with stable and predictable cash flows, such as BDX, XOM, AFL, PG, etc.
Twolfe: I don't care if Apple is still going up. This is only temporary. Just look at how Cisco kept going up in 1999 and 2000 even though it was badly overvalued, and how it subsequently crashed. The market is a voting machine in the short term, but a weighing machine in the long run. Likewise, just because you bought a lottery ticket and won doesn't mean buying the lottery ticket was the right decision in the first place. Good result does not equal good process. True investors would refrain from gambling their money on a super hot stock like Apple, because they have seen this before.
Also, thanks for pointing out it's Keynes who said the quote I attributed to BB. I will own up to my mistake, but my point remains the same nonetheless.
Fast grower, yes, but low PE? Definitely not. The first point I am making in this article is that Apple actually has a very high PE. You have to look at the right E.
Apple is 2 sigma above its peers in executive compensation. If Apple's exec comp is appropriate, then every company not named Apple must be underpaying their execs. Ha!!
For you only, rubicon, Bernard Barach hath also spoken thus: Apple shall crash and burn, and, in the blink of the eye, it shall suddenly come to naught. Like a thief that cometh in the night, it shall catch thee unawares, and, verily, thou shalt be poorer in spirit and in deed.
Ronin: The problem is, the stock market looks forward, and sentiments and fundamentals can change very quickly. If you buy AAPL when things are looking so rosy right now, you risk getting caught off guard when the future outlook changes suddenly before you have time to react. I would be very cautious buying stocks in companies that do not have a solid record of profitability and uninterrupted dividend payments every year for at least 20 consecutive years. Any company that does not fit this description is speculative. For speculative stocks, the outlook for the company must get much better than the current outlook to make money in the stock. For AAPL, the current outlook is so good that it is hard to imagine things can get even rosier in the future. Apple has the largest market cap in the world and it is riding on the top of the world right now. How much better can things get?
He would not say that. Yes, Apple could go to $1500, but that would be all the more reason to stay away from it. Apple's revenue derives from high tech products subject to rapidly changing whims. I don't see how Apple will not follow the footsteps of RIMM. There is simply no lasting moat for high technology products. Just a few years ago, Blackberry was so hot and it was going to conquer the world. Look at where it is now. Apple is now the new technology fad. Hmm, I wonder what will happen next?
General Dynamics: A Good Combination Of Value And Growth [View article]
Dear dencha:
I would say prices in the 50s to low 60s would be good target prices to buy. A good place to start learning about researching stocks are Ben Graham's books "Intelligent Investor" and "Security Analysis". Once you thoroughly read these two books, you should have a very good grasp on stock investing. Then read other books on investing you may find in your local library.
General Dynamics: A Good Combination Of Value And Growth [View article]
Thanks for your comment. Politicians are no doubt fickle, but to compromise the military would probably be too risky a position to take for anyone from any major party. If I were to err, I would err on the side of increased government spending over the long term.
The most recent balance sheet (from 3/31/12) shows 10 B cash and 7 B long term debt. Although 7 B is a large amount in absolute term, it is only 34% of the company's total equity of 22 B and 14% of its total market capitalization of 51 B.
By the very nature of Apple's business, it cannot be an investment, but is only a bet, or speculation. Only companies with predictable business models, such as Procter & Gamble and Becton Dickinson, can be considered investments. Apple's current revenues rely entirely on ephemeral fads that strike the public's fancy at the present moment, with no guarantee whatsoever for future profitability. The fact that its products are so hot and in style right now means that it is a bad bet going forward because it is priced for perfection. At Apple's current stock price, even horses and lottery tickets or casinos are better bets. Regards -DW
Positioning For The Fiscal Cliff [View article]
Lifecycle Investing: Good In Theory, Bad In Practice [View article]
Medical costs are frighteningly high. For the reasons you gave, I would strongly favor keeping the nest egg and not buying an annuity. I had no idea insurance cost so much. The high costs of insurance is another reason to save for a bigger nest egg so we don't have to buy that expensive insurance.
On a separate note, there are other ways to prevent a catastrophic medical costs and ending up in that low quality nursing home. Eat healthy (lots and lots of fresh vegetables and fruits, legumes, nuts, seeds, and whole grains; and none of meat, dairy, refined flour and added oil, salt, sugar), exercise at least 30 min a day, avoid smoking, limit alcohol, and have regular screening/preventive care. Also, having a daughter or two is not a bad idea to avoid ending up in that dreadful nursing home.
Lifecycle Investing: Good In Theory, Bad In Practice [View article]
For example, say I spend about $15,000 a year now and, to be safe, I want to live on at least $30,000 a year in retirement. For an ultra conservative 2% withdrawal rate, I need to have $1,500,000 in today's dollars. Since I have another 30 years or so till retirement, I need to factor in about 3-4% inflation. We'll make it 4% to be safe. So the future value of nest egg I need is $1,500,000*(1.04)^30 = $4,865,000 by the time I retire in 30 years. If I can save and invest a set amount of money each year, increase that amount by 4% (rate of inflation), and assume that my investments return a modest 8% a year, how much do I need to save and invest? We'll use the future value annuity with growth formula to solve for A: $4,865,000 = A*[(1.08)^30-(1.04)^30... so A = $23,537 a year, or about $24,000 a year. Remember, I'd need to increase this amount each year by 4% to adjust for inflation. Now, if I don't want to adjust the amount I invest, but rather just invest the same amount each year, I would use the future value annuity without growth formula: $4,865,000 = A*[(1.08)^30-1]/(0.08), so A = $42,945, or about $43,000 a year. I used very conservative numbers in this example (the point is to make sure not to run out of money in retirement), but you can use your own numbers. Also, note that for simplicity I did not account for amount I've already saved, but you can subtract that from the present value of total nest egg you need. Hope this helps!
Automatic Vs. Active Dividend Investing [View article]
5 Reasons Apple Is A Bad Bet [View article]
5 Reasons Apple Is A Bad Bet [View article]
Also, thanks for pointing out it's Keynes who said the quote I attributed to BB. I will own up to my mistake, but my point remains the same nonetheless.
5 Reasons Apple Is A Bad Bet [View article]
Apple is 2 sigma above its peers in executive compensation. If Apple's exec comp is appropriate, then every company not named Apple must be underpaying their execs. Ha!!
For you only, rubicon, Bernard Barach hath also spoken thus: Apple shall crash and burn, and, in the blink of the eye, it shall suddenly come to naught. Like a thief that cometh in the night, it shall catch thee unawares, and, verily, thou shalt be poorer in spirit and in deed.
5 Reasons Apple Is A Bad Bet [View article]
5 Reasons Apple Is A Bad Bet [View article]
5 Reasons Apple Is A Bad Bet [View article]
General Dynamics: A Good Combination Of Value And Growth [View article]
I would say prices in the 50s to low 60s would be good target prices to buy. A good place to start learning about researching stocks are Ben Graham's books "Intelligent Investor" and "Security Analysis". Once you thoroughly read these two books, you should have a very good grasp on stock investing. Then read other books on investing you may find in your local library.
General Dynamics: A Good Combination Of Value And Growth [View article]
General Dynamics: A Good Combination Of Value And Growth [View article]
AstraZeneca Is Undervalued [View article]
5 Reasons Apple Is A Bad Bet [View article]