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I inherited a modest sum when I was in my early twenties, bought an apartment, invested what was left over, and then proceeded to work for 20 years as an attorney at law firms in New York City and Washington, DC. I saved aggressively because I thought I could get fired at any time, and invested... More
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  • It Takes A Village

    Today I was reflecting on the debate between total return investing and dividend investing. Total return investors, along with most academics who study and write about finance, tend to assume that dividends are more or less fungible with capital gains. If you own Coke, and it pays you a $1 dividend, you can spend $1, whereas if you own Coke, the stock rises and you sell a share for a $1 profit, you also have $1 to spend. End of story.

    Well, no. In the former case, you have your dividend, and you still own the same percentage of the company after you get your dividend as you owned before you got the dividend. Next quarter, next year, next fifty years, you own the same claim on Coke's earnings. If you sell a share of Coke, you do not. You own a smaller claim on Coke's earnings in the future, and as those earnings tend to compound, you can quickly see that the $1 of stock you just sold maybe cost you ten, twenty, fifty times more in foregone future earnings. The idea that dividends and capital gains are somehow functional equivalents is just plain, flat out wrong.

    How can so many people be so wrong about something so basic? I think the idea that capital gains and dividends are interchangeable basically stems from a fundamental misconception about what a stockholder actually owns. To most investors, they see that what they own is a share of stock, the value of which depends on what someone else will pay them for it. To a few other investors, they see the stock they own as nothing more than a convenient medium of exchange to swap what they own for cash or other things. To these investors, what they see themselves as owning is a percentage of a business. As such, they see that they are making money when the business is making money, and losing money when the business is losing money. That has very little (if anything) to do with stock prices and everything to do with the underlying business.

    So, today the stock market shot up 4% higher. I still have no idea what our portfolio is worth, and didn't bother looking. I own the same percentage of companies this afternoon as I did this morning, and as far as I can see, earnings haven't changed one scintilla in either direction today.

    Today I also realized, as I sometimes do, that I am very much a foreigner in a foreign land. We walked home today after our Portuguese lessons to find a large group of people camped out in front of our building. We later learned what was going on. There is a hospital across the street from us, and a gypsy woman had been admitted as a patient. We learned that when a gypsy goes into a hospital as a patient, the entire extended family will show up and camp out in front of the hospital until the patient is released. 100s of people will come and hang out for days if needs be, to support their loved ones who are ill.

    I didn't see that sort of display so much as once during the ten years I lived in Washington DC. It's very different here than in Portugal, and sometimes like today, I really feel it. I normally like to snap a photo or make a painting of what I write about, but out of respect for (and perhaps even a little nervousness about) the gypsies in front of our building earlier today, I didn't take any pictures. I envy them for the support network they have created amongst themselves, in a world that, quite frankly, offers little to no support for gypsy people (indeed, often quite the opposite). When the Dow Jones is going bonkers for no particularly good reason, you sometimes wish you had your whole village there beside you to sort of wave the pom poms and cheer you on. I suppose that's one reason why SeekingAlpha is such a valuable resource to many of us.

    Aug 26 5:32 PM | Link | 4 Comments
  • Tagging Azuelos

    (click to enlarge)Azuelos

    Lisbon is covered in two things: graffitti and ancient blue tiles (called Azuelos). The convent where I live has an entire room of azuelos, my favorite of which is the original artwork pictured above - before I decided to put the two art forms together, adding in some hipsters, beatniks and rastas to round out the theme. I'm thinking of trying my hand at painting tiles, to make an actual tile installation that looks something like what I show above. If nothing else, it could make for a great t-shirt.

    (click to enlarge)TKD

    And here's what happens when you put a ten year old TKD expert into a 400 year old tile installation. I still have to work on the color a bit - maybe by darkening up some of the other figures. Haven't decided yet.

    One thing I have decided on is that Friday is going to be a great day. The stock market is now seemingly in a full fledged sell off, and I have a shopping list at the ready. I typically avoid investing in MLPs anywhere besides our taxable accounts - the tax deferral constitutes a massive component of the MLP return, and I feel it is wasted if the asset is parked in a non-taxable account.

    That said, price is what ultimately governs the decision, and that price is now within the range of my be willing to accept some tax-inefficiency. The best way I can think of to manage the two competing considerations is to invest in KMI, which is structured as a C corp but is, nevertheless, squarely into the business model of an MLP. It's distributions are likely to constitute ordinary dividends, rather than nontaxable returns of capital. I don't feel we are losing much, if any, tax efficiency by holding KMI in a ROTH IRA or straight IRA. It is by no means the cheapest MLP, but frankly, I'd rather pay up for quality even if that means sacrificing a bit on the yield. With a buy-and-hold-forever mentality, you really CAN'T invest in anything other than the top shelf in terms of quality.

    I have noticed a few articles out there suggesting that buy and hold investors (like me) are idiots, standing like deer staring into the headlights of an oncoming bear market train. I have a difficult time understanding how you can make this judgment without the benefits of having a time machine. In fact, I have a difficult time following an investment approach that forces you to behave as if you had a time machine when in fact you don't. Trying to time bear markets is, in my view, behaving as if you know things that you cannot possibly know. That is gambling, plain and simple. Buying solid businesses at the best price you can get is my definition of investing, and the fewer other investors are willing to do it, THE BETTER OFF WE ARE. I view the death of buy and hold to be wondrous news, and look forward to snapping up more shares of KMI once the dividends are in and the bills are all paid.

    Tags: KMI
    Aug 25 5:44 AM | Link | Comment!
  • Grocery Shopping In Lisbon

    Today was brilliantly sunny and cool. We stayed home all day with the windows open and built space ships and tanks with legos. Then we went out to do our week's grocery shopping. We don't own a car, so shopping for food involves a considerable hike through Bario Alto, subway rides, and a big uphill walk. This we do inspite of the fact that there are tons of grocery stores all around Bario Alto, but each of them tends to be extremely small, with a tiny selection of various and sundry items ranging from a handfull of produce to batteries. These aren't specialty stores. Each is a general market with an extraordinarily limited selection of unrelated items. These stores represent the way grocery shopping used to be done around the world before the invention of the supermarket. Nowadays, I think most people who stop into these stores are tourists looking to buy a bottle of water, or old time residents who have been shopping this way for decades. There must be 100s of these miniature grocery stores. It is, quite simply, a model of stodgy inefficiency, and rather than poke through ten stores, looking to buy a turnip here and some plastic wrap there, I just go to the big supermarket that requires subway rides and hill hiking.

    There is one sort of medium sized grocery store in Bario Alto, about the size of a typical 7 Eleven in the USA. It's huge compared to most of the one room grocery stores that surround it. The demand for large scale grocery stores is evident: our 7 Eleven sized store is perpetually jam packed. It is so full, in fact, that I can't bring myself to go there. For me, it's worth the extra effort to take the subway three stops and go to the sort of enormous grocery stores that Americans like me enjoy.

    But I see the writing on the wall. If so much as one large grocery chain were to open up anywhere in this area of Lisbon, I would guess that almost every single one of these old style grocers would be put out of business promptly. Yes, there are many elderly residents here who might resist the change, but the overwhelming majority of shoppers probably wouldn't. People would go there to buy beer - but not if the beer was cheaper and colder at a larger, modern grocery store down the street. When it comes to groceries, Bario Alto sometimes feels like life in a small town in the USA before Walmart showed up. Before the idea of convenience was invented. But the simple truth is that the second law of thermodynamics seems to work in reverse where consumers and retail are concerned. It is merely a matter of time.

    For now, though, we haul our shopping cart through the streets each Sunday and enjoy the inefficiency and lack of convenience while we still can. Before it's too late.

    (click to enlarge)Barrio ALto

    Aug 23 6:03 PM | Link | 1 Comment
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