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Investment Pancake
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My investment process is (1) own rock solid businesses with healthy earnings and that pay me dividends, (2) spend less than I earn, and (3) reinvest what I don't spend into similar businesses, at the lowest price available at the time. I avoid selling, or dipping into principal.
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  • Duck Ponds

    (click to enlarge)Bario

    Today we took a train ride out to Sintra, a town located about 45 minutes outside of Lisbon. We stopped for lunch at a restaurant near the train station, where I got into a conversation with one of the waiters who happened to be from Cuba. He's a Nats fan, and mentioned that a fitted Nats baseball cap will set you back 70 Euros in Portugal. This is due to various import taxes and shipping costs. So of course he was interested in whether I'd buy him a Nats cap and bring it with me next time I'm in Sintra. He almost seemed disappointed to learn that we don't have any immediate plans to be back in the USA to buy hats.

    After lunch we made our way by tuk tuk up to the castle Pena, which has 360 degree views. Up at the castle it was sunny, windy, and glorious. Surrounding the castle is an enormous park. It's filled with many different varieties of trees, ferns and seems very primordial. Until you look closely. Then you see that the entire park is manicured to wild perfection. The paths are all set with pavers - it's like cobble stone roads leading through a dense thicket of rubber trees and giant ferns. Boulders are precisely overgrown with mosses and sprout neat rows of brush. Gardeners and nature clearly work in harmony here, and by the looks of it, have been doing so for hundreds of years.

    One of the most interesting features, though, are the duck ponds. I've noticed something unusual in Portugal, vis-a-vis ducks. They live in caves. Man made caves. This is something you can see in almost any park with a pond. And the ducks themselves are somewhat prehistoric looking, with red faces and moderately enormous bodies (at least by North American duck standards). In Sintra's national park, there's a duck pond that tops them all. It's not just the cave-bear sized duck grotto on the side of the pond. It's the tower in the middle of the pond that serves as the duck's siege-engine-proof castle (complete with ramparts) that drew our attention.

    Now, I have to say that I generally have little interest in (or, indeed, regard for) billionaires past or present, but there is one positive thing I can say about them. They sometimes indulge whimsy and build things that otherwise just simply would never be built. Get a few indolent countesses together with the modern day equivalent of limitless wealth, and suddenly you've got ducks armed to the teeth, roosting and quacking behind the safety of stone crennelations one meter thick. You gotta love that. If so, Sintra could be the place for you.

    We came back to Lisbon, and noticed the sky was white. It's the first time I haven't seen blue skies over Lisbon in over a month. That is what I painted above.

    Aug 31 4:55 PM | Link | Comment!
  • 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!
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