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  • Why Passive Index Investing Is Merely An Illusion [View article]
    Well. This is sticky, because while it was someone's conscious decision not to include IBM or BRK, that's not to say that the indices are actively managed in the sense that a mutual fund is.

    I'd like to track down the specific reason IBM was removed, but I'll hazard to guess that it was due to some quantitative decision (such as BRK's perceived "lack of liquidity") rather than a qualitative one. I suppose we can't know, but I doubt S&P removed IBM because they weren't a suitable investment in the same way that Bill Gross might decline to invest in Detroit's municipal bonds. An active management seeks to increase shareholder return; a passive one only seeks to reflect a predetermined formula.

    There is still human decision-making evident in the composition of the S&P, so it's "active" to that extent, but it's to different ends than a fund manager seeking to maximize return. The S&P seeks to *represent* the US market only, making no judgements as to the desirability of said companies. Index changes generally occur only due to mergers, acquisitions, and other corporate events such as bankruptcy. An active manager seeks to earn yields that exceed the chosen index.

    Thus, if the S&P is "active," it seeks to exceed its own returns!
    May 11, 2013. 11:51 PM | 6 Likes Like |Link to Comment
  • Is Ford About To Go On A Major Run? [View article]
    Here's what you said December 28th. Can we get a specific date for this new drop you are predicting?

    RE: Did The Market Screw Up Ford's Dividend Announcement?

    "I like Ford at $8 a share and it will be there soon. The war between the funds will result in Ford continuing it's descent into January and February. If you can read a chart you should be running for the door. Eventually Ford's marketing department will give up and let it drop to where it belongs and from there it can build. Who announces a dividend between financial reports? Someone desperate to keep the price above $10 for year end. See you at $7.85 but only for a few minutes. And you people who own Ford now - sorry, your ownership doesn't make it a good buy for anyone else.
    May 11, 2013. 09:32 PM | 1 Like Like |Link to Comment
  • Conservative Dividend Investors Have 3 Options Right Now [View article]
    There are some great companies selling cheaply right now in banks, oil, and tech, as Tim notes. As far as banks, I settled on Bank of Mellon NY, a conservative bank that steadily builds value and rewards shareholders but will never jack up crazy alpha over the market or anything like that. But if it was good enough for Alexander Hamilton, it's good enough for me. The word is out that it's on sale, though, and I feel like this is about as cheap as it will get barring a market correction. It's on sale now, but it was *really* on sale last year and I slept on it. Oh well. As far as big banks that have seen big trouble but have survived, SAN is intriguing right now too, and I've been tangoing with RBS for some time, tossing spare cash at it here and there. After the crises, I feel like really well-run banks like Mellon got caught up in the mix, and investors are twice-shy about them; as far as TBTF banks, they're lepers and no one wants them in their portfolios -- a great time to buy. Oil has COP and BP and others hovering around book value due to macro scares and the evergreen concern about gas prices. Tech is where I see the best opportunities right now, though: besides, obviously, the recent Apple scare, which I told Ma to sell the cows fer, there are quality outfits like Microsoft, Seagate, Cisco, Unisys, and Intel selling below their normal valuations (Seagate has "magic formula" numbers that are droolworthy). So there's still a lot of value floating around if you're not looking strictly for dividend growers. Or even if you are.
    May 10, 2013. 11:12 PM | 2 Likes Like |Link to Comment
  • Warren Buffett Would Not Just Buy And Hold The S&P 500 [View article]
    Yes he did, commenting that "'dumb' money, once it realizes its limitations, ceases to be dumb" shortly thereafter.

    I feel pretty confident in saying that if Graham had lived another few years (until the premiere of VFINX) and had produced another II revision, he would have recommended the "defensive" investor invest in an index.

    The article begins by speculating over what Buffett *would* say, and then fails to provide any evidence of Buffett's actual opinion on the matter, which he has spoken and written about directly.
    May 10, 2013. 08:34 AM | 1 Like Like |Link to Comment
  • Is It Worth Holding Cash And Being Patient? [View article]
    the time to buy is when you have money!

    the time not to buy is when you don't have money.

    but always hold dry powder. the problem many people have with money is that it burns a hole in their pockets. holding a cash reserve seems pointless and is onerous 99% of the time. however, 1% of the time you're thrilled to have it, because it allows you to jump in both feet if your favorite company goes on sale.

    as far as when to buy, it needn't be a 2008-style market-wide meltdown for the reserve to come in handy. companies get hit with lawsuits, bad news, executive shuffles. i like to check that "poorest-performing" chart in the WSJ (a great place to find bargains). every company hits its 52-week low once a year. echoing chowder, who knows what's up: if it's one of those iceberg-like blue chips that never seems to present a good entry point, the perfect time to buy most often presents itself only in hindsight. markets may remain in a state of seeming overvaluation for a surprisingly long time! and even if there is a correction, it doesn't mean that it will be a large enough correction to justify the wait, and even then the stock may not really "correct" along with it.

    it's how you approach the reserve, your attitude toward it. if you hold it for a tactical deployment in one particular instance ("if JNJ goes down to 70, i'm buying") it's more likely to sit there glaring at you, slowly shrinking from inflation all the while. if you hold onto it per general principal (maybe while hedging it a little) it offers freedom and flexibility i feel isn't there when you're 100% vested.
    May 8, 2013. 08:30 AM | Likes Like |Link to Comment
  • Why I Remain Bearish Despite The Cyclical Bull Rally [View article]
    "Some people take an aspirin before they go to bed, as a prophylactic measure against the next day's hangover."

    Actually aspirin might be bad for you if it has acetaminophen and you've been drinking; a better preventive against hangover would be, if you have the presence of mind, to drink two liters of water before you go to bed. Guaranteed, no hangovers. You can augment this by washing down a vitamin with one of those fizzy vitamin C drinks, going for a brisk jog, and taking a nice warm shower, but just a can of V8 juice can work well in a pinch.

    Not that I have any experience with this sort of thing, mind you.
    May 7, 2013. 06:41 AM | 7 Likes Like |Link to Comment
  • Apple And Samsung Just Don't Have A Chance Against BlackBerry [View article]
    Haha, now *this* is what you call a teaser headline!
    May 6, 2013. 07:57 AM | 3 Likes Like |Link to Comment
  • 3 Overlooked Investing Rules To Remember [View article]
    "there's also the feeling of selling and watching a stock move much higher."

    I don't know precisely what it is about human psychology, but suffering a loss is twice as acute a sensation as making a gain... and selling after a gain, but before a larger gain, is an even greater sensation. Read that in some behavioral finance class I audited a bunch of years ago, and it always stuck for some reason. I'm wired a little oddly so I never feel badly if a stock I've sold continues to do well -- I sell when I get a funny itch at the back of my head about it. After that, I tend to see it as if I'm breaking up with a girlfriend, on good terms, but because we want different things out of life. Lots of study and thought goes into my purchases, but I sell so seldom that I don't feel the need to have any formula time to pull the trigger. Usually I'll do so if something is overvalued and I've already made my money back several times over. Other than that, unless it's some spec (and these are exceedingly rare for me), well, let the good times roll.

    There's all this advice on when and how to buy, but the authorities are largely silent on when to sell.
    May 5, 2013. 07:26 PM | 5 Likes Like |Link to Comment
  • Investing Is Work That Should Pay Dividends [View article]
    Well, it depends on what you consider "work" and your approach to it. People spend hours practicing their golf swings and don't approach it with the same attitude that they do their day-to-day. If investing is your hobby, you're probably wired a bit differently from other people, so it's likely not too much to suggest that before reading the Berkshire letters, or Cialdini, or Graham or any of that (and they're all wonderful suggestions)... make sure you can read and understand a balance sheet.

    It might be a little much to ask someone to rip through 900 pages of "The Analysis and Use of Financial Statements," but you gotta have those fundamentals down before you get to more pleasurable things like Buffett's letters. After all, the teaching moments and pithy homilies are nice trappings, but he's there on business. It just happens to be business he thoroughly enjoys.
    May 4, 2013. 11:41 PM | 2 Likes Like |Link to Comment
  • A Look At My Investing Mistakes With Dividend Stocks [View article]
    "It is much easier to leave mutual funds alone and profit take or exchange to new funds less often."

    Is this universal, or are you just speaking from your own experience? I've had a holding in CL since... whoosh... 1991? It's appreciated at something like 2,000% since then. I've fortunately never been bitten by the trading bug (I'd rather gnaw my arm off than pay a penny more in cap gains than I have to) but trading with a company like KO, that slowly, steadily builds value but will never set the world on fire with exorbitant overnight gains seems a little off.
    May 4, 2013. 05:49 PM | Likes Like |Link to Comment
  • A Look At My Investing Mistakes With Dividend Stocks [View article]
    Well, maybe not. Some very successful investors tend to follow Andrew Carnegie's advice: "Put all your eggs in one basket, and then watch that basket." Charlie Munger, before he joined Berkshire, tended to focus on roughly a half-dozen or so companies which he knew inside and out. Alternatively, Peter Lynch was often invested in 1,000 different companies when he ran Magellan. He knew those companies maybe not as well as Munger knew his... but he always did his homework. I suppose it has to do with personal style and what you're comfortable with.

    Being something of a wild card, I might be invested in 8 or 80 or 800 companies at any given time, depending on how many good ideas I see kicking around. My overall returns tend to be better when I'm invested more thickly with a few companies, but that's because I'm not diversified sideways or waiting for some of my dingbat left-field speculations to come to fruition.

    A concentrated portfolio of, say, XOM, KO, JNJ, CL, MO and a few others would reap better returns than one with a whole constellation of bad decisions!
    May 4, 2013. 02:32 PM | 6 Likes Like |Link to Comment
  • A Look At My Investing Mistakes With Dividend Stocks [View article]
    So drcarl "wins" the thread before it starts!

    Penn Central. That's tough. For a long time, that was the textbook case for corporate bankruptcies -- we worked out the Penn Central case in business school. I was a kid when that happened too. No one saw it coming, but in retrospect, their books were a mess with unfunded liabilities everywhere.

    So much for listening to your broker!!
    May 4, 2013. 08:45 AM | 4 Likes Like |Link to Comment
  • A Look At My Investing Mistakes With Dividend Stocks [View article]
    Former Tyco investor here! I did get some money back in the shareholder lawsuit, but should have known there was something fishy. Maybe it was when management started sending us 419 emails saying they were dispossessed Nigerian princes with giant fortunes they needed our help claiming...

    The first example re Phillips and Conoco doesn't really seem like a mistake, the reason for investing in COP as opposed to Phillips seems pretty well-founded. You just backed the wrong horse. Happens. All the same, Conoco isn't a bad choice per se. I'd stick with it, all other things being equal.

    Anent the second one, yeah. FUBAR. Haha. See, it's a great thing that the cap gains tax reduces after a year to discourage trading. Knowing that I'd be staring at my mistake for the next 366 days has kept me from following a lot of crazy whims.
    May 4, 2013. 08:23 AM | 3 Likes Like |Link to Comment
  • 3 Undervalued U.S. Equities With Strong Earnings Growth [View article]
    Emerson is a "U.S. equity" in name only, essentially a Chinese company which has seen several shareholder lawsuits over the years. There are some very unsettling elements in its SEC filings. Check out Duncan Hon and Grande Holdings Limited before proceeding further.

    I consider Emerson a fairly malignant value trap and have stayed away.
    May 2, 2013. 07:27 AM | 2 Likes Like |Link to Comment
  • A Weird Misconception About IBM [View article]
    Well, remaining agnostic and unopinionated about everything else in this article and thread, I know that some people are concerned about how IBM has responded to the ongoing development of Cloud technology. Over the last few years, the firm has developed a plan that essentially provides private clouds to individual businesses on a pay basis. However, it's the trend has developed toward a more public, decentralized Cloud, and so the question remains as to who would want to pay IBM for something they could participate in for free via any (say) iOS program.

    Whether or not the concern has any merit, I have heard a fair amount of loose talk about it as a longtime fan of the company who follows the chatter. Chatter isn't something to base your decisions on, but it does pay to pay attention.
    May 1, 2013. 09:33 PM | 2 Likes Like |Link to Comment