A Critical Reassessment Of Risk And Return For Small Investors [View article]
SDS
Thank you for a comprehensive set of comments. I figured that this article would get some juices flowing.
Your points are all very well-taken.
Here's an additional thought or two:
When I began investing about 30 years ago, I found obtaining good, current information nearly impossible without a broker. I suggest that now a small investor with a computer and internet connection can arguably go toe-to-toe with anyone if they have the time, aptitude and inclination.
In my case, I limit myself to about a dozen individual stocks since the amount of effort to stay on top of them, as well as keep a researched "wish" list current is reasonable. I encourage at least an hour a week per stock on average. If one spend about this amount of time reviewing the 10-Q, 10-K; listening/reading the quarterly earnings transcript; going through the presentation slides; checking select operating / financial metrics, reading a few analyst reports and reading the newswire feed, I believe he / she is far ahead of most investors out there. Even a few bigger ones.
I also agree that "risk" is hard to quantify; it's in the eye of the beholder. The challenge becomes not only one of risk tolerance, but placing probabilities on future risk. For instance, I agree that the chance of default for U.S. Treasuries versus Aflac Incorporated is skewed heavily towards AFL stock. However, what is the probability of either of these securities actually defaulting? Even if the chance of Aflac going bankrupt is 100x greater than T-Notes, I might dismiss those odds, since the absolute event risk (in my opinion) is so small.
I suggest that the small investor must guard against three devils:
1. Over-diversification: The great investor Peter Lynch called it "di-WORSE-ification." If the small guy wants to invest in 40 stocks, then just buy a mutual fund or ETF. As you pointed out, no reasonable person has the time to fully vet that many positions.
2. Not enough homework. Grinding through the aforementioned documents and reports isn't always sexy. But it pays off.
3. Trying to "trade" versus "invest." The media tends to tilt all the thinking towards the short-term trade. Score a quick buck on some factoid or news flash. It's distasteful to have to wait a year or more to make money. God bless traders: I guess some can make money at it. However, I think for the average guy, it's a fool's errand. Finding discounted stocks of companies with good balance sheets, rising earnings, dividend growth, and strong, shareholder-friendly management appears much more rewarding both intellectually and economically.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Most welcome, LeftBanker
After doing the homework on USB, I started a position and wrote the linked S.A. article. It appears to be a very well-run, conservative business, and an under-appreciated stock.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Splitting an investment between Shell and Exxon would seem like a good plan. Both these companies are into natural gas in a big way. Perhaps that's a dark horse kicker for those investors with a longer view.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
You've brought up several interesting points, Teutonic
Shell has been branded as a EU-center company, since HQ are in the UK and Holland. This has not helped share price. However, only about 15 percent of sales come from Europe. Shell is truly an international company; with major offices and presence on six continents.
Interestingly enough, inside the company, the company does business in dollars. As you can imagine, with worldwide business spread out all over the globe, there is considerable currency translation required.
XOM is another excellent investment. It's very well managed. Another fine major energy play is Chevron. I am less sanguine on the other two Super Majors, BP and Total.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Thank you for your comments David
I believe the trio of stocks mentioned are all undervalued: representing an insurer, an energy company, and a bank. Chuck Carnevale, a fellow S.A. author, turned me onto AFL some time ago; I made my career at Shell Oil and subsequently watched the company for over 30 years, so I know a little about that company; and Warren Buffett (I noticed he's referenced in your S.A. bio) indirectly got me interested in USB. My fav banking stock is Wells Fargo, a large position of Buffett's. Reviewing WFC earnings materials compares WFC with USB. USB compares very favorably with WFC. I did the homework and agreed that it's an excellent undervalued stock. BTW, Buffett has a U.S. Bancorp position, too.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Very good comment, mdpath
My best guess is that since AFL does about three-quarters of their business in Yen, and the Yen is falling big-time versus the dollar (pundits point to "Abenomics"), some traders are shorting Aflac in response. One of the major brokerages published a piece about this to fan the flames.
The linked S.A. article I wrote about AFL outlined this story. As a longer-term investor (versus a trader), this doesn't worry me. AFL does not covert much currency at all, generates plenty of dollars in the U.S. to cover the dividend, and even hedges Yen / USD.
Intel's Server Market Share To Decline As Competition Heats Up [View article]
I follow Intel closely, but do not pretend to be an expert on the details of their products. However, it appears to me that Intel management makes the big decisions (right or wrong), then relentlessly executes them.
Perhaps Intel demurred on mobile chips, even misjudging the growth vector of these products. Instead they decided to enter the server chip market: know full well it had much better margins. They now control upwards of 90 percent of it. Sound familiar?
Previously, when INTC management decided to focus upon the PC market, they ended up with eighty-something percent of that market.
I submit the company has the talent, R&D capabilities, and financial wherewithal to disrupt, if not crush, any market they choose to enter.
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
Actually, the oil and gas is pretty much all over the place. The Western politicians are what generally drive energy companies into less "happy" places. Indeed, it's ok for "rich" countries to consume energy like crazy, as long as it's NIMBY (not in my backyard).
Kind of people who like sausage as long as they don't have to watch it getting made. California is the poster child for it?
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
Thanks smurf
The energy business is driven to a lot of rough places. That's the hand that's dealt. Anglo/Dutch Shell does a pretty good job of working with difficult regimes and political instability.
With a garden-variety market correction, I suspect you'll get a chance to buy in about $67 or so. I think the bump in the dividend has helped bump the shares up. The forward yield is over five percent.
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
Hi smurf
Yes, Shell has some exposure to North America tight gas fields, but I believe their exposure to other international fields is far greater. Shell has embraced LNG facilities; choosing to lead the industry in this area. Shell emphasizes dry gas plays in places like China, Europe, the Middle East, Africa and Australia. Shell tends to favor deepwater production in the U.S. versus the gas-rich Bakken and Eagleford land fields.
I hold A shares since as an employee, Shell awarded and provided me with ESOP purchase opportunities for A shares.
Here's a link to the Shell website that covers the differences in detail: http://bit.ly/13bKsLf
The primary difference is that A shares are taxed via Dutch withholding regs, and B shares are taxed via British rules. Generally speaking, this means that the A shares have taxes withheld, but the B shares do not. In the case of A shares, the Dutch taxes withheld can be filed for as a tax credit so as not to be double taxed. Therefore, many U.S. taxpayers like the B shares for a taxable account.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Thank you for a comprehensive set of comments. I figured that this article would get some juices flowing.
Your points are all very well-taken.
Here's an additional thought or two:
When I began investing about 30 years ago, I found obtaining good, current information nearly impossible without a broker. I suggest that now a small investor with a computer and internet connection can arguably go toe-to-toe with anyone if they have the time, aptitude and inclination.
In my case, I limit myself to about a dozen individual stocks since the amount of effort to stay on top of them, as well as keep a researched "wish" list current is reasonable. I encourage at least an hour a week per stock on average. If one spend about this amount of time reviewing the 10-Q, 10-K; listening/reading the quarterly earnings transcript; going through the presentation slides; checking select operating / financial metrics, reading a few analyst reports and reading the newswire feed, I believe he / she is far ahead of most investors out there. Even a few bigger ones.
I also agree that "risk" is hard to quantify; it's in the eye of the beholder. The challenge becomes not only one of risk tolerance, but placing probabilities on future risk. For instance, I agree that the chance of default for U.S. Treasuries versus Aflac Incorporated is skewed heavily towards AFL stock. However, what is the probability of either of these securities actually defaulting? Even if the chance of Aflac going bankrupt is 100x greater than T-Notes, I might dismiss those odds, since the absolute event risk (in my opinion) is so small.
I suggest that the small investor must guard against three devils:
1. Over-diversification: The great investor Peter Lynch called it "di-WORSE-ification." If the small guy wants to invest in 40 stocks, then just buy a mutual fund or ETF. As you pointed out, no reasonable person has the time to fully vet that many positions.
2. Not enough homework. Grinding through the aforementioned documents and reports isn't always sexy. But it pays off.
3. Trying to "trade" versus "invest." The media tends to tilt all the thinking towards the short-term trade. Score a quick buck on some factoid or news flash. It's distasteful to have to wait a year or more to make money. God bless traders: I guess some can make money at it. However, I think for the average guy, it's a fool's errand. Finding discounted stocks of companies with good balance sheets, rising earnings, dividend growth, and strong, shareholder-friendly management appears much more rewarding both intellectually and economically.
Great comments, SDS. Thanks again.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Always appreciate your comments, my friend. Hit the nail right on the head. Indeed, you've summarized the underlying theme of the article very well.
Benjamin Graham and his book, "The Intelligent Investor," provided much of the impetus for me deciding to write this article.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Let us not get started on the RDS.A and RDS.B again! Whoa, brother! Have a great Sunday.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
After doing the homework on USB, I started a position and wrote the linked S.A. article. It appears to be a very well-run, conservative business, and an under-appreciated stock.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
A Critical Reassessment Of Risk And Return For Small Investors [View article]
Shell has been branded as a EU-center company, since HQ are in the UK and Holland. This has not helped share price. However, only about 15 percent of sales come from Europe. Shell is truly an international company; with major offices and presence on six continents.
Interestingly enough, inside the company, the company does business in dollars. As you can imagine, with worldwide business spread out all over the globe, there is considerable currency translation required.
XOM is another excellent investment. It's very well managed. Another fine major energy play is Chevron. I am less sanguine on the other two Super Majors, BP and Total.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
I believe the trio of stocks mentioned are all undervalued: representing an insurer, an energy company, and a bank. Chuck Carnevale, a fellow S.A. author, turned me onto AFL some time ago; I made my career at Shell Oil and subsequently watched the company for over 30 years, so I know a little about that company; and Warren Buffett (I noticed he's referenced in your S.A. bio) indirectly got me interested in USB. My fav banking stock is Wells Fargo, a large position of Buffett's. Reviewing WFC earnings materials compares WFC with USB. USB compares very favorably with WFC. I did the homework and agreed that it's an excellent undervalued stock. BTW, Buffett has a U.S. Bancorp position, too.
A Critical Reassessment Of Risk And Return For Small Investors [View article]
My best guess is that since AFL does about three-quarters of their business in Yen, and the Yen is falling big-time versus the dollar (pundits point to "Abenomics"), some traders are shorting Aflac in response. One of the major brokerages published a piece about this to fan the flames.
The linked S.A. article I wrote about AFL outlined this story. As a longer-term investor (versus a trader), this doesn't worry me. AFL does not covert much currency at all, generates plenty of dollars in the U.S. to cover the dividend, and even hedges Yen / USD.
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
One can see why I included the link to the Shell website!
Even the "short" answer isn't all that short.
Intel's Server Market Share To Decline As Competition Heats Up [View article]
Perhaps Intel demurred on mobile chips, even misjudging the growth vector of these products. Instead they decided to enter the server chip market: know full well it had much better margins. They now control upwards of 90 percent of it. Sound familiar?
Previously, when INTC management decided to focus upon the PC market, they ended up with eighty-something percent of that market.
I submit the company has the talent, R&D capabilities, and financial wherewithal to disrupt, if not crush, any market they choose to enter.
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
Kind of people who like sausage as long as they don't have to watch it getting made. California is the poster child for it?
Why Caterpillar Is Worth Over $100 Per Share [View article]
One of the more thoughtful and comprehensive comments I have ever read on S.A. Thank you.
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
The energy business is driven to a lot of rough places. That's the hand that's dealt. Anglo/Dutch Shell does a pretty good job of working with difficult regimes and political instability.
With a garden-variety market correction, I suspect you'll get a chance to buy in about $67 or so. I think the bump in the dividend has helped bump the shares up. The forward yield is over five percent.
Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
Yes, Shell has some exposure to North America tight gas fields, but I believe their exposure to other international fields is far greater. Shell has embraced LNG facilities; choosing to lead the industry in this area. Shell emphasizes dry gas plays in places like China, Europe, the Middle East, Africa and Australia. Shell tends to favor deepwater production in the U.S. versus the gas-rich Bakken and Eagleford land fields.
I hold A shares since as an employee, Shell awarded and provided me with ESOP purchase opportunities for A shares.
Here's a link to the Shell website that covers the differences in detail: http://bit.ly/13bKsLf
The primary difference is that A shares are taxed via Dutch withholding regs, and B shares are taxed via British rules. Generally speaking, this means that the A shares have taxes withheld, but the B shares do not. In the case of A shares, the Dutch taxes withheld can be filed for as a tax credit so as not to be double taxed. Therefore, many U.S. taxpayers like the B shares for a taxable account.