The Investing Engineer

Value, long-term horizon, dividend growth investing, portfolio strategy
The Investing Engineer
Value, long-term horizon, dividend growth investing, portfolio strategy
Contributor since: 2012
DGI, because it's a great starting point.
A metaphor is a writing tool which allows one to compare two unlike things. In my example, the car represents Amazon, and being broken down represents the failure of Subscribe & Save, a.k.a. orders constantly being cancelled. The comparison I'm making between the two is that if something is broken, whether it is a car, or a service, it will remain broken until fixed.
Let me give you an example. Your brake line is cut and your brake fluid leaks out of the car. As a result, when you push your brake pedal, there's no pressure in the line to compress the brake pads. Let's fast forward 1-1/2 years. Let's pretend you haven't replaced your brake lines. No matter how much brake fluid your pour into your car, the brakes still won't work because you didn't fix the problem. Even if you wait 20 years without fixing the brake lines, the brakes still won't work.
Now, instead of a car, you have a service that lets people choose items that they want shipped to their house on a regular service. Let's pretend the service is broken. By this I mean that every few months, the items that someone chose are removed and never replaced. That means that after you set up your service, after a short time you will stop receiving items because they are no longer available. Now, let's fast forward 1-1/2 years. You choose new items to get shipped to your house. Even though some time has passed, these items are again made unavailable. The problem with the service has not been fixed, therefore, you don't get your items.
In both cases, you have a problem that isn't fixed. After some arbitrary amount of time has passed, you check on the problem. If it still hasn't been fixed, the problem will continue. That, my friend, is the relevancy of the car metaphor.
To take this a step forward, the Subscribe & Save problem is that you can choose your items from Amazon, but Amazon won't have them available. This is especially relevant to the Seinfeld quote that Griobhtha used because in both cases a reservation is being made which the company is unable to fulfill. If Griobhtha made this post in 1913 it would be just as relevant to the article.
Edit: This is as far as I'm willing to go explaining the relevancy of a quote I pulled. I have neither the time nor the crayons to teach you this.
Let me ask you a somewhat unrelated question; there may be some metaphorical significance.
If your car broke down 1-1/2 years ago and you never fixed it, would it still be broken?
The comment might be 1-1/2 years old, but orders are still being cancelled. If you looked at the comments from 2014 that I linked to, they're saying the same thing. I just didn't choose them because they didn't have the funny Seinfeld quote.
What does it matter when the comment was made? The issue still exists and is just as relevant. That post wasn't included in the "12 out of 35". It's just another one I looked at that described frustration with Amazon frequently cancelling orders.
One third of all the 2014 posts in the S&S forum were voicing dissatisfaction with the product. While people having issues are more likely to be voicing their opinion, they also represent a much larger population that is having the same dissatisfaction.
Well, they've increased SSS to $35, created "add-on" items that don't count towards prime, and now Prime Pantry. They might just have to get their own fleet of trucks and drivers.
What are you trying to say? Gotta shop somewhere.
Amazon's strategy has been to take a loss on shipping to get more customers. They're finding out that it's just as easy to lose customers. I didn't mention it in the article, but I found on some of the forums that people have been noticing prices are sometimes higher with Prime service than if you buy the item without Prime. They're basically hiding the cost of shipping with a higher sale price.
My bad. I was thinking of 2012 when the stock price plummeted and they had a huge restructuring. Thanks for the comment. I'll see if I can have this corrected.
That's correct, Mr. Reitman. First in, first out. In Orthoeconomics' scenario though, it's not really a benefit. Say you buy 1 share at $10. One year later the price drops to $5 and you both buy and sell 1 share at the same time. According to the IRS you've taken a $5 loss on that first share because you sold it for half the price and you can claim that loss against your taxes. Your stock seems to be unaffected because you still hold that 1 share. Unfortunately, what you'll find is that if the stock price goes back up to $10 and you sell, you're now making a $5 profit. The taxes on that negate the tax deduction from the loss. If you had just held the share when it dropped to $5 and let it recover, you can sell for no profit and therefore pay no taxes. The real trick for this to work is when you only care about the dividends and don't plan on selling for a profit.
I apologize if the title is misleading. It was meant to illustrate the point of the article, which is that there are ways of making up for the bad situation Seadrill holders are in.
Wouldn't Bollinger Bands indicate that SDRL is oversold, from hanging out on the lower band for a few weeks without crossing the moving average?
"Furthermore, the Chinese bankers would rather have the Americans spy on them rather than the People's Liberation Army."
That's a bold statement to be used as reasoning for sticking with IBM servers. Do you have a source for that or is that just your opinion?
Yes, this article is on SDRL, not SDLP. In fact, I don't even think SDLP existed when I wrote this.
Michael, if you were hypothetically considering buying more of this company, you might want to look at the SDLP because an MLP or LP provides tax sheltering that an ordinary stock does not. For these too though, I think the 12% dividend versus the 6.2% distribution more than makes up for the added tax savings, not to mention the headache that filing taxes for an MLP is.
Great article. I really enjoyed it.
Yeah, there's something I didn't really think about but gives a better explanation why a buyback could be better than just paying out the $2B per quarter. When a company pays out cash, like a dividend or this hypothetical special dividend, the stock price is adjusted downward to reflect the balance sheet. The net affect is no change, but what it essentially would be doing is lowering the price and forcing you to hold on to the stock to make up for the loss associated with the special dividend. Of course if you're planning on holding long term, this doesn't really matter. On the other hand, it does act as a deterrent from just buying the stock before the "ex-special-dividend" and selling the next day because the price would be adjusted downward.
But it's a very different benefit. That's why there's no ex-date for buybacks like there is for dividends.
I don't see how they're the same thing. Could you elaborate?
The dividend is from that quarter's earnings. You're getting paid quarterly from quarterly earnings.
Distributing that $2B is different. It doesn't come from quarterly earnings. Most likely it's from a combination of cash, sale of assets, debt, etc. Whatever the source, that money wasn't earned in just one quarter, so it would be unfair to give someone who's only been a shareholder for one quarter the same amount per share from that $2B as someone who's been a shareholder when most of that money was made.
$2B per quarter, with 10.12B shares outstanding is $0.197 per share per quarter, or $0.79 per share annually.
You have to consider though that putting $2B per quarter into buybacks is lowering the number of outstanding shares, resulting in a higher EPS and therefore a higher dividend if GE keeps its payout ratio. This is what the article describes. Payout out the shareholder all this money versus a share buyback is a tradeoff between giving the shareholder a one time lump payment or giving the shareholder a higher percentage of ownership.
In terms of fainess, you really can't just give $2B per quarter extra to each shareholder. Unlike a normal dividend which is based on quarterly earnings, that $2B could be made up of earnings over several years. How do you divide that up among shareholders? If you were a shareholder for several decades then you should be entitled to the full percentage. If you only recently became a shareholder however, why should you deserve a the same amount, when most of it probably wasn't earned while you held the stock? A buyback is a much more fair way to deal with this.
And I'm sure the vehicles share software and parts suppliers. I still stand by what I said. In my job, when a contractor I'm working with is having issues with a product, they tend to be having similar issues with different products. Welds breaking on one product? Better check the welds on their other products.
I'm not saying that the MKC will have issues, and I'm not even targeting it because of the shared platform with the Escape. I just mention the risk of recalls as especially important for this vehicle because of the way it's being marketed to revive the brand. Ford doesn't need to offer huge discounts to sell their cars. They're proving this with the Fusion, yet they're pricing the MKC to suggest the opposite. That's because Lincoln isn't Ford, and they know it. If the MKC happens to have 7 recalls, that investment in Lincoln could end up as a large write-off.
Yes,there's still some risk. I'm sure the 1.6L, 2.0L and 2.3L Ecoboost engines share more than one feature or design element. On the other hand, I'm sure that whatever problems the 1.6L is having, are being combed over for the larger engines.
The report doesn't say why, but my guess would be the 7 recalls. The Ecoboost engines are having lots of problems so that presents a big risk for the MKC, given that it's only available with an Ecoboost engine.
Because 95% of the article was regarding Ford's strategy for reviving Lincoln, with only a blurb at the end regarding price to book value because I know the editors like to see some financial analysis and a pretty chart to approve the article. But yes, I'll admit that I don't know the ins and outs of all the automotive manufacturers.
I just have one question; why aren't you writing articles?
Actually, a better comparison would be to remove the 15B in operations debt, since that's what isn't showing in GMs price to book value. Doing this has less of an effect on Ford's price to book since the 90B is such a large figure. Recalculating gets 3.03, which is close enough to 3.1
Thank you for the clarification. I thought all the manufacturers had their financial services as part of the main company.
Adding that 90B from the financial arm back to the EPS gives a price to book value of 2.51. Either way, 90B is a lot of debt.
But don't the other automobile manufacturers have the same scenario, where their debt is made up of both lending debt, which is good, and automotive debt, which is bad? That's why I'm comparing Ford to the other manufacturers. Maybe it's best not to expect this to go below Graham's recommended maximum price to book value of 1.5, but you still want to compare this to the competition.
Without taking the few minutes to look up Toyota's numbers, I'm going to guess that they have more (or at least similar) sales to Ford. The fact that their price to book is lower then indicates a more favorable amount of debt, or at least a more favorable valuation for buying shares.
The author does mention that the dividend was at $0.31 per share. It sucks that it dropped, but you have to be realistic about what the company can pay. One of the best indicators of this is EPS, which the author clearly does. Paying out $0.31 now, just for the sake of returning the dividend to what it was pre-crash would hurt the company and ultimately the share value.
Don't blame GE for Immelt's salary. Instead, blame the inaction of GE shareholders that let him get paid that much.
Good post. Mine's very similar, down to the Facebook example. If I weren't me, I'd think I stole you're idea...
Thanks, I really appreciate that! I'm a big fan or your writing so it means a lot to me.