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Tim McAleenan Jr.  

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  • The Downfall Of Using The Chowder Rule As An Investment Guideline [View article]
    So many claims in such a short post!

    First, you mention that DGI involves "rearview mirror" analysis. No, it's not about living in the past. Instead, the past is studied to figure out what types of status quos exist that make certain companies profitable in an entrenched way, and the study of the past informs our selection when we think a certain status quo is likely to continue. The rearview mirror provides input on the rate of change, and explains why a business like Hershey will be more stable than a business like Intel.

    Second, you mention that "never selling" is a tenet of DGI. This varies with the person, but DGI involves a recognition that there are three ways to make money: a business grows earnings, a business pays out earnings as dividends, and the valuation changes on the business. The "never selling" notion means that we want to make the lion's share of our wealth through business growth and dividend collection rather than trying to spend our life figuring out which companies will go from a P/E ratio of 13 to a P/E ratio of 17.

    Third, DGI probably "mark to market" their holdings in the sense of having a general idea of net worth, but the point is that we don't sell something simply because the price of the stock goes down. I own Chevron. It's a fantastic business. I have some shares that I paid $110 for. When the stock went down to $69, I didn't "mark to market" and freak out over the paper loss. Instead, I tried to act intelligently by recognizing the discount provided a good time to reinvest dividends. Now, it's already back to $90.

    Even the best assets fluctuate in price. Dividend investors don't "mark to market" because they don't feel it is something that requires action--just as people don't walk around saying they are going to breathe oxygen on a given day, dividend investors don't walk around talking about mark to market assets because it is a natural thing for even the best businesses to fluctuate in price. Why sweat over things that naturally come with the territory?

    Fourth, the measurement of success often takes into account the current dividend stream because the most well-equipped dividend investors try to position themselves to only consume the fruit of the tree rather than selling the tree as well to live.

    Usually, charities or heirs collect the principal value of an estate, and that is a remote consideration for a DGI. Therefore, it is those $3,000 checks from Exxon that provide the personal benefit of investing. If it bastardizes the selection process to prefer high dividend payers over those with low dividends and high probabilities of significant growth, that may be a fair issue to raise (or something the DGI considers a fair trade-off for receiving meaty AT&T dividends right away.)

    I don't try to think in terms of decades because it makes me morally superior, but rather, because I believe I have a high probability of making correct guesses about things that will happen rather than predicting when it will happen.

    Hershey has almost quadrupled profits since 1999. The returns on equity are amazing. People really like candy. I can figure out that purchasing Hershey around 20x earnings and sticking around for the ride will lead to a favorable outcome in 2030 and beyond. Trying to guess whether it will be $110 or $70 next Christmas is something I have no skill at predicting.

    I view thinking in decades as my greatest advantage because I only have to get the companies right and can have great flexibility in getting the price right, whereas a shorter term investor not only has to predict what will happen, but also predict when it will happen as well as how other people will value those actions. I'd rather get one thing right than three.

    Dividend growth investors don't deride others for their trading strategies. If you want to fill your basement up with gold ounces, be my guest. If triple inverse currency funds are your thing, have at it. It's your money. You get to write the script.

    But when you attempt to write the script for dividend growth investors, we tend to rise up and say "You've entered my story. Sorry, but I get to be the playwright here." Dividend investors aren't deriding you for how you invest; we are mostly bemused at others for thinking they have the authority to tell us how to invest, and in certain cases, lead our lives.
    Oct 29, 2015. 08:19 PM | 173 Likes Like |Link to Comment
  • GE weighs exiting Connecticut HQ [View news story]
    I don't know enough about the Ex-Im Bank to have an opinion on that.

    But I wonder what it says about the future of Corporate America that the measuring period of "What have you done for me lately?" keeps getting shorter and shorter.

    There are these colliding pressure points in America. Large budget deficits mean that higher taxes or reduced spending will eventually be in the offing (I suppose booming growth and inflation that reduces the value of accrued debts is a third option).

    And yet, corporations like General Electric demonstrate that higher taxes will not be tolerated by the companies with the greatest power, and this could create a perpetual shift towards jumping ship anytime a better seductress flaunting tax breaks and ideological sympathy whispers in the Board's ears.

    There was a time when the growth of a local company was an immense source of regional pride. It provided continuity to communities, and even became a source of identity for some. This trend towards dating, rather than marrying, adds an ephemeral element to the relationship between working men and the largest economic engines that provide fruit from their labor.

    In a grander scale, higher federal taxation will simply accelerate the rush of American companies to leave the US. That would further reduce our influence, and despite America's problems, I'd rather have American executives be the conscience of the world than their peers in Russia or China. Perhaps we will one day see whether my preference is warranted.

    When you play musical chairs over every unfavorable development in local regulation or tax policy, you end up playing musical chairs with the lives of working men. It gives off a very "Et tu, Brute?" vibe.
    Sep 11, 2015. 02:49 PM | 6 Likes Like |Link to Comment
  • 5 Depressed Stocks To DRIP Into - For Free [View article]
    If you do that, you wreck the business model of the transfer agents that make DRIPs possible.

    "This is why we can't have nice things."
    Sep 8, 2015. 03:55 PM | Likes Like |Link to Comment
  • Halcón Resources Sets Precedent For Debt Restructurings In The U.S. Oil And Gas Sector [View article]
    Good article, fairly ridiculous disclaimer.
    Aug 31, 2015. 06:23 PM | 2 Likes Like |Link to Comment
  • Chevron Through The Lens Of Peter Lynch [View article]
    Thank you!
    Aug 31, 2015. 11:42 AM | 2 Likes Like |Link to Comment
  • Tiffany: The Only Specialty Retailer You Can Hold For Life [View article]
    Varan, part of my argument is that Tiffany is a bit on the cheap side right now.

    Last night, I was studying how different long-term results can quickly change if a stock suddenly becomes cheap. In particular, I had Exxon on my mind.

    If you bought $1000 of Exxon in 1970, and then held through the summer of 2014, you would have compounded at 14.8% and ended up with $450,000.

    If, instead, you had held through today, your returns would be down to 13.8% and a $350,000 end point. Even over a ridiculously long-term period like 45 years, you still lose a point of compounding in response to market fluctuations.

    $100,000. Gone. Solely on account of one year's fluctuation. I wonder if a similar element is at play with Tiffany?

    If Tiffany were trading at $105 per share or something like that right now, the results might be more impressive. My preference for Tiffany over the Fidelity Fund is that Tiffany seems to have the business model to deliver 10% earnings growth or better for the long term, and I expect that would eventually translate to greater end wealth at some point in time.

    When a stock becomes undervalued, its long-term performance metrics can become unimpressive compared to benchmarks that don't share the undervaluation.

    I guess I would ask you to consider how undervaluation can skew your offered comparison, if you don't think it does, then the Fidelity Fund could make sense. I still don't think anyone is going to regret owning Tiffany for the next 10+ years. But you raise a fair point.
    Aug 29, 2015. 04:15 PM | 1 Like Like |Link to Comment
  • Procter & Gamble cut CEO's bonus after missed targets [View news story]
    Lots of errors here.

    P&G should set its bonus target at 7% for core EPS, not 5%. This trend towards low hurdles for bonus money is not in the interest of shareholders.

    Secondly, no bonus should be received for failure to reach the goals. It's fine if the bonus is scaled so that bigger bonuses accompany bigger beats, but failure to meet goals should not result in any bonus whatsoever.

    What catches my attention is that the target was 5% and Lafley delivered -2%. That is a substantial earnings miss. In what world is it fair to impair the business and miss the goal by seven percentage points and still receive a $3.3 million bonus in addition to base salary? What must a P&G executive do to not receive a bonus--punch the largest shareholder in the face and then spill hot coffee on his lap?

    People are surprisingly mature when talking compensation. Everyone seems to understand that the CEO is going to make significantly more than the janitor. But resentment arises when management teams create asymmetrical reward systems. When P&G lays off employees because it needs to grow profits, it destroys employee morale to see executives receive bonuses for periods that covered this underperforming timeframe that triggered layoffs.

    My two other issues:

    Compensation shouldn't be based on one-year results as that encourages financial engineering at the expense of long-term investment with lucrative but remote payoffs. I'd rather see three, five, and ten year earnings targets tied to bonuses (although I do understand Lafley came back under unique circumstances that wouldn't make sense for ten year earnings measurements).

    And secondly, if you want to get truly nuanced and philosophical, earnings growth may not be the best basis for awarding bonuses. There are many things that matter which do not directly show up in the numbers. It is theoretically possible to deliver no growth while executing a strategy that strengthens the brand and improves the moat, just as it is theoretically possible to deliver strong earnings growth while destroying the company (many on SA argue that IBM is Exhibit A of the latter).

    P&G remains a lifelong hold. It will be fine. It will get through this. However, any thriving over the long term will be the result of customer affection for the great brands built under the P&G umbrella during the past two, three, four, and five generations. At this time, there is no indication that current management has strengthened the brands or executed a strategy that delivers on growth. Shame on the stewards of this American icon.
    Aug 29, 2015. 12:35 AM | 26 Likes Like |Link to Comment
  • Learning From The Masters: Q&A Session With Richard Berger, Part I [View article]
    I disagree with the line: "...but if you never sell it because you don't know when it has gotten far above its value and your money can find better value to invest in, then you will never win. You cannot make a profit if you never sell."

    If you buy a truly exceptional company, and hold on to it for decades, you can find yourself drowning in so much dividend income that fair valuation metrics and concerns about "not making a profit if you never sell" fall by the wayside.

    If you bought 100 shares of Coca-Cola stock forty-five years ago, you would be collecting $800 in dividend income per day. You'd be getting your initial investment back in dividend income alone every ten days.

    If you identify a company with great prospects for long-term growth, and it gives you some manifestation of that growth through dividend payments, you can "win" and "make a profit" by collecting more dividend income than your initial investment amount.

    It is winning. It is hitting grand slams. It is collecting so much dividend income that you don't even have to worry about making a quick buck through capital gains. The price of admission is patience and proper due diligence with the company you select.

    Richard adds: "The real secret to successful investing is to know when it is time to leave the party." I prefer to attend parties that never end. And collecting checks every 90 days is how the party goes on and on.
    Aug 26, 2015. 01:17 PM | 13 Likes Like |Link to Comment
  • Ten Things I Would Have Done If I Were A Seasoned Expert [View article]
    All very reasonable courses of action.

    Nothing wrong with buying Chevron in increments on the way down. You'd go nuts if you looked at the lowest price a stock reaches and then compared that to your purchase price.

    Identify fair value, and then buy in increments on the way down as circumstances allow. You still get good returns, and you also get to maintain your sanity. Win win.
    Aug 25, 2015. 02:19 PM | 6 Likes Like |Link to Comment
  • Visa weighs heavy on the Dow [View news story]
    Bought some at a little over $62, and now I'm going about my day.

    Fifteen years from now, this decision will have worked out fine.
    Aug 24, 2015. 10:44 AM | 2 Likes Like |Link to Comment
  • P&G Is Overvalued Because It's A Dividend Aristocrat [View article]
    I would argue Procter & Gamble is fairly valued in light of its ability to pump out $10+ billion in net profits during disastrous economic conditions.
    Aug 13, 2015. 03:52 PM | 10 Likes Like |Link to Comment
  • Berkshire Hathaway nears $30B deal for Precision Castparts [View news story]
    No need for name calling, Snoopy.

    Berkshire violates anti-trust regulations all the time.

    See this WSJ report:

    Perhaps it is Berkshire that doesn't understand anti-trust laws.
    Aug 9, 2015. 06:44 PM | 3 Likes Like |Link to Comment
  • Berkshire Hathaway nears $30B deal for Precision Castparts [View news story]
    My criticism is not that it is a large successful conglomerate.

    Rather, it is that Berkshire exerts too much influence in certain industries.

    It owns huge ownership positions American Express, Wells Fargo, U.S. Bancorp, Moody’s, Munich Re, GEICO, Bank of America, Goldman Sachs, and huge insurance divisions. That's too much control of the financial sector.

    It controls too much influence in the food sector, giving loans to Mars-Wrigley, owning Dairy Queen, funding Burger King and Tim Hortons, the whole Kraft-Heinz ownership position, and runs McLane which gets foodstuffs to KFC, Taco Bell, Pizza Hut, and Long John Silvers.

    And plus, it owns over 2% of Wal-Mart while selling billions of dollars of goods at Wal-Mart through the Coca-Cola investment, Duracell battery, and almost $20 billion in additional sales that occur at Wal-Mart.

    If the government did not permit AT&T to buy T-Mobile for $39 billion, why does Buffett get to control such extensive influence in the financial, retail, and food industry? It seems to me that the halo effect of his career gives him less scrutiny than other players regarding anti-trust matters, and I argue that this violates equality under the law.
    Aug 9, 2015. 05:44 PM | 8 Likes Like |Link to Comment
  • Berkshire Hathaway nears $30B deal for Precision Castparts [View news story]
    How have regulators not broken up Berkshire yet? The amount of political power being wielded from Omaha should not be allowed to exist.
    Aug 9, 2015. 03:21 PM | 6 Likes Like |Link to Comment
  • Adding CVX To My Portfolio [View article]
    It looks like you're doing some old-fashioned value investing. Well done.
    Jun 28, 2015. 01:13 PM | 7 Likes Like |Link to Comment