Seeking Alpha
View as an RSS Feed

Tim McAleenan Jr.  

View Tim McAleenan Jr.'s Comments BY TICKER:
Latest  |  Highest rated
  • 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 | 9 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 | 1 Like 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
  • The Dividend Payout Ratio Is The Holy Grail Of Dividend Growth Investing [View article]
    Very intuitive, but Geraldine Weiss and Janet Lowe (along with myself) disagree with you.

    One of the central arguments from the book "Dividends Don't Lie" is that companies with unusually high dividend payout ratiso are likely cheap and trading in that value quintile that leads to S&P 500 beating returns.

    An example used by Jeremy Siegel recently is that people look at Philip Morris International and assume that the company is struggling because the dividend payout ratio is high. But when established companies have high payout ratios, there is often something going on that understates the numbers. In the case of Philip Morris International, the profits are understated because every piece of profit is earned overseas and is diminished upon getting translated back to U.S. dollars.

    Almost everything I am buying this year (BP, Chevron, Philip Morris International) has an unusually high dividend yield and payout ratio. This is because the profits are understated so the payout ratio doesn't really mean what people think it means. A lot of these companies seem expensive on a P/E basis but are cheap once you dig into the numbers and realize why the number spitted out may not mean what you think it does.*

    *=Other times, payout ratios indicate exactly what you suggest. The low payout ratio at Visa probably will correspond to great dividend growth and total returns, whereas the high payout ratio at Procter & Gamble does indicate some troubles within the company that may take a bit to work itself out.
    Jun 23, 2015. 02:25 PM | 9 Likes Like |Link to Comment
  • 25 Things I Wish I Learned Before I Opened My First Brokerage Account [View article]

    Which Marketwatch points did you find the most objectionable?
    Jun 22, 2015. 11:54 PM | Likes Like |Link to Comment
  • Choosing Which Stocks To Sell For A Big Purchase [View article]
    Nice post, CDGI. The debate between spending and saving is fascinating to me.

    A lot of people who could do really cool stuff with money never get the chance because they don't have it within them to save a penny and they just can't bring themselves to let money sit still and compound. So they have to perpetually trade in their time for the modest toys in life, and then they realize that is all they did with their life.

    On the other hand, you have serial savers that can build up fat stacks of cash but are boring as hell. And then when they die, their money goes to ungrateful kids, government, charities with only a 60% utilization rate, or to the wife. How many men in world history have saved up huge sums of cash, died prematurely, and then had the sum of their life's output end up going towards their wife's new man? Is that worth working overtime at the office?

    Probably most people in the country need to learn about delayed gratification and stop living in the moment. Seeking Alpha may be a cocoon in that it consists of the anomalies that need to be told they only get 28,000 days until they die, and you can't take it with ya.
    Jun 22, 2015. 05:01 PM | 3 Likes Like |Link to Comment
  • Thoughts On Twitter's Growth Problem, And Why It's Losing To Facebook [View article]
    David, what metrics do you use to value a social media/tech investment? These things obviously evade traditional P/E analysis or something like that.

    If you, say, like Facebook stock, how do you figure out if it is worth $60, $80, or $100?
    Jun 13, 2015. 12:13 PM | 1 Like Like |Link to Comment
  • The No. 1 Stock In The World - Part 1 [View article]
    The fact that Realty Income survived the 2008-2009 recession is not proof that the underlying business is nearly indestructible. Instead, it suggests that Realty Income shareholders have been blessed with a long string of sound management that takes prudent risks. It does not suggest that Realty Income has the ability to withstand exceptional abuse to the empire.

    When Johnson & Johnson had the Tylenol scare and had a long string of management recalls, the earnings per share grew and the dividend went up. That hinted at strong underlying brands, despite management blunders.

    If we learned that Procter & Gamble executives had been diluting the Tide brand with excessive water above what the label stated, that would be a manageable crisis. Gillette razor sales are going to hum along just fine because the average customer isn't thinking "This razor blade comes from the same people that were messing with the detergent." The collection of brands are a margin of safety.

    Real estate does not encompass this margin of safety. If Realty Income got caught screwing over tenants somehow, or if management used excessive leverage, shareholders would be in a lot of trouble. There's no brand there to save the day.

    This doesn't mean you shouldn't own Realty Income. I own Benjamin Franklin Resources, and the main reason why I own the stock is exceptional management. But I don't pretend that the mutual fund offerings are so strong that they could overcome management blunders. If they claim to charge 1.0% fees to client accounts and get caught siphoning off 1.5%, or if the funds perform disastrously during the next recession, I would expect to be hurt. I don't avoid stocks that need great management and have it, but I also acknowledge that bad management will sink me.

    I could easily wreck Realty Income if you put me in charge and ordered me to bankrupt the company. I'd expand into new areas by taking on low-credit quality tenants with sketchy histories and rely on them to fund the dividend. I'd borrow up to maximum bank capabilities to fund the expansions of such a tenant base. And I'd adopt short-sighted policies that charge tenants high fees and I would be an uncommunicative landlord. If you channel your inner Irene Rosenfeld, you could destroy the company. All with a smile on your face.

    You couldn't destroy Nestle that easily. The Board has a set maximum debt policy that the company doesn't go near (it's like a constitutional amendment for balanced budgets). Swiss Accounting is more conservative than American accounting, so Swiss candy factories have more extended lives than you'd initially think. Milk and cookies will forever be a part of the human experience. And Switzerland companies remain fully functioning during international wars.

    People get caught up on the foreign tax credits, but they never acknowledge this: If you are a complete know-nothing and do not seek to lower your tax bill and you choose to surrender 35% of every annual Nestle tax payment, you still will have compounded your wealth by 12% annually over the past quarter century even if you were only collecting 65% of each dividend payment. So you're not exactly screwed if you fumble through the taxes. Maybe that's how you gain an edge in 2015: Be willing to fill out a few tax credit documents that everyone else is too lazy to bother with and ignores.

    When you buy Nestle stock, you own a slice of all the Purina pet food sold in the world. Beneful. Fancy Feast. Friskies. All of those.

    You own 30% of the L'Oreal brands. Ralph Lauren. Giorgio Armani. Maybelline. You get a piece of all of that.

    Even random candies like Gobstobbers, Runts, Nerds, Laffy Taffy, Sweet Tarts, Bottle Caps. All yours.

    They even have a chocolate division to rival Hershey. You get your hands on Kit Kat, Crunch, Rolo, Goober, Cookie Crisp, and Rolo.

    You get your hands in the highly lucrative coffee market--Nescafe, Coffee Mate, Nespresso, and Taster's Choice.

    You make 1,500% margins giving people water by selling things like Pellegrino, Poland Spring, Nestea, Perrier, and Pure Life.

    They are the Dreyer and Drumstick ice cream brands. Hot Pockets and Stouffers from the microwave aisle. I could go on, but I'm honestly quitting because I am tired of just scratching the surface of what Nestle owns. That kind of international brand strength could let you take a fifty-year Rip Van Winkle nap and wake up with a vast fortune of Nestle wealth. That kind of high probability doesn't exist when you buy a well-run real estate company that has a long history of conservative management. I like relying on high-quality people to run things, but I don't pretend that will go on forever. Consumer brands have a perpetual life that is not comparable to relying on high-integrity and conservative people to always occupy the executive suite.

    If a moron took over Nestle, I'd think "Okay, I might compound at 6% to 8% for a while." If the worst executive you can imagine took over Realty Income, 100% shareholder wipeout becomes a distinct possibility. That's what happens to poor executives in real estate--you go bankrupt. What do you get with severe mismanagement in the consumer sector? Sara Lee. Glacial compounding, but no wipeout.
    May 26, 2015. 07:04 PM | 24 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 1 [View article]
    Interesting. The one I wouldn't choose is Realty Income. With any real estate investment, you will always be at the mercy of sound management. Real estate investments can't handle the same level of abuse that great brands can. Overleverage the balance sheet, wait for a deep recession where tenants stop paying, and whaboom, your equity is wiped out.

    It doesn't mean that Realty Income doesn't belong in a portfolio--it just means idiots can bankrupt you easier (whereas at a place like Mondelez, idiots will only keep net profits treading water for an extended period of time.)

    The reason why I didn't choose Apple or Gilead is because of their reliance on a single product. Your destiny is tied to phones and a Hep C treatment with those, and that raises the risk profile when a single product makes up half of your revenue.

    I would think that a Coca-Cola, Johnson & Johnson, Procter & Gamble, Nestle, and Exxon portfolio would be pretty darn strong pillar stocks that could survive virtually all economic conditions, and it's mostly academic trying to parse the difference between those five. Own all of them and see what happens.
    May 26, 2015. 02:59 PM | 22 Likes Like |Link to Comment
  • Lessons Learned From The Grand Canyon [View article]
    Dave, I enjoyed this post. I think one of the lessons from your investing life that goes unnoticed is that you have been willing to accept low dividend yields in the pursuit of higher growth.

    Just look at those returns from Colgate-Palmolive. It trounces just about everything, and has been paying dividends since the 1800s. That's a heck of an intersection between growth and quality.

    But I think income investors can easily neglect a stock like Colgate because there is always something yielding higher that also falls within that zone of "high quality."

    But huge capital gains are given up by neglecting a low initial yield stock like Colgate. Imagine if corporate bonds pivoted towards their historic rate of 7.2%. Someone could easily turn a huge Colgate position built up over the decades into a diversified corporate bond portfolio that pays out $15,000 per month. Not a bad way to dance off the earth.

    Or, hell, after three decades of adding to a stock like Colgate, you'd probably have enough income to live off from the dividends alone.

    I think your willingness to be unconventional and take on those blue-chip names with lower starting yields is something that makes your approach worthy of emulation, and I hope other readers take note of your wisdom on this.
    May 23, 2015. 10:05 AM | 4 Likes Like |Link to Comment