Why Dividend Investors Can Ignore Stock Prices [View article]
What is wrong with that advice?
If you buy Johnson & Johnson at $62, Conoco at $ 50, Walgreens at $30, Becton Dickinson at $72, and Wal-Mart at $55, it seems very likely that you will be doing quite well 15 years from now because: (a) you identified an excellent company (b) you paid a reasonable valuation (c) and then you held for 15+ years
I guess I don't see the flaws in this approach that you seem to see.
Why Dividend Investors Should Rely On The Past [View article]
I love it when excellent firms have small glitches to work through that lead to historically depressed P/E ratios.
To me, the best margin of safety is when you buy Walgreens under $30 (like it is now), Conoco Phillips around $50-$51 (like it was a week or two ago), Johnson & Johnson when it's at $62 (I think that happened the day everyone was freaking out a couple weeks ago), and when Wal-Mart fell under $60 with that bribery thing in Mexico.
And at the risk of offending everyone, I would have also strongly considered buying JP Morgan after the $2 billion loss.
If I was investing the last month or two, those would be the companies I'd be buying.
I like it when excellent companies have solvable problems/momentary glitches that cause the firm to trade at a P/E below its historical average. Although I'd be willing to break this rule somewhat to buy quality like Johnson & Johnson, Coke, Colgate-Palmolive, etc.
The Joy Of Falling Stock Prices For Income Investors [View article]
Varan, I'm guessing that what makes David Fish's above quote seem unpalatable is that it focuses on choosing excellent companies and treating your ownership share as a partnership, rather than something to sell for the highest possible price.
If you own a local pizza den that generates $50,000 per year after tax, you can easily laugh when someone offers you $100,000 to buy it. Someone who owns 200 shares of Johnson & Johnson can also laugh when someone is only willing to pay $50 per share for your stake in the company. Because we don't have direct control over companies and because it's so easy to sell our stock at a daily quoted price, most people don't regard owning those 200 shares of Johnson & Johnson the same way they would the local pizza den.
But for investors with an ownership mentality, they become one and the same. Both the pizza den owner and the JNJ investor (who considers himself a long-term owner) are focused on growing earnings and growing cash payouts rather than focusing on the highest price you can relinquish your ownership. It may not be your cup of tea, but it's certainly an intellectually defensible way to look at stock ownership and investing in general.
Dividend Bubbles Are Not So Bad (Really) [View article]
Rich, thanks for the comment and cite.
I fully understand and respect why someone would sell overvalued securities. Heck, it's the backbone of Benjamin Graham's work. Although I focus (almost exclusively) on purchase price and dividend/earnings growth thereafter (as well as balance sheet strength, business model strength, etc.), I tip my cap to those who successfully sell overvalued stocks and redeploy them into more attractive securities.
In my case, though, I find the consequences of owning a moderately overvalued yet excellent company to be tolerable because the earnings and dividend growth (on a risk-adjusted basis) that I still receive makes the strategy continue to suit my temperament, objectives, and goals, even if a wart or two reveals themselves along the way. Most of my investing thought process is along the lines of, "Lay a good foundation. Get a good infrastructure in place, and don't touch it." To me, that leads me to Exxon, Johnson & Johnson, Procter & Gamble, etc. I have no idea if this is the "greatest way to build wealth", but I like my odds of meeting my goals with those types of companies, provided my time horizon and calculated assumptions prove reasonably accurate. Like I said, I do what works for me.
In bumper sticker terms, "If owning overvalued Colgate-Palmolive stock is the biggest financial problem you have, life ain't bad!"
The Dirty Secret About The 1929 Stock Market Crash [View article]
If you are fearing a general economic collapse like The Great Depression, the most intelligent course of action would be to own dependable operating companies (local car wash, storage unit complex, etc.) and real estate (you'd probably want to own properties in the $150,000-$275,000 range, using the Midwest as a reference point).
If you are fearing the destruction of the United States and want to flee the country, you would want to have a specialized skill. For instance, I don't care what society you live in, surgeons will always get paid more than janitors because there is a much smaller supply of folks that can perform surgery.
And no, nothing is "impossible" to happen. At an old Berkshire shareholder meeting, biographer Andy Kilpatrick quotes Buffett saying he bought stocks after the Battle of Midway. Munger said something to the effect of, "It wasn't etched in stone that we had to win the war." China, in particular, has cancelled the stock certificates (so to speak) of certain businesses and had the government take them over. Of course things could turn out differently.
Hell, there are people in hospitals right now (and I believe two are dead) because they got blown up by a bomb for running the Boston Marathon. What. The. Hell. There's a meanness in this world you cannot do anything about...what kind of person wants to blow up an innocent person running a race? There's no defense against something like that.
And lord knows what North Korea will be up to in the coming years (months?).
So no, there are no guarantees. The good news is that the rest of the world is incredibly reliant on the United States. They watch our movies. They mimic our culture. They try to co-opt our technologies. They rely on us for basic imports and exports of necessary goods to have a functioning economy. The United States dollar, all joking aside, is the most liquid and universally trusted beast out there (with the exception of hard commodities like gold and silver, which fail on the liquidity front). Things are gradually shifting, but the world still needs us more than we need them.
And lastly, there is still a triumph of the American spirit. It's a very real thing. We haven't entirely lost the spirit of the men that stormed the shores of Normandy. We got to witness the bravery of men and women that responded after 9/11. To use a recent example, we got to see the parademics, policemen, good samaritans, and other helpers that responded after the bomb went off in Boston today. And they got taken to a hospital. To tie this story back into investing, those injured runners/fans probably got healed thanks to the medical tools created by Johnson & Johnson, Becton Dickinson, General Electric, and Owens & Minor. You can become a part owner, and receive part of the profits, of the companies that ameliorated and/or saved some lives today. For almost every problem that comes our way, we can find a solution.
Why Benjamin Graham Investors Can Ignore What 'Research' Says [View article]
Dave, thanks for taking the time to write. That was a very thoughtful comment.
Whenever I have read someone advocate "modern portfolio theory", they are very reluctant to talk about individual businesses (in fact, the whole point is that you don't think about individual businesses).
The problem with this, though, is that when you buy something like the S&P 500, you are choosing to acquire an ownership stake in 500 businesses. You can't own "the stock market." You can only own partial stakes in businesses that some editor or manager chose somewhere along the line.
I like to use real estate as an example because it is the most tangible and easiest for most of us to conceptualize.
Let's say every single house in a subdivision is being rented out for $1,000 per month, or $12,000 annually.
In line with the industry standard of a 10% capitalization rate, most of the properties sell at market for $120,000. Somehow, I get a property for $80,000 (maybe the seller has an upcoming tax bill due, maybe I show up with a suitcase full of cold, hard cash and the seller cannot resist, etc.).
The beta, volatility, or whatever measuring stick you want to use would be off the charts for that instantaneous 35-40% price cut. But did things just get riskier for me? Heck no. My ability to successfully barter means I could lower the monthly rent to $667 per month to get that 10% cap rate, and if I choose to rent it out at $1,000 per month, I'd be earning 15% annually (the fun thing about lowering risk on the downside is that it increases your returns if things work out and there is an upside).
But yet, once we start talking about stocks in general, this line of thinking goes out the window because the transactors are nameless and the stock ownership is represented by letters and numbers on a screen.
Most of us like getting bargains because, by definition, it means that we are getting more value than we are paying. But yet, when it comes to stocks, some people deny that we can both (1) recognize an excellent business, and (2) identify a moment that others are willing to sell it to us for less than it is worth.
The implication of modern portfolio theory is that if Coca-Cola falls by 20%, it must be because the combination of its growth potential, balance sheet strength, and earnings quality have fallen by a commensurate 20%. Otherwise, they'd have to reach the same conclusion we reach: that you're getting more bang for your buck when that happens.
The Double-Edged Sword With DRIP Dividend Investing [View article]
Thanks Sheldon.
It was a big moment for me when I realized I had spent most of my early investing life studying the wrong Berkshire partner. There is a whole lot to learn from Buffett, don't get me wrong, but Charlie Munger seems like the more complete person.
Munger seems to have an appreciation for the fact that money is just a tool that can let you do what you want, as opposed to an ends in itself. Everything I have ever heard about the guy impresses me. Even though he hates zoning boards, he once joined one in California because "no one wanted the job and sometimes you have to suck it up for the civilization." Buffett does not really do stuff like that.
Munger reads philosophy, donates significantly to select charities, vacations when he desires, supports his favorite political causes, embraces his inner architect by designing luxury homes, thinks about the implications of societal trends, etc. It's just such a...robust life. I can't think of a better story of a person who managed to have it all after having to go through some very real personal hells.
I'd take Munger's life over Buffett's in a heartbeat. No contest.
The Medium-Term Impact Of Dividend Investing [View article]
Thanks Bluesmoke. It's amazing what a 3% starting dividend yield plus 7% or so annual growth can do in just a couple years. I write about this all the time, and even sometimes I'm surprised at how dividends can be "doing something" for your bottom line when it appears that the stock price isn't.
Dealing With Panic In Dividend Growth Investing [View article]
Toledo,
Here's another way to phrase DGI investing for most people. It's about buying the best companies in the world with each passing year. Maybe this year it's Nestle and Clorox, maybe next year Coke and Chevron, maybe the year after that Johnson & Johnson and Colgate-Palmolive. The principal difference b/w blue-chip investing and DGI investing is that companies like Berkshire Hathaway will show up regularly in blue chip portfolios, and much less so in DGI portfolios.
(N.B.: Small caps and mid caps can be a form of DGI investing, but that's not the practice we're discussing here).
Your general remark that such a strategy is not all-weatherproof is no doubt true--a really bad day in the Middle East could change the world in a few seconds. But, as long as civilization remains intact, these companies generally would be the last dominoes to fall in an event of a growing economic crisis.
I have no big problem with a lot of the MPT stuff you cite. It's just not for me. The only way we can ever have a fruitful discussion on this topic is if you can shed light on this: What is a deficient quality of DGI investing with blue-chip stocks that is better addressed by an alternative investment strategy you can adopt now?
Showing up on message boards claiming dividend growth investing falls apart in a world of 10% inflation doesn't cut it unless you can simultaneously provide an alternative strategy that better addresses the fact patterns that you present.
The Most Important Premise Of Long-Term Investing [View article]
Ray, the good news is that we don't have to be.
Munger and Buffett became billionaires. Lynch quit the game and now has hundreds of millions probably.
But we don't need to be as successful as them to have a successful life. If we can reach a position where we generate the lower six figures in passive income, we can send our kids to the same schools as the little Buffetts and Mungers, live in nice houses, drive brand new cars, be able to heat our houses and buy food whenever we want, take a yearly vacation, etc.
That is to say, we don't need to be nearly as rich as them to enjoy a very nice standard of life. It only takes a couple tens of thousands of dollars in annual passive income for the real fun to start.
Bonds Are Not Safer Than Blue-Chip Stocks [View article]
Prem, sorry it took me so long to get back to you: Ernie Els captured my attention today.
I can't see the US facing any long-term deflation, and here's why:
The US can solve its problems in one of three ways: (1) Take an axe to Social Security, Defense, Medicare, etc. (i.e. reduce expenses) (2) Raise taxes in a way that increases revenue (without a proportionate increase in spending) (3) Print a ton of money to create inflation so that the current debt becomes worth less down the road
The first option will most likely get a politician thrown out of office. I used to work at the congressional office of a very conservative Missouri Republican, and when John Boehner suggested raising the retirement age in an interview, the phones rang off the hook for a week. From what I can tell, the elderly citizens have basically said, "You touch my Social Security and I'll dedicate my civic energy and voting decisions to the purpose of removing you from office." If a politician asked me for an easy way to lose an election, I would tell him to start airing commercials promising to destroy Social Security.
The other big entitlement programs enjoy similar support from the beneficiaries of such programs. So I don't see Option #1 as highly likely.
The second option involves raising taxes. The problem with that is that most tax increases are aimed at the rich (that is to say, we don't have a tax structure that says, "Tax the first $1,000 of dividends at 80%, the next $10,000 at 50%, and all dividends after that at 5%." Although there are some forms of taxation that can be particularly oppressive to the middle class (the payroll tax comes to mind), we generally aim tax increases at the more affluent. The upcoming "Taxmaggeddon" on dividends comes to mind. If you're rich and try to be tax inefficient, you can see your dividends go from getting taxed at 15% to over 40%. Why is this a bad budget strategy for politicians? Well, politicians have to fundraise to raise money for ads so they can get re-elected.
Is that $50,000 donation more likely to come from a schoolteacher or the CEO of a Fortune 500 company? As a general rule, rich people do not like large tax increases, and they are unlikely to fund the re-election of a politician who calls for the tax hikes that will be necessary to fix the budget. In fact, he or she is most likely to give money to such a politician's opponent.
Also, there's the likelihood that tax increases will lead the affluent to modify their behavior in a way that does not lead to the revenue increases expected.
In a nutshell, that's why I think that we'll go with Door #3. If Congress won't take steps to reduce the $9 trillion deficits expected over the next 10 years, the only alternative course is to run the printing presses (actually they're mostly electronic debits now) and once the new money supply starts to eclipse the old money supply (paper dollars + bank credits), inflation starts to accelerate.
My belief in inflation comes down to this: Politicians, who are interested in self-preservation like everyone else, most likely believe they will lose their jobs if they take an axe to the entitlement state or hike the taxes on the wealthy in a way to effectively tackle the budget (note: the current projected increase on dividends and capital gains set to take place in 2013 come nowhere near shoring up the budget). Considering that wealth can be mobile, it's not feasible to tax the very affluent at 80-90% without them renouncing their citizenship and leaving the country. That means we'll have $9-$10 trillion worth of deficits to contend with over the next decade (depending on our wars and other variables). Given that our currency is not backed by a hard metal and we can create new monies whenever we please, I think our government's response to our budget crisis will mean that inflation will be inevitable.
That's why I'm not betting on us facing a Japan style period of deflation down the road.
Why Dividend Investors Do Not Have To Worry About A Bubble [View article]
Buffett says he crosses out the line that includes EBITDA when evaluating a stock. Munger said EBITDA is code for "bullshit earnings." So I don't pay much attention to that metric in my evaluation. If you want to know why I disregard it, watch this six minute satirical video on EBITDA: http://bit.ly/Sp1vTL
You say: "Divvies are nice,and increasing divvies are nicer. But only if the company has increasing cash flow to support them" and "to continuously increase dividends in such a situation is irresponsible at best."
How does Becton Dickinson not have increasing cash flow? It was $7.34 per share in 2010. It was $8.27 in 2011. And it's going to be around $8.80 this year. Becton Dickinson's dividend is only around 20% of this year's estimated cash flow. They're not exactly at risk of having to take out loans to cover its dividend payment.
"Before blindly jumping into high yielding dividend stocks it's worthwhile looking at the financial statements."
BDX's dividend is only 2.42%. If anything, most dividend investors here won't consider it because the yield is too low, so I wouldn't put it in the high yielding category. And you're setting up a straw man with the last part of your argument--I've never advocated making an investment without full due diligence or financial statement examination.
A Review Of My 2012 Dividend Predictions [View article]
Why Dividend Investors Can Ignore Stock Prices [View article]
If you buy Johnson & Johnson at $62, Conoco at $ 50, Walgreens at $30, Becton Dickinson at $72, and Wal-Mart at $55, it seems very likely that you will be doing quite well 15 years from now because:
(a) you identified an excellent company
(b) you paid a reasonable valuation
(c) and then you held for 15+ years
I guess I don't see the flaws in this approach that you seem to see.
Why Dividend Investors Should Rely On The Past [View article]
To me, the best margin of safety is when you buy Walgreens under $30 (like it is now), Conoco Phillips around $50-$51 (like it was a week or two ago), Johnson & Johnson when it's at $62 (I think that happened the day everyone was freaking out a couple weeks ago), and when Wal-Mart fell under $60 with that bribery thing in Mexico.
And at the risk of offending everyone, I would have also strongly considered buying JP Morgan after the $2 billion loss.
If I was investing the last month or two, those would be the companies I'd be buying.
I like it when excellent companies have solvable problems/momentary glitches that cause the firm to trade at a P/E below its historical average. Although I'd be willing to break this rule somewhat to buy quality like Johnson & Johnson, Coke, Colgate-Palmolive, etc.
The Best Thing Warren Buffett Has Said All Year [View article]
If you want hard numbers, there's plenty of articles at SA that can give that to you.
The Joy Of Falling Stock Prices For Income Investors [View article]
If you own a local pizza den that generates $50,000 per year after tax, you can easily laugh when someone offers you $100,000 to buy it. Someone who owns 200 shares of Johnson & Johnson can also laugh when someone is only willing to pay $50 per share for your stake in the company. Because we don't have direct control over companies and because it's so easy to sell our stock at a daily quoted price, most people don't regard owning those 200 shares of Johnson & Johnson the same way they would the local pizza den.
But for investors with an ownership mentality, they become one and the same. Both the pizza den owner and the JNJ investor (who considers himself a long-term owner) are focused on growing earnings and growing cash payouts rather than focusing on the highest price you can relinquish your ownership. It may not be your cup of tea, but it's certainly an intellectually defensible way to look at stock ownership and investing in general.
Dividend Bubbles Are Not So Bad (Really) [View article]
I fully understand and respect why someone would sell overvalued securities. Heck, it's the backbone of Benjamin Graham's work. Although I focus (almost exclusively) on purchase price and dividend/earnings growth thereafter (as well as balance sheet strength, business model strength, etc.), I tip my cap to those who successfully sell overvalued stocks and redeploy them into more attractive securities.
In my case, though, I find the consequences of owning a moderately overvalued yet excellent company to be tolerable because the earnings and dividend growth (on a risk-adjusted basis) that I still receive makes the strategy continue to suit my temperament, objectives, and goals, even if a wart or two reveals themselves along the way. Most of my investing thought process is along the lines of, "Lay a good foundation. Get a good infrastructure in place, and don't touch it." To me, that leads me to Exxon, Johnson & Johnson, Procter & Gamble, etc. I have no idea if this is the "greatest way to build wealth", but I like my odds of meeting my goals with those types of companies, provided my time horizon and calculated assumptions prove reasonably accurate. Like I said, I do what works for me.
In bumper sticker terms, "If owning overvalued Colgate-Palmolive stock is the biggest financial problem you have, life ain't bad!"
The Dirty Secret About The 1929 Stock Market Crash [View article]
If you are fearing the destruction of the United States and want to flee the country, you would want to have a specialized skill. For instance, I don't care what society you live in, surgeons will always get paid more than janitors because there is a much smaller supply of folks that can perform surgery.
And no, nothing is "impossible" to happen. At an old Berkshire shareholder meeting, biographer Andy Kilpatrick quotes Buffett saying he bought stocks after the Battle of Midway. Munger said something to the effect of, "It wasn't etched in stone that we had to win the war." China, in particular, has cancelled the stock certificates (so to speak) of certain businesses and had the government take them over. Of course things could turn out differently.
Hell, there are people in hospitals right now (and I believe two are dead) because they got blown up by a bomb for running the Boston Marathon. What. The. Hell. There's a meanness in this world you cannot do anything about...what kind of person wants to blow up an innocent person running a race? There's no defense against something like that.
And lord knows what North Korea will be up to in the coming years (months?).
So no, there are no guarantees. The good news is that the rest of the world is incredibly reliant on the United States. They watch our movies. They mimic our culture. They try to co-opt our technologies. They rely on us for basic imports and exports of necessary goods to have a functioning economy. The United States dollar, all joking aside, is the most liquid and universally trusted beast out there (with the exception of hard commodities like gold and silver, which fail on the liquidity front). Things are gradually shifting, but the world still needs us more than we need them.
And lastly, there is still a triumph of the American spirit. It's a very real thing. We haven't entirely lost the spirit of the men that stormed the shores of Normandy. We got to witness the bravery of men and women that responded after 9/11. To use a recent example, we got to see the parademics, policemen, good samaritans, and other helpers that responded after the bomb went off in Boston today. And they got taken to a hospital. To tie this story back into investing, those injured runners/fans probably got healed thanks to the medical tools created by Johnson & Johnson, Becton Dickinson, General Electric, and Owens & Minor. You can become a part owner, and receive part of the profits, of the companies that ameliorated and/or saved some lives today. For almost every problem that comes our way, we can find a solution.
Why Benjamin Graham Investors Can Ignore What 'Research' Says [View article]
Whenever I have read someone advocate "modern portfolio theory", they are very reluctant to talk about individual businesses (in fact, the whole point is that you don't think about individual businesses).
The problem with this, though, is that when you buy something like the S&P 500, you are choosing to acquire an ownership stake in 500 businesses. You can't own "the stock market." You can only own partial stakes in businesses that some editor or manager chose somewhere along the line.
I like to use real estate as an example because it is the most tangible and easiest for most of us to conceptualize.
Let's say every single house in a subdivision is being rented out for $1,000 per month, or $12,000 annually.
In line with the industry standard of a 10% capitalization rate, most of the properties sell at market for $120,000. Somehow, I get a property for $80,000 (maybe the seller has an upcoming tax bill due, maybe I show up with a suitcase full of cold, hard cash and the seller cannot resist, etc.).
The beta, volatility, or whatever measuring stick you want to use would be off the charts for that instantaneous 35-40% price cut. But did things just get riskier for me? Heck no. My ability to successfully barter means I could lower the monthly rent to $667 per month to get that 10% cap rate, and if I choose to rent it out at $1,000 per month, I'd be earning 15% annually (the fun thing about lowering risk on the downside is that it increases your returns if things work out and there is an upside).
But yet, once we start talking about stocks in general, this line of thinking goes out the window because the transactors are nameless and the stock ownership is represented by letters and numbers on a screen.
Most of us like getting bargains because, by definition, it means that we are getting more value than we are paying. But yet, when it comes to stocks, some people deny that we can both (1) recognize an excellent business, and (2) identify a moment that others are willing to sell it to us for less than it is worth.
The implication of modern portfolio theory is that if Coca-Cola falls by 20%, it must be because the combination of its growth potential, balance sheet strength, and earnings quality have fallen by a commensurate 20%. Otherwise, they'd have to reach the same conclusion we reach: that you're getting more bang for your buck when that happens.
Thanks Dave.
The Double-Edged Sword With DRIP Dividend Investing [View article]
It was a big moment for me when I realized I had spent most of my early investing life studying the wrong Berkshire partner. There is a whole lot to learn from Buffett, don't get me wrong, but Charlie Munger seems like the more complete person.
Munger seems to have an appreciation for the fact that money is just a tool that can let you do what you want, as opposed to an ends in itself. Everything I have ever heard about the guy impresses me. Even though he hates zoning boards, he once joined one in California because "no one wanted the job and sometimes you have to suck it up for the civilization." Buffett does not really do stuff like that.
Munger reads philosophy, donates significantly to select charities, vacations when he desires, supports his favorite political causes, embraces his inner architect by designing luxury homes, thinks about the implications of societal trends, etc. It's just such a...robust life. I can't think of a better story of a person who managed to have it all after having to go through some very real personal hells.
I'd take Munger's life over Buffett's in a heartbeat. No contest.
The Medium-Term Impact Of Dividend Investing [View article]
Dealing With Panic In Dividend Growth Investing [View article]
Here's another way to phrase DGI investing for most people. It's about buying the best companies in the world with each passing year. Maybe this year it's Nestle and Clorox, maybe next year Coke and Chevron, maybe the year after that Johnson & Johnson and Colgate-Palmolive. The principal difference b/w blue-chip investing and DGI investing is that companies like Berkshire Hathaway will show up regularly in blue chip portfolios, and much less so in DGI portfolios.
(N.B.: Small caps and mid caps can be a form of DGI investing, but that's not the practice we're discussing here).
Your general remark that such a strategy is not all-weatherproof is no doubt true--a really bad day in the Middle East could change the world in a few seconds. But, as long as civilization remains intact, these companies generally would be the last dominoes to fall in an event of a growing economic crisis.
I have no big problem with a lot of the MPT stuff you cite. It's just not for me. The only way we can ever have a fruitful discussion on this topic is if you can shed light on this: What is a deficient quality of DGI investing with blue-chip stocks that is better addressed by an alternative investment strategy you can adopt now?
Showing up on message boards claiming dividend growth investing falls apart in a world of 10% inflation doesn't cut it unless you can simultaneously provide an alternative strategy that better addresses the fact patterns that you present.
The Most Important Premise Of Long-Term Investing [View article]
Munger and Buffett became billionaires. Lynch quit the game and now has hundreds of millions probably.
But we don't need to be as successful as them to have a successful life. If we can reach a position where we generate the lower six figures in passive income, we can send our kids to the same schools as the little Buffetts and Mungers, live in nice houses, drive brand new cars, be able to heat our houses and buy food whenever we want, take a yearly vacation, etc.
That is to say, we don't need to be nearly as rich as them to enjoy a very nice standard of life. It only takes a couple tens of thousands of dollars in annual passive income for the real fun to start.
Why Tobacco Bonds Are Likely To Outperform Tobacco Stocks Significantly Over The Next Decade [View article]
I think there's a meaningful difference. If a 15% rate gets increased by five percent, it is now up to 15.75%.
If a 15% rate gets increased by five percentage points, it is now up to 20%.
I disagree with your characterization that they are essentially the same.
Bonds Are Not Safer Than Blue-Chip Stocks [View article]
I can't see the US facing any long-term deflation, and here's why:
The US can solve its problems in one of three ways:
(1) Take an axe to Social Security, Defense, Medicare, etc. (i.e. reduce expenses)
(2) Raise taxes in a way that increases revenue (without a proportionate increase in spending)
(3) Print a ton of money to create inflation so that the current debt becomes worth less down the road
The first option will most likely get a politician thrown out of office. I used to work at the congressional office of a very conservative Missouri Republican, and when John Boehner suggested raising the retirement age in an interview, the phones rang off the hook for a week. From what I can tell, the elderly citizens have basically said, "You touch my Social Security and I'll dedicate my civic energy and voting decisions to the purpose of removing you from office." If a politician asked me for an easy way to lose an election, I would tell him to start airing commercials promising to destroy Social Security.
The other big entitlement programs enjoy similar support from the beneficiaries of such programs. So I don't see Option #1 as highly likely.
The second option involves raising taxes. The problem with that is that most tax increases are aimed at the rich (that is to say, we don't have a tax structure that says, "Tax the first $1,000 of dividends at 80%, the next $10,000 at 50%, and all dividends after that at 5%." Although there are some forms of taxation that can be particularly oppressive to the middle class (the payroll tax comes to mind), we generally aim tax increases at the more affluent. The upcoming "Taxmaggeddon" on dividends comes to mind. If you're rich and try to be tax inefficient, you can see your dividends go from getting taxed at 15% to over 40%. Why is this a bad budget strategy for politicians? Well, politicians have to fundraise to raise money for ads so they can get re-elected.
Is that $50,000 donation more likely to come from a schoolteacher or the CEO of a Fortune 500 company? As a general rule, rich people do not like large tax increases, and they are unlikely to fund the re-election of a politician who calls for the tax hikes that will be necessary to fix the budget. In fact, he or she is most likely to give money to such a politician's opponent.
Also, there's the likelihood that tax increases will lead the affluent to modify their behavior in a way that does not lead to the revenue increases expected.
In a nutshell, that's why I think that we'll go with Door #3. If Congress won't take steps to reduce the $9 trillion deficits expected over the next 10 years, the only alternative course is to run the printing presses (actually they're mostly electronic debits now) and once the new money supply starts to eclipse the old money supply (paper dollars + bank credits), inflation starts to accelerate.
My belief in inflation comes down to this: Politicians, who are interested in self-preservation like everyone else, most likely believe they will lose their jobs if they take an axe to the entitlement state or hike the taxes on the wealthy in a way to effectively tackle the budget (note: the current projected increase on dividends and capital gains set to take place in 2013 come nowhere near shoring up the budget). Considering that wealth can be mobile, it's not feasible to tax the very affluent at 80-90% without them renouncing their citizenship and leaving the country. That means we'll have $9-$10 trillion worth of deficits to contend with over the next decade (depending on our wars and other variables). Given that our currency is not backed by a hard metal and we can create new monies whenever we please, I think our government's response to our budget crisis will mean that inflation will be inevitable.
That's why I'm not betting on us facing a Japan style period of deflation down the road.
Why Dividend Investors Do Not Have To Worry About A Bubble [View article]
You say: "Divvies are nice,and increasing divvies are nicer. But only if the company has increasing cash flow to support them" and "to continuously increase dividends in such a situation is irresponsible at best."
How does Becton Dickinson not have increasing cash flow? It was $7.34 per share in 2010. It was $8.27 in 2011. And it's going to be around $8.80 this year. Becton Dickinson's dividend is only around 20% of this year's estimated cash flow. They're not exactly at risk of having to take out loans to cover its dividend payment.
"Before blindly jumping into high yielding dividend stocks it's worthwhile looking at the financial statements."
BDX's dividend is only 2.42%. If anything, most dividend investors here won't consider it because the yield is too low, so I wouldn't put it in the high yielding category. And you're setting up a straw man with the last part of your argument--I've never advocated making an investment without full due diligence or financial statement examination.