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Timothy M. David McAleenan Jr.

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  • Visa: High Price Should Not Prevent Exceptional Returns [View article]
    Navy, I can't speak for others, but Visa is absolutely my best idea. I refer to it as my home-run swing stock, because its growth rate is different from the other companies I typically discuss.

    When I write about Exxon, Johnson & Johnson, and Coca-Cola, the general point of those articles (when it comes to total return) is that you might beat the S&P 500 by a point or two over the long haul.

    Visa is a different animal. It might beat the S&P 500 by five or six percentage points annually over the long term. It is currently growing around 8-9% in the U.S., and in pockets of the rest of the world, has growth rates of 20-30%. The company carries no debt, preferred stock, pensions, or any of those balance sheet burdens.

    During 2009, the company improved on every single financial metric by at least 5% compared to 2008; how's that for financial protection?

    There's a good chance that Visa could be the "one that got away" for people that don't buy and hold it for the next 15+ years. Its growth rate has shown no signs of moderating towards the S&P 500 level mean, and to the extent that anything is predictable in this world, seems like the highest probability place to go for those who want to build wealth quickly.

    If you're a young man in a hurry, my guess is that buying Visa every month on autopilot for the next few years could be the decision that alters your time here on this earth. Results get insane when you start combining a few ~$5,000 annual investments with 15-20% annual growth with 20+ year time horizons.
    Apr 17 06:37 AM | 2 Likes Like |Link to Comment
  • Why Investors In Tesla, Netflix, And Amazon Have A Rough Five Years Ahead [View article]
    I did not see that $11.34 estimate.

    If you find those estimates likely, or even credible, then you should sub that into your analysis.

    The skeletal of the analysis remains the same, however: If Tesla is making profits of $11.34 five years from now, what would be a fair value multiple to apply?

    It seems to me that, in order to make long-term money with Tesla from here on out, you need best case scenarios to materialize: very robust growth without a hiccup, and a very generous future valuation to accompany it.

    You are giving yourself no margin of safety either in terms of (1) current price, (2) current business model, or (3) future growth prospects. Is that something you're comfortable doing? If so, I admire your courage, but in my case, I regard it as a recipe for stacking the odds against the favor of a new Tesla investor at current prices.
    Apr 15 10:22 AM | 3 Likes Like |Link to Comment
  • First-Quarter Portfolio Review: There's Change On The Way [View article]
    If someone posed the question, "What is the strategy of a bad investor?", what would be your answer?

    My answer would be this: Someone who constantly compares himself to others (the S&P 500, Wilshire, or whatever it may be) and then abandons his strategy simply because something else is doing better over a particular period of time.

    Since 1970, the Sequoia Fund has returned 14.71% while the S&P 500 has returned 10.91% annually. When it started, it underperformed the S&P 500 Index in 1970. Then in 1971. Then in 1972. And then again in 1973. Heck, it underperformed the S&P 500 by 15 full percentage points in 1972.

    It only took a couple blowout years for the Sequoia Fund's long-term strategy to prove its worth (beating the S&P 500 Index by 25 percentage points in 1975, and 49 percentage points in 1976).

    In other words, underperforming the S&P 500 Index for lengthy periods of time can very well be a characteristic that leads to super long-term outperformance because you are holding onto ownership interests when it is unfashionable to do so, setting yourself up for "snapback" profits when the winds of change finally shift.

    By my count, there are at least 19 stocks in your portfolio that could continue raising dividends in the event of economic or military catastrophe. Bombs. Double-digit unemployment. Etc. That's what I call risk management!

    Trailing the S&P 500 by a little bit is ephemeral. It has no bearing on what those assets will be doing years and years from now. You have ownership interests in things that keep people's lights on in their homes, puts macaroni and cheese in their bellies, shaving cream on their faces, and drinks on their tables. That is financial security!

    Bob has built an excellent portfolio of companies that make stuff or do stuff, and will be pounding out profits for decades to come. That's something to applaud, not criticize. It's something to get excited about, not lament.

    A comparison between any given portfolio and the S&P 500 is amorphous, subject to change daily.

    Rob Goizueta, the former head of Coca-Cola, has created a trust that keeps 84% of its assets in Coca-Cola stock. Since June 2003, it has performed 7.6% while the S&P 500 has performed 7.9%. Do you think his beneficiaries and charitable selections locked themselves in their bedrooms this morning, entering a deep funk because they trailed the S&P 500 by 0.3% over the past eleven years?

    No. They know exactly what they own: an ownership stake in the world's best company with unparalleled distribution networks, billion-dollar brand names, and over 500 total offerings. The brilliance of this business model has resulted in dividend payments since the 1890s, which have increased annually for over five decades. A business model like that builds wealth in good times and preserves it in extraordinarily painful times.

    When you build collections of assets like that, things work out well in the end. But to get there, you have to tolerate periods when other people are getting richer, faster (of course, the tortoise eventually passes the hare because during bad times, the hare gets poorer, much faster).

    Sticking to a portfolio of high-grade assets during a measurable period of underperformance is a vindication of sound investing principles, rather than a repudiation of them because it exemplifies the wisdom of mature, adult thinking that recognizes patience as a virtue and the inevitable changes to come that will make some of today's losers turn into next year's winners.

    Success to a retired investor isn't measured by parsing a point or two against the S&P 500 here and there, but rather, it comes from seeing Coca-Cola's annual dividend go from $0.76 to $0.82 in 2009, hitting your checking account at just the right time. Multiply that logic across dozens of positions, and you'll see the wisdom of what Bob is doing.
    Apr 11 03:09 PM | 44 Likes Like |Link to Comment
  • Dividend Growth Investing: Why I Don't Own Index Funds [View article]
    To answer your question: "What if half of your portfolio was in companies like Kodak or US banks going bust in 2008?"

    If you bought Eastman Kodak in 1985 and held through its bankruptcy, you would have achieved returns of 8.9% annually.

    How is this possible? You would have collected years and years of Eastman Kodak dividends, plus you would be sitting on shares of Eastman Chemical that got spunoff in 1994.

    Likewise, Wachovia owners that purchased the stock in 1982 would have achieved returns of 5.5% annually, on the date of the bankruptcy. That's because the dividends were fat, and grew fatter for three decades before the company went kaboom.

    Even Sears (which has been bank-like) for crying out loud has worked out. According to Frank Bifulco, the manager at Portfolio Channel, if you bought 100 shares of the old Sears in June 1993, here’s what you’d have today: 50 shares of Sears Holdings, 156 shares of Morgan Stanley, 21 shares of Sears Canada, 184 shares of Allstate, and 78 shares of Discover Financial Services.

    Your total returns over that time? 10.3% per year. Had you invested in the S&P 500 in June 1993, you would have had just shy of 9% per year. Even though the core Sears company has largely disintegrated, the collection of four spinoffs would have not only offset your losses from the collapse at Sears, but you would have actually created a bit more wealth over the past twenty years with a “buy-and-forget-it” attitude regarding Sears than a run-of-the-mill S&P 500 index fund.

    A lot of the data doesn't support the whining you frequently hear about survivorship bias.
    Apr 5 05:45 PM | 4 Likes Like |Link to Comment
  • BP: You Could Realistically Double Your Money In Five Years [View article]
    The "worst, worst case scenario" would be this: (1) plummeting commodities prices for a few years, mixed with (2) adverse legal judgment. In other words, BP would have to sell assets in a down market (and they'd have to sell more than anticipated because our assumption is that the market is down) and so they'd have fewer assets generating lower profits.

    In a situation like that, who knows? A dividend cut would be on the table.

    Oil companies aren't really built for perfect linear growth. Heck, Royal Dutch Shell has cut their dividend at least four times since 1911, yet has returned 14% since then and the dividend is higher each decade, despite some freezes and declines along the way. Exxon and Chevron are extreme outliers in the oil industry; the business model isn't built for perfect, smooth linear dividend growth because that's not how operating results work in the oil industry.

    So if we had a viciously long bottoming cycle in which BP had to sell assets, I think you'd have to be patient for awhile. That's where diversification comes in--if BP is only 3% or 4% of your portfolio, you could wait it out.

    In other words, a repeat of 2008-2009 that lasted for, say, five years would hit BP harder than Exxon, especially if they got whacked with a large legal settlement. In extended terrible times, I'd much prefer Exxon. But in decent or good times, BP should be far more compelling. Hence, my answer is to own both.
    Mar 27 03:11 PM | 2 Likes Like |Link to Comment
  • Why The Highest-Yielding Dividend Stocks Deliver The Best Capital Gains [View article]
    +1.
    Mar 26 07:48 PM | Likes Like |Link to Comment
  • Where Is Realty Income's Dividend Going Over The Next 5 Years? [View article]
    I'll have to create an option d: none of the above.

    Realty Income is making $2.35-$2.55 per share from its 3000+ properties, and it's putting $2.18 of that cash in the pockets of shareholders.

    REITs take their profits, and put about 90% of those profits in the pockets of shareholders.

    Specifically, Realty Income is making profits organically, doing what it's always done, and I don't share your worry because the concern you expressed isn't something that I see as existing.
    Mar 26 07:31 PM | 7 Likes Like |Link to Comment
  • Why The Highest-Yielding Dividend Stocks Deliver The Best Capital Gains [View article]
    "Tim.... You're a publishing machine."

    I wish! A lot of the stuff was written a day or so ago, and I do boneheaded things that require editing, such as capitalizing every word in the summary bullet point. Everything just sort of came to a publishing point today.

    Personally, I've spent my afternoon trying to locate the Tennessee Williams short story "Crazy Night" that apparently is out there now...
    Mar 25 07:26 PM | 2 Likes Like |Link to Comment
  • Why The Highest-Yielding Dividend Stocks Deliver The Best Capital Gains [View article]
    BuyandHold, I have a personal question for you (feel free to disregard and tell me to take a flying leap).

    As someone who has accumulated exceptional stocks and not sold them, what was the trajectory of your experience like? By that, I mean, was there a point at which you could identify "Holy cow, I'm loaded" when the dividends started exceeding $X per month? Was there a point at which you began to see yourself as more of a capital allocator with fresh dividends each month, as opposed to a guy saving up a few hundred here and there to put somewhere intelligently? I guess I'm curious as to whether you view your investing life in stages, and if so, whether you were aware of the transition points at the time or with hindsight.
    Mar 25 06:35 PM | 7 Likes Like |Link to Comment
  • How Well Is Altria Addressing Its Main Business Risk? [View article]
    "Why do these posts regularly refer to them?"

    Probably because the authors of "these posts" look at Altria's financial disclosures and see the SABMiller dividend of $400+ million getting reported to the SEC.
    Mar 25 07:42 AM | 10 Likes Like |Link to Comment
  • The 25 Best Authors On Seeking Alpha [View instapost]
    Picolomini,

    Good question!

    Most of the authors I mentioned don't even give specific stock predictions or tell you to buy anything explicitly. It wasn't a list of "these are the twenty-five guys kicking the market's ass", although they very well could be.

    Instead, I picked the writers that possess the best explanatory powers--they make investing more lucid, and they are able to teach you and hold your interest simultaneously.

    This is all my opinion, naturally. But I do doubt anyone could read the archives of all 25 of them without reaching the conclusion that at least a dozen of them are worth their while.
    Mar 25 01:09 AM | 4 Likes Like |Link to Comment
  • Don't Sell McDonald's Stock Because Of 2 Minimum Wage Myths [View article]
    Very good point! I'm currently writing something about Coca-Cola's (potential) issuance of 500 million shares for employee compensation.

    When I've studied the economic impacts of minimum wage increases, I generally reached this conclusion: the winner is the person receiving the wage increase. The losers are the people who have to deal with hour cuts or a company hiring less, the person managing the McDonalds restaurant that doesn't get an appropriate pay increase, and perhaps the customer that has to pay the higher price if the business decides to directly pass on the added cost to customers.

    I've also been reading about some of the economic changes the country had to go through during The Great Depression and early war years. If we could handle that and still stand, it seems comical to obsess over $1 or so in minimum wage increases.

    Not only are there a lot of better things you could be doing with your mental energy, but expressing your opinion about minimum wage increases in strictly economic (as opposed to human) terms will make anyone actually earning minimum wage want to punch you in the face.
    Mar 25 12:59 AM | 4 Likes Like |Link to Comment
  • Don't Sell McDonald's Stock Because Of 2 Minimum Wage Myths [View article]
    "In addition, don't think for a minute that your franchisees get attacked and MCD comes out scot free."

    Rose, that's a very good point to add.

    After all, if a franchise raises prices to offset higher wages and it results in lower traffic and sales, then the McDonalds parent will collect lower fees.

    It's a partial immunity, not a perfect immunity, and thank you for pointing that out.
    Mar 24 05:34 PM | Likes Like |Link to Comment
  • Dividend Growth Investing: An Introduction To Creating Wealth (Part 2) [View article]
    Dave, excellent work.

    When people say that those with long-time horizons can afford to take more risk, that's a code word for saying "you can handle the 100% wipeout if things go wrong." There is some truth to that statement: losing 25% of your portfolio at age 30 is an obstacle I'd rather overcome than being seventy years old and seeing 25% of the portfolio go bankrupt.

    But it also ignores opportunity cost: a dollar that you can set aside to compound for two, three, four, maybe even five decades also represents the maximum potential of the wealth you can build. If you choose a fashionable stock and screw up, it also represents maximum loss.

    Of course, the great irony of blue-chip investing is that focusing exclusively on safety of income growth has this peculiar habit of producing extraordinary capital gains. What's the old C.S. Lewis line? If you focus on heaven, you get earth thrown in, but if you focus on earth, you get neither...

    Do you think anyone ever expected Exxon to deliver 14% annual returns over the past 44 years? Heck no. It was as blue-chip as it gets--the Supreme Court had to break it up because it was too monopolistic, for heaven's sake. It was billed as a stock for old people and people scared of their own shadows. Yet, a $10,000 investment has compounded into $4.2 million since 1970.

    Maybe at some point, people in search of great capital gains will acknowledge that the habit of searching for extremely reliable income prevents you from loss in truly depressing economic times, and this serves as a coiled spring for creating long-term capital gains as well. That's how granny and her 2.66% yield from Exxon shares ends up owning the entire town.
    Mar 24 05:06 PM | 32 Likes Like |Link to Comment
  • Visa: High Price Should Not Prevent Exceptional Returns [View article]
    It's a separate company that operates under license from Visa (V).
    Mar 23 05:00 PM | 1 Like Like |Link to Comment
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