> If you think that the cost of capital for the market is about 9%
Why 9%? I've seen this number used elsewhere, but never explained. Your entire model seems to hinge on this one key number, which you provide without explanation.
Triple-B long-term corporate paper is now yielding under 5%. This means that any reasonably healthy company can now borrow money for 20 years at a 5% interest rate - and the inflation is already priced in.
Using the current 5% cost of capital, rather than the historical 9%, flips the entire picture around. Based on your model, current market valuation implies negative growth. Even a stagnant or slowly contracting market would reward investors for taking the equity risk.
A Remarkably Safe Way To Play The Apple Earnings Announcement [View article]
"Most people don't have $50,000 sitting around with which to buy 100 shares of a stock"
Really? You still go through an $80-a-trade full-service broker who makes you trade NASDAQ shares in board lots?
You should check out these things called online discount brokers and ECNs - they're happy to let you trade odd lots, even a single share of AAPL, with commissions as low as $1 per trade. It's a new thing - only been around about 20 years or so. Give it a look when you get a chance.
"so naturally, options are a viable alternative for a high-cost stock such as AAPL."
Actually, options (and single-stock futures) are the only time you're effectively forced to take a position in multiple of 100 shares of the underlying. Your advice is self-defeating.
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
"You cannot average a "single" anything."
Look up the term "mathematical expectation". The theory of probability allows us to calculate the expected value from a single experiment.
The author uses the term correctly, and his result is mathematically sound. The fact that it isn't intuitive to the laymen is unfortunate, but irrelevant.
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
Good article!
I think the problem with randomly-timed purchases versus dollar cost averaging is that most investors tend to pick the worst time to purchase stocks - during market euphoria, usually near the local peak of the price curve.
Much of the current literature promoting dollar cost averaging uses the assumption that without such a tactic, the investor's money sits in cash until the opportunity to invest presents itself. With such an absurd assumption, the conclusion is foregone.
Bill Gross Likes The 5 Year Treasury. Here's Why. [View article]
> assuming interest rates do not change
The entire yield curve is based on the assumption that interest rates _do_ change, and that rising inflation is a real risk. Without that assumption, there would be no yield curve.
But why stop there? If you assume interest rates won't change, buy the 30 year long bond, short the same quantity of 3-month bills, and pocket the 3% yield differential over the next 30 years.
If you possess this kind of foresight into next year's interest rate, there are much more lucrative trades than just spreading the 4 year note against the 5's.
"that would mean that existing cash would be reduced in 2013 by roughly $2 billion."
That is assuming the company earns zero. Even with the reduced earnings, I don't think many analysts are forecasting annual earnings of nil. Why would you make such an assumption?
As a REIT, in this case an mREIT, Annaly has little leeway in how much dividends it pays. It must, by law, distribute at least 90% of its earnings as dividends, whether it wants to or not.
No one is expecting the dividends to stay at $1.80 a year, or else the stock would have been trading well above $20 a share.
5 Stocks Trading Under Book With Strong Sales Growth [View article]
Good article!
A couple of minor points:
PNC has about $11 billion in goodwill and other intangible assets on its books. Once you remove those, the stock is trading at about 1.1 tangible book value.
Similar situation with Bunge, who has $1.2 billion in goodwill and other intangibles. Without those, it's trading at 1.02 of book value - still an attractive valuation by any measure.
Now, unlike Berkshire, Leucadia is a pure holding company. Any revenue figures it publishes are no more than an accounting artefact, as it has no operations. Holding companies are valued solely based on their book value, so its inclusion in this list is certainly justified. However, any "sales growth" in Leucadia is merely an increased rate of disposition of assets - nothing to rejoice about.
Missing from your analysis is KeyCorp, although it's not easy with that one to measure the sales growth.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
> helping out a "friend" to avoid massive taxes.
And a dead friend, at that. The guy died two months ago. It's the lawyers now handling the estate liquidation.
Buying back shares at 1.2 times book helps the remaining shareholders more than anyone. I hope he continues. Unlike you, it doesn't actually pain me to see other people make a profit.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
I'm also not quite sure what "crony business" is involved with buying shares from the estate of a shareholder who died two months ago, likely at a discount to what they were trading at the time.
Some people see conspiracy wherever they look. Makes for an interesting life, I guess.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
IBM is trading at around 1,000% of its book value, and Buffett is still buying.
Some people confuse "book value" with "fair value". Most companies are worth far more than their book value, and Berkshire is no exception.
But by all means, a shareholder lawsuit is a great idea. I heard New York lawyers are starving.
Is The Current Market Overvalued? [View article]
Why 9%? I've seen this number used elsewhere, but never explained. Your entire model seems to hinge on this one key number, which you provide without explanation.
Triple-B long-term corporate paper is now yielding under 5%. This means that any reasonably healthy company can now borrow money for 20 years at a 5% interest rate - and the inflation is already priced in.
Using the current 5% cost of capital, rather than the historical 9%, flips the entire picture around. Based on your model, current market valuation implies negative growth. Even a stagnant or slowly contracting market would reward investors for taking the equity risk.
A Remarkably Safe Way To Play The Apple Earnings Announcement [View article]
A Remarkably Safe Way To Play The Apple Earnings Announcement [View article]
Really? You still go through an $80-a-trade full-service broker who makes you trade NASDAQ shares in board lots?
You should check out these things called online discount brokers and ECNs - they're happy to let you trade odd lots, even a single share of AAPL, with commissions as low as $1 per trade. It's a new thing - only been around about 20 years or so. Give it a look when you get a chance.
"so naturally, options are a viable alternative for a high-cost stock such as AAPL."
Actually, options (and single-stock futures) are the only time you're effectively forced to take a position in multiple of 100 shares of the underlying. Your advice is self-defeating.
Bill Gross Likes The 5 Year Treasury. Here's Why. [View article]
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
Look up the term "mathematical expectation". The theory of probability allows us to calculate the expected value from a single experiment.
The author uses the term correctly, and his result is mathematically sound. The fact that it isn't intuitive to the laymen is unfortunate, but irrelevant.
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
I think the problem with randomly-timed purchases versus dollar cost averaging is that most investors tend to pick the worst time to purchase stocks - during market euphoria, usually near the local peak of the price curve.
Much of the current literature promoting dollar cost averaging uses the assumption that without such a tactic, the investor's money sits in cash until the opportunity to invest presents itself. With such an absurd assumption, the conclusion is foregone.
Bill Gross Likes The 5 Year Treasury. Here's Why. [View article]
If interest rates were constant and pigs could fly, I'd put my money in Pork Airlines commercial paper.
Bill Gross Likes The 5 Year Treasury. Here's Why. [View article]
Any other advice? I'm listening.
Bill Gross Likes The 5 Year Treasury. Here's Why. [View article]
The entire yield curve is based on the assumption that interest rates _do_ change, and that rising inflation is a real risk. Without that assumption, there would be no yield curve.
But why stop there? If you assume interest rates won't change, buy the 30 year long bond, short the same quantity of 3-month bills, and pocket the 3% yield differential over the next 30 years.
If you possess this kind of foresight into next year's interest rate, there are much more lucrative trades than just spreading the 4 year note against the 5's.
Annaly's Dividend Cut Is Confusing [View article]
That is assuming the company earns zero. Even with the reduced earnings, I don't think many analysts are forecasting annual earnings of nil. Why would you make such an assumption?
As a REIT, in this case an mREIT, Annaly has little leeway in how much dividends it pays. It must, by law, distribute at least 90% of its earnings as dividends, whether it wants to or not.
No one is expecting the dividends to stay at $1.80 a year, or else the stock would have been trading well above $20 a share.
5 Stocks Trading Under Book With Strong Sales Growth [View article]
A couple of minor points:
PNC has about $11 billion in goodwill and other intangible assets on its books. Once you remove those, the stock is trading at about 1.1 tangible book value.
Similar situation with Bunge, who has $1.2 billion in goodwill and other intangibles. Without those, it's trading at 1.02 of book value - still an attractive valuation by any measure.
Now, unlike Berkshire, Leucadia is a pure holding company. Any revenue figures it publishes are no more than an accounting artefact, as it has no operations. Holding companies are valued solely based on their book value, so its inclusion in this list is certainly justified. However, any "sales growth" in Leucadia is merely an increased rate of disposition of assets - nothing to rejoice about.
Missing from your analysis is KeyCorp, although it's not easy with that one to measure the sales growth.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
And a dead friend, at that. The guy died two months ago. It's the lawyers now handling the estate liquidation.
Buying back shares at 1.2 times book helps the remaining shareholders more than anyone. I hope he continues. Unlike you, it doesn't actually pain me to see other people make a profit.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
Some people see conspiracy wherever they look. Makes for an interesting life, I guess.
Berkshire Hathaway (BRK.B) raises the value at which it will repurchase shares to 120% of book value, from 110% previously. Coincident with that news is the purchase of 9.2K shares of Class A stock at $131K each from the estate of a long-term shareholder. 120% of book is approximately the $87-$90 range for the "B" shares, which are +1.6% to $88.68. [View news story]
Some people confuse "book value" with "fair value". Most companies are worth far more than their book value, and Berkshire is no exception.
But by all means, a shareholder lawsuit is a great idea. I heard New York lawyers are starving.
Tracking Warren Buffett's Berkshire Hathaway Portfolio - Q3 2012 Update [View article]