Owen

Wednesday Outlook: Commodities, Emerging Markets

Alex,

When Lyndon B. Johnson was in office, I was on the other side of the ocean, fighting wars of our own.

The US military buys most of its light firearms from Colt and a few specialty manufacturers. I don't see how Smith and Wesson would benefit from additional wars, unless they are fought on the streets of Los Angeles. A fear of imminent tightening in gun control laws is the most likely explanation for the rise in stock price, although I'd be surprised if their next quarterly report will actually show a dramatic increase in sales.

The author's comment about Shiller and the "novel approach" is pure demagoguery. Shiller has been using the same method for his calculation all along, something the author knows or should have known before making such an accusation.

This author has a tendency to see conspiracies and sinister plots in the most trivial events. I'd be happy to listen to them if he had any shred of proof to support them. Alas, he prefers to hide behind veiled suggestions and obscure innuendo.


On Mar 04 10:05 AM Alex Biggs wrote:

> Fakir and Owen: Not sure if you're old enough to have historical
> perspective based on your comments.

Wednesday Outlook: Commodities, Emerging Markets

> One company doing really well since the election is SWHC with the stock up 38%. Hmm, I wonder why?

Indeed, why? Buffalo Wild Wings is up 92% since November. So what? If there's something you want to say, say it. Enough with the innuendo.

> and come up with this novel approach this morning

"Novel"? Shiller has always been using the ten-year trailing earnings formula. Look up his original historical paper, and get over your paranoias already.

The Risk Premium Puzzle, or Dividend Investing for Math Nerds

Through 40+ years of bull and bear markets, Berkshire Hathaway has never paid any dividends, and yet markets keep valuing it based on the intrinsic value of the businesses it owns, knowing it will never pay any dividend either. Hedge funds are among the biggest owners of BRK; they're not interested in "the glamor of stock ownership". They expect return on investment, and with Berkshire, they get it aplenty.

There is no point in trying to force-fit reality into the dividend growth model. The model was a good starting point for financial theory, but reality just isn't that simple.


On Nov 25 10:55 PM AlexR wrote:

> I think that's the whole point we all have been missing. In "normal" and
> low-priced markets, no company would have the "audacity" of offering zero
> dividends. That only happens during secular mega-bubbles. Once all the
> glamor of stock ownership is gone, stocks will fall until their dividend yield is
> meaningful. And without the cheap financing from the credit bubble, no
> market force will be powerful enough to arbitrage the dividend away.

The Risk Premium Puzzle, or Dividend Investing for Math Nerds

Indeed, but dividends can just as easily be a disguise for what should properly be called "return of capital".


On Nov 25 04:45 PM searcher wrote:

> Retained earnings can prove to be evanescent due to the profligate
> or desultory husbandry of management. "A bird in the hand...”

The Risk Premium Puzzle, or Dividend Investing for Math Nerds

Good article. However, the dividend growth model, popularized in the first half of the previous century, falls apart in the face of successful companies paying little or no dividends. In the 1940s, publicly traded companies paid out most of their earnings in dividends, whereas now the payout ratio is less than one third.

Apple, Dell and Berkshire are all highly valuable companies, despite the zero value the dividend model implies for them. When you own a business, you own its retained earnings too, not just the dividends it spins off. In fact, retained earning are more valuable than dividends, since they're only taxed once, and at a more favourable rate than dividends are.

That being said, the article still stands correct if you replace all instances of 'D' (Dividends) with 'E' (Earnings). The formulas are all correct, and the risk premiums are even more compelling.

Tuesday Outlook: Commodities, Emerging Markets

YR Dog,

Yes, I must be The Insider Shill who drove up the entire market 5% on large volume after the close on Friday. I am also Jack the Ripper and the Easter Bunny.

Stupidity always hits a nerve with me. I can assure you that if I had access to insider information which I could lawfully use, I would use it without hesitation.

Tuesday Outlook: Commodities, Emerging Markets

We have laws against trading US securities based on non-public information about these companies to which the insider trader has access. There is, however, no law against trading such securities based on advance knowledge of the actions of a foreign government. It is perfectly legitimate under US law for people close to the Chinese or any other foreign government to use such government information for their advantage in trading US securities.

It may be "crap", as you call it, but it's part of the game. Insiders are not there for you to "trust" (or mistrust); they are there to make money off you. They play under exactly the same set of rules as you do, but armed with more information than you have. Live with it or find a new profession.