Dividend Growth And Me, An Anniversary Story [View article]
Great update Mike. I'm about a year ahead of you, but less diligent at keeping on top of things. My 23 stocks are doing quite well with a minimum of effort on my part.
It's always enjoyable to help educate others that are just starting out on their own DGI journey and having more "real" experiences documented here on SA will help a lot of investors find a reliable long term methodology to follow in DGI. Keep 'em coming.
Norman - Any commodity position for a retiree at this point should only risk "play" money. I'm with you there.
I disagree regarding the application of the "bubble" label to gold, not its suitability for any particular investor. I personally believe that gold will be making new highs before it goes under $1,000, but it's not without significant risk.
Gold's recent slump has not been as bad as the slump the S&P 500 experienced in 1987.
Gold: Peak $1923 Bottom: $1350 Slump: 30%
S&P in 1987: Peak 338 Bottom: 220 Slump: 35%
The S&P continued upward nearly 700% from that low in 1987. I don't see gold's recent slump as anything more than an extreme in normal market variability. I bought my physical gold at $800 or less in 2009 so that small portion of my holdings is still doing pretty well despite the slump (CAGR over 15% at current prices).
I'll continue to hold until I see real interest rates turn positive, at which point I'll put a stop under my holdings and ride prices higher as far as they go.
"An explanation of the gold bubble by Doug Short may prove enlightening." - Norman Tweed
Mr. Short appears to be playing games with charts which appear similar in order to make them BE the same.
The current bull market in gold is a relative youngster compared to the S&P 'bubble'.
The S&P rose from 122.5 in 1982 to 1500 in 2000. That's a gain of over 1200% in 18 years.
Gold has risen from $278 in 2002 to a peak of $1923 in 2011. That's a gain of over 690% in 9 years.
In order for gold to reach the same 'bubble' heights as the S&P it would need to reach $3,400. Price-wise gold is currently at the point the S&P held in mid 1997. Gold's recent 'plunge' has been no worse than the drop seen by the S&P in 1987, which no one claims to have been the popping of that bubble in retrospect.
I find data-fitting manipulations like those Mr. Short employed to be somewhat disingenuous. Percent comparisons should be made with the STARTING points equal, not the high points.
" For example, gold went up 120% in 1979. ... How can you predict that kind of stuff ahead of time? ... gold got destroyed from 1980-2000 ... This is one of the reasons why I stay away from gold. There's no protection on the downside. What... are you supposed to do for 20 years if you bought gold in 1980?" - Tim M
The answer is to not own it after 1980. Believe it or not, there are ways to know when to protect yourself from the downside of owning gold. The reasons why it works is completely different than why DGI works, but it is still a valid methodology.
The key factor is ... real interest rates. Gold tends to rise strongly when real interest rates are negative and fall or stagnate when they are positive.
Here is a chart of real interest rates going back to the late 1960s (the blue line on this chart):
On that chart you'll see that real interest rates went negative around 1974 and stayed negative until around 1980. During that time gold rose strongly from ~$150 to over $800.
When real interest rates turned positive in 1980 gold stagnated and fell (see the black line on this chart).
Real interest rates remained positive until 2002 and gold fell back to ~$300. At that point real interest rates again turned negative, briefly rose to positive territory in 2005 and fell back into negative rates in 2007. In 2002 you could buy gold at $300-ish and ride it up to current prices at ~$1400 (or to the peak at $1900 if you like to cherry pick data points).
It's true that you won't get in at the exact bottom, nor out at the very top, but the odds are heavily in your favor if you follow real interest rates. The "smart money" crowd (professional investors) understand that parking money in bonds during a negative real interest rate environment WILL lose purchasing power. Gold does a better job of maintaining that purchasing power when real rates are negative so the longer real rates stay there the more smart money moves into gold related assets as a defensive measure.
When a 1 year T-Bill yields less than the official CPI (which you can argue understates actual inflation) you can anticipate gold will perform well, as the last 40+ years have demonstrated.
Returns in the gold mining sector have outperformed gold though they usually lag in the cycle. PM miners are so far out of favor now that not owning successful operations which pay a dividend should bring criminal charges (that's a light-hearted personal opinion).
Keep your eye on real interest rates and you can harness the utility of gold in your portfolio.
"How can you say that gold preserves purchasing power when its price fluctuates on a market that you cannot control? ... It does not even have the same purchasing power as a week ago." - DVK
Tsk, tsk Dave. Your thinking is stuck in a dollar-centric valuation system. Who says someone couldn't TRADE their gold for other items without the necessity to figure out how many dollars that represents? You might sell the gold for Swiss Francs and buy a house in the Alps.
In truth, the dollar "does not even have the same purchasing power as a week ago.". When I put 10 gallons of gas in my car the gas itself doesn't change, only the price. What part of that change is driven by the dollar's loss of purchasing power and what part due to costs of production and delivery or taxes?
Some historical perspective on gold valuation:
Median house price in 1970: $17,000 (US Census) Price of gold in 1970: $38/oz One median 1970 house: 447+ oz of gold (when gold was a monetary metal)
Median house price in 2000: $119,600 (US Census) Price of gold in 2000: $279/oz One median 2000 house: 428+ oz of gold
Median house price in 2008: $210,000 (Natl Assoc of Realtors) Price of gold in 2008: $800/oz One median 2008 house: 262+ oz of gold
Median house price in 2012: $175,000 (Natl Assoc of Realtors) Price of gold in 2008: $1500/oz One median 2008 house: 116+ oz of gold
If you sold a (median valued) house in 1970, bought gold with the proceeds, and waited until 2000, 2008, or 2012 you could buy a (median valued) house using less between 26% and 96% of the pile of gold you got for the house in 1970 when the "value" gold was fixed relative to the dollar. I imagine the median houses in 2000, 2008, and 2012 were much nicer than the one in 1970 as well.
Gold maintained a store of value in comparison to housing over a 42 year span. Not bad for an inert lump of metal.
"What if gold gets nationalized again?" - erpichtauf
Not likely. FDR's 'seizing' of US gold only applied to coins and bullion in excess of 5 ounces per person (a family of 5 could keep 25 ounces).
The only reliable way to ensure most of the gold got collected was to force banks to turn in the coins when a customer deposited them. Anyone who simply buried their coins or stashed them in the mattress would probably have been able to keep them a long time (though not be able to use them often). In addition, jewelry and dental gold was not collected. People could melt or take a hammer to their gold coins and keep the resulting gold as "jewelry".
Given that gold is no longer used as money, FDR's primary mechanism for collecting gold coins no longer works. Nobody deposits gold coins at a bank any more. Confiscation is highly unlikely these days. There's no good way to know where all the gold coins are anymore without going through everyone's sock drawer at the point of a gun.
"In contrast to the article above, I think comparing gold to other investments is reasonable only for the years after 1971." - Elle_Navorski
A valid point. The price of gold was held fixed in terms of US dollars until after Nixon allowed it the dollar to float.
1971: Gold: $35 / oz S&P 500: 95 Today: Gold: $1406 / oz S&P 500: 1555
Gains: Gold: +4017% S&P 500: +1637%
To be complete, the numbers for the S&P 500 are based only on price and do not include reinvested dividends, nor does it represent a more focused collection of high quality DGI type stocks.
Still, it's not like gold was a complete waste of time. It has its uses.
Put Yourself In A Position To Welcome A Stock Market Correction [View article]
"[I] did not realize that $40 in book value doesn't mean s&!t if you got a liquidity problem." - Tim M.
Indeed. Any company that RELIES on short term financing to pay the bills or fund operations is potentially skating on thin ice. Tim noted Wachovia but you could see the same problem unfold at many other businesses: GE, Bear Stearns, and GM among them.
Our First Quarter Retirement Income Portfolio Review [View article]
Great job Bob. Thanks again for the update.
The results would tend to validate that your original plan was well thought out and smartly executed.
It won't be long before the DGI SA community has several years of real-world portfolio data which shows that individual stock-picking investors CAN beat the S&P 500 over time. Some will beat 'the market' quite handily it seems, but I don't imagine many of them will be flooded with offers to work for a mutual/hedge fund any time soon.
I suppose we'll have to be happy with educating the public for free here on SA and setting the example which demonstrates the principle for the indexing MPT masses who want to find a better way to save for retirement.
Dividend Growth Stocks Are Success Outliers [View article]
STOCK-PICKER!!!!!
Everyone _KNOWS_ that stock-picking doesn't work reliably....
... unless you follow a DGI methodology.
Your simple sifting exercise makes the point quite clearly. Some stocks are better than others when it comes to reliable growth over time. Finding them takes a little work, but it pays off in the end.
(I thought a little comic relief might help to suppress the eventual flames from the MPT crowd)
"Sorry, but this isn't enough of a justification to buy Walgreen's." - gaspains
I bought WAG in June of 2012 at $29.82. It closed at $47.01 this past Friday, for a 10 month gain of 57.6%. In addition, I've collected $0.825 per share in dividends (2.76%) over that time. Owning WAG seems to be working for me, I think I'll hold or maybe even add shares on any significant pull-back.
Dividend Growth And Me, An Anniversary Story [View article]
It's always enjoyable to help educate others that are just starting out on their own DGI journey and having more "real" experiences documented here on SA will help a lot of investors find a reliable long term methodology to follow in DGI. Keep 'em coming.
The Dividend Advantage Over Gold [View article]
I didn't say they wouldn't try, just that it would be very difficult to implement successfully.
It would be a sad day indeed if it were to come to that.
Choosing Charitable Stocks [View article]
I disagree regarding the application of the "bubble" label to gold, not its suitability for any particular investor. I personally believe that gold will be making new highs before it goes under $1,000, but it's not without significant risk.
The Dividend Advantage Over Gold [View article]
Gold's recent slump has not been as bad as the slump the S&P 500 experienced in 1987.
Gold: Peak $1923 Bottom: $1350 Slump: 30%
S&P in 1987: Peak 338 Bottom: 220 Slump: 35%
The S&P continued upward nearly 700% from that low in 1987. I don't see gold's recent slump as anything more than an extreme in normal market variability. I bought my physical gold at $800 or less in 2009 so that small portion of my holdings is still doing pretty well despite the slump (CAGR over 15% at current prices).
I'll continue to hold until I see real interest rates turn positive, at which point I'll put a stop under my holdings and ride prices higher as far as they go.
Choosing Charitable Stocks [View article]
Mr. Short appears to be playing games with charts which appear similar in order to make them BE the same.
The current bull market in gold is a relative youngster compared to the S&P 'bubble'.
The S&P rose from 122.5 in 1982 to 1500 in 2000. That's a gain of over 1200% in 18 years.
Gold has risen from $278 in 2002 to a peak of $1923 in 2011. That's a gain of over 690% in 9 years.
In order for gold to reach the same 'bubble' heights as the S&P it would need to reach $3,400. Price-wise gold is currently at the point the S&P held in mid 1997. Gold's recent 'plunge' has been no worse than the drop seen by the S&P in 1987, which no one claims to have been the popping of that bubble in retrospect.
I find data-fitting manipulations like those Mr. Short employed to be somewhat disingenuous. Percent comparisons should be made with the STARTING points equal, not the high points.
The Dividend Advantage Over Gold [View article]
The answer is to not own it after 1980. Believe it or not, there are ways to know when to protect yourself from the downside of owning gold. The reasons why it works is completely different than why DGI works, but it is still a valid methodology.
The key factor is ... real interest rates. Gold tends to rise strongly when real interest rates are negative and fall or stagnate when they are positive.
Here is a chart of real interest rates going back to the late 1960s (the blue line on this chart):
http://bit.ly/107jvTy
On that chart you'll see that real interest rates went negative around 1974 and stayed negative until around 1980. During that time gold rose strongly from ~$150 to over $800.
When real interest rates turned positive in 1980 gold stagnated and fell (see the black line on this chart).
http://bit.ly/ZdE3OL
Real interest rates remained positive until 2002 and gold fell back to ~$300. At that point real interest rates again turned negative, briefly rose to positive territory in 2005 and fell back into negative rates in 2007. In 2002 you could buy gold at $300-ish and ride it up to current prices at ~$1400 (or to the peak at $1900 if you like to cherry pick data points).
It's true that you won't get in at the exact bottom, nor out at the very top, but the odds are heavily in your favor if you follow real interest rates. The "smart money" crowd (professional investors) understand that parking money in bonds during a negative real interest rate environment WILL lose purchasing power. Gold does a better job of maintaining that purchasing power when real rates are negative so the longer real rates stay there the more smart money moves into gold related assets as a defensive measure.
When a 1 year T-Bill yields less than the official CPI (which you can argue understates actual inflation) you can anticipate gold will perform well, as the last 40+ years have demonstrated.
Returns in the gold mining sector have outperformed gold though they usually lag in the cycle. PM miners are so far out of favor now that not owning successful operations which pay a dividend should bring criminal charges (that's a light-hearted personal opinion).
Keep your eye on real interest rates and you can harness the utility of gold in your portfolio.
The Dividend Advantage Over Gold [View article]
Tsk, tsk Dave. Your thinking is stuck in a dollar-centric valuation system. Who says someone couldn't TRADE their gold for other items without the necessity to figure out how many dollars that represents? You might sell the gold for Swiss Francs and buy a house in the Alps.
In truth, the dollar "does not even have the same purchasing power as a week ago.". When I put 10 gallons of gas in my car the gas itself doesn't change, only the price. What part of that change is driven by the dollar's loss of purchasing power and what part due to costs of production and delivery or taxes?
Some historical perspective on gold valuation:
Median house price in 1970: $17,000 (US Census)
Price of gold in 1970: $38/oz
One median 1970 house: 447+ oz of gold
(when gold was a monetary metal)
Median house price in 2000: $119,600 (US Census)
Price of gold in 2000: $279/oz
One median 2000 house: 428+ oz of gold
Median house price in 2008: $210,000 (Natl Assoc of Realtors)
Price of gold in 2008: $800/oz
One median 2008 house: 262+ oz of gold
Median house price in 2012: $175,000 (Natl Assoc of Realtors)
Price of gold in 2008: $1500/oz
One median 2008 house: 116+ oz of gold
If you sold a (median valued) house in 1970, bought gold with the proceeds, and waited until 2000, 2008, or 2012 you could buy a (median valued) house using less between 26% and 96% of the pile of gold you got for the house in 1970 when the "value" gold was fixed relative to the dollar. I imagine the median houses in 2000, 2008, and 2012 were much nicer than the one in 1970 as well.
Gold maintained a store of value in comparison to housing over a 42 year span. Not bad for an inert lump of metal.
The Dividend Advantage Over Gold [View article]
Not likely. FDR's 'seizing' of US gold only applied to coins and bullion in excess of 5 ounces per person (a family of 5 could keep 25 ounces).
The only reliable way to ensure most of the gold got collected was to force banks to turn in the coins when a customer deposited them. Anyone who simply buried their coins or stashed them in the mattress would probably have been able to keep them a long time (though not be able to use them often). In addition, jewelry and dental gold was not collected. People could melt or take a hammer to their gold coins and keep the resulting gold as "jewelry".
Given that gold is no longer used as money, FDR's primary mechanism for collecting gold coins no longer works. Nobody deposits gold coins at a bank any more. Confiscation is highly unlikely these days. There's no good way to know where all the gold coins are anymore without going through everyone's sock drawer at the point of a gun.
The Dividend Advantage Over Gold [View article]
A valid point. The price of gold was held fixed in terms of US dollars until after Nixon allowed it the dollar to float.
1971: Gold: $35 / oz S&P 500: 95
Today: Gold: $1406 / oz S&P 500: 1555
Gains: Gold: +4017% S&P 500: +1637%
To be complete, the numbers for the S&P 500 are based only on price and do not include reinvested dividends, nor does it represent a more focused collection of high quality DGI type stocks.
Still, it's not like gold was a complete waste of time. It has its uses.
Put Yourself In A Position To Welcome A Stock Market Correction [View article]
Indeed. Any company that RELIES on short term financing to pay the bills or fund operations is potentially skating on thin ice. Tim noted Wachovia but you could see the same problem unfold at many other businesses: GE, Bear Stearns, and GM among them.
Dividend Growth Stocks Are Success Outliers [View article]
Our First Quarter Retirement Income Portfolio Review [View article]
The results would tend to validate that your original plan was well thought out and smartly executed.
It won't be long before the DGI SA community has several years of real-world portfolio data which shows that individual stock-picking investors CAN beat the S&P 500 over time. Some will beat 'the market' quite handily it seems, but I don't imagine many of them will be flooded with offers to work for a mutual/hedge fund any time soon.
I suppose we'll have to be happy with educating the public for free here on SA and setting the example which demonstrates the principle for the indexing MPT masses who want to find a better way to save for retirement.
Dividend Growth Stocks Are Success Outliers [View article]
Everyone _KNOWS_ that stock-picking doesn't work reliably....
... unless you follow a DGI methodology.
Your simple sifting exercise makes the point quite clearly. Some stocks are better than others when it comes to reliable growth over time. Finding them takes a little work, but it pays off in the end.
(I thought a little comic relief might help to suppress the eventual flames from the MPT crowd)
Obama Care Takes Care Of Walgreen [View article]
WAG increases their dividend by 22.2% to $1.10 per share which translates to a yield on cost of 3.69% for my buy price.
This Dividend Growth Investing stuff is great! Check it out.
Obama Care Takes Care Of Walgreen [View article]
I bought WAG in June of 2012 at $29.82. It closed at $47.01 this past Friday, for a 10 month gain of 57.6%. In addition, I've collected $0.825 per share in dividends (2.76%) over that time. Owning WAG seems to be working for me, I think I'll hold or maybe even add shares on any significant pull-back.
Your results may vary.