Some time ago, one of the smartest authors on Seeking Alpha told me that the proper way to view and value WM is as a "semi-utility."
When David Fish told me that my eyes popped wide open and I bought WM. Ever since, I valued WM the same way I value a utility, or a railroad, or any other capital intensive business.
Since buying WM, I've doubled my money. Moreover, since calender year 2004, WM has *until recently*, increased its dividend to my satisfaction.
At today's price, FAST Graphs' estimator shows the 5 year total return as a paltry 7%.
I'll take it. I have no other use for the capital because I'm sitting on boatloads of cash. Moreover, 7%/year for an anchor isn't so bad.
This article, written around the time D4L wrote his 2012 article, valued WM as fairly valued at $32/share. http://bit.ly/1bOVwiH
WM just missed its earnings. http://bit.ly/11V0UPX Revenue for the quarter was $3.34 billion, up 1% from $3.3 billion last year. Analysts expected to see $3.36 billion in revenue.
Gimme a friggin' break. They wanted $3.36 and got teary-eyed at $3.34?
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
"But the whole point of Kostohryz' excellent article is that a money lender cannot "earn" interest money unless a borrower is able to put that money to work and "earn profit" by investing the money. If the investment by the borrower is not profitable, then the borrower will not be able to pay ANY interest, and won't be able to repay the loan principal either, and the lender simply loses their money in the bad loan."
So the crux of your argument is that banks have judged so many businesses applying for loans to be unworthy that we are to believe this to be the reason they are not making loans (so many, in fact, that they have been publicly called on this), and that the ulterior motives by banks have nothing to do with them shoring up their balance sheets and meeting or beating Tier 1 capital requirements under the Basel III Framework?
For example, under the latest regulatory pact, called Basel III, large global banks’ safest capital, called core Tier 1, must equal 7.5 percent of assets and be predominantly common equity and retained earnings.
Deutsche Bank recently reported a core Tier 1 capital ratio of 8.8 percent of risk-weighted assets.
As the article states: They got to that number "with aggressive use of risk-weighting to reduce its assets from €2 trillion—about 56 percent of Germany’s total economic output—to about €325 billion, an 84 percent shrinkage. By comparison, the risk-weighted assets of the world’s largest financial companies equal about 50 percent of their total assets."
How was this possible? "The catch is that banks are allowed to weight their assets (such as loans to companies and individuals, securities, and office buildings) according to the level of risk they represent. A loan to a government, for example, is considered less risky than a loan to a startup company."
There will always be more than one side to a story. I am not taking sides, but I rarely take anything I read as the whole truth.
That said, I still have very cynical views of the entire financial community.
3D Printing Needs Apple And Apple Needs 3D Printing [View article]
Matt,
This is one of your best articles, certainly the one of many that took me a long time to read because there was do so much to digest. You covered all the important areas of concern about 3D printing.
If those you mentioned, I have a few opposing thoughts and one area where I have different thoughts than yours about APPL’s possible journey into 3D printing.
My opposing thoughts have nothing to do with you, or your thesis (although I question if the value it would bring to AAPL would be adequate). Rather, they pertain to two sources you referenced, as follows:
(1) I do not agree with Atlas Shrugged’s argument (presented in this article: http://bit.ly/11BsuNN) that:
“Due to the regular and ongoing nature of 3D Systems' acquisitions, they should be understood as capital expenditures and subtracted from free cash flow calculations. Acquisitions are seen as an extraordinary event and receive accounting treatment as such under GAAP; yet for 3D Systems, acquisitions are an ordinary part of business. If the company had used its own research and development to develop the technologies and patents it gained from acquisitions, they would have been expensed the year they were incurred. If the company used its own sales force to expand its client base, the costs would have been immediately expensed as Selling, General and Administrative. Instead, they had already been expensed by the acquired companies and did not affect 3D Systems' Income Statement.”
One needs to accept that many businesses grow through acquisitions, and not all of them are made for revenue alone. Often, it’s the intellectual property that’s important, as exemplified by Google’s purchase of Motorola for $12.5 billion. Whereas I won’t speculate on all the reasons for 3D’s acquisitions, I will say that I think DDD’s accounting is proper and the argument Atlas Shrugged makes against it is not valid. In addition, if any company sees its own organic growth slowing and recognizes that the purchase of another company has long term accretive value, then we should be willing to wait longer than a blink of an eye for evidence of it.
(2) The article you referenced about 3D printed drugs is the dumbest I’ve read in my entire life.
For the avoidance of any confusion, let me repeat that I think it's DUMB.
In his words: “a) you go to an online drug store; b) you decide what you need (with a prescription); c) you buy both the blueprint and the ink; d) the "ink" comes pre-sealed in a safe cartridge; e) you print the drug with the special ink and the software; f) you take the drug.”
If it ever happens, as the lunatic Professor Lee Cronin (the scientist behind the technology at Glasgow University) says I will, it won’t be in any of our lifetimes. He should learn how to tone down the expectations he has for a 3D printer to do actual chemistry. It may be more likely that a 3D drug printer will be licensed for use in specific home or facilities that can deposit a needed preformulated drug (from a cartridge) on an as needed basis. But, I don’t think so. Why bother when it will always be cheaper to manufacture them in bulk in one facility and distribute them to those with prescriptions? And, that’s not to mention all the dosage forms and compositions that are customized for use with specific patients, and trhe regulatory hurdles needed for such licensing and home use. Even the excipients used in pills make a very big difference to distribution in the body.
Your idea about how:
“Apple's online store would sell DRM files that work with any 3D printer, a strategic move that Apple may want to make is to create and sell a printer that only prints files purchased from their store. This not only provides Apple with an additional bargaining tool to encourage companies to list their designs, it would also allow Apple to stay away from the bad press that comes from the printing and the manufacturing of dangerous or potentially harmful products/objects.”
…. is terrific.
The area of disagreement about APPL’s possible journey into 3D printing has to do with my feeling that, as you wrote:
“Even now, some of Apple's rumored, more exciting, products include a smart watch, a television, or even a more advanced Siri upgrade. The problem here is that Google, Samsung and Microsoft are already planning their own smart watches. There are also plenty of other competitors making televisions including Samsung. Even if Apple's version has an exciting new feature or two, as we have seen in mobile, it will take a very short amount of time before the others catch up.”
…. Apple will have fierce competition for any big market.
Said another way, APPL is no GOOG.
I think APPL’s best days are behind it. That’s not to say APPL won’t continue to thrive, but I have a very hard time understanding how AAPL can sustain its past growth rates and huge profit margins. If I were to bet, I’d bet on GOOG.
Something bigger than 3D printing is needed to revitalize AAPL because APPL does not own 3D printing (as it owns iOS and all parts of its ecosystem).
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Mikey,
I need to correct what I wrote about fees being collected by Fidelity. I called to talk about various options and was told that the 0.01% return I am seeing for FDRXX (the Cash Reserves core account in my IRA) is the return after Fidelity subsidizes the expense ratio.
In other words, I am not earning 0.01% and then paying Fidelity 0.38% to hold cash. In addition, Fidelity does not charge a 12b-1 marketing fee on this account which, if it did, would be added to the 0.38% expense ratio.
From their website, as of 5/31/2013:
Compound Effective = 0.01%
7-Day Yield = 0.01%
7-Day without subsidy = minus 0.08%
It may be that we don’t pay enough attention to cash accounts because we think of them as virtual mattresses.
I was told that if/when interest rates rise substantially, then I can expect Fidelity to taper off and eliminate the subsidy.
My hunch is that Vanguard is also waiving/subsidizing your expenses as well.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Mike,
I have two accounts at Fidelity, and another account at JP Morgan Chase. I also have a lot of cash parked in each.
In my taxable account at Fidelity, I have cash parked in the "Fidelity Municipal Money Market Fund" (FTEXX). The 1 year return has been 0.01% (the 7-day yield: is also 0.01%). The fee is shown as 0.42% but they voluntarily reduced it to 0.17%. The footnote says: "The most current Annual or Semi-Annual Report as of 02/28/2013 reflects a net expense ratio of 0.17%. Prospectus expenses shown above may not include certain voluntary caps and waivers that reduce the actual expenses of the fund. The voluntary waivers and caps can be discontinued at any time."
In my IRA, I have cash parked in their "Cash Reserves" (FDRXX ). The 7-day yield: 0.01%. Here, the expense ratio is given as 0.38%. However, the voluntary reduction is not great "The most current Annual or Semi-Annual Report as of 11/30/2012 reflects a net expense ratio of 0.36%. Prospectus expenses shown above may not include certain voluntary caps and waivers that reduce the actual expenses of the fund. The voluntary waivers and caps can be discontinued at any time."
If we want to avoid the fees, then maybe it's best to buy 3 month banks CDs in 3 lots, 1/3 every three months so there is always 1/3 of the cash sitting as cash and available to invest every quarter. Or, half and half, etc.
Frankly, I agree with your last statement, that "it's the price I pay for convenience, accessibility and patience." And, maintaining a constant dollar.
++++++++++++++++++++++ Although I am now a little pissed my myself that it took so long for me to learn I am paying a whopping 0.36% ... which is friggin' nuts. I will call them tomorrow and switch to something else, maybe FTEXX (although they will probably tell me it's not a core account.
Or, maybe I'll move it to JP Morgan Chase where I pay no fees and earn about 0.4% on idle cash.
+++++++++++++++++++++ I had much more fun with money around the age of 5 than today. While in kindergarten, I stumbled on my fathers piggy bank (he used to stuff it with silver dollars) and took money out of it daily so I could bring it to school and buy everyone comic books, soda, ice cream, and candy after school let out. I got found out when the Principal called my parents to tell them they were giving their son an outrageously high allowance and that I was a bad influence on my classmates.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Rich,
Just curious to know why you would accept a risk-free 4% when there would be many other *almost as safe* choices for both income and capital appreciation that, when combined, would beat 4%. For example, an investment in IBM and XOM should safely provide 4% over 10 years (assuming one didn't overpay at the time of purchase).
I would park cash in a high quality money market account id it held the value of a dollar constant ... if it paid much higher rates than today, but 10 year notes don't preserve the dollar (unless one holds to maturity, at which time inflation will have reduced its value, as it also would for uninvested capital held in a MM fund).
Do Not Let The 1966-1981 Stock Market Dishearten You [View article]
"Tim and Paul, do you think it is wrong to point out that even one of the most celebrated DG investors at SA was unable to anticipate a certain stock's dividend cut, and that this celebrated SA DG investor even promoted the stock for purchase?"
Elle,
You are right. There is a lesson to be learned that even notable investors fail from time to time to make good calls and that, as you also wrote:
“if Buffett and SA "great" Van Knapp can misread companies, lesser investors will too. Hence one should be diversified and/or be aware that companies that cut dividends often do restore them within a few years.”
I would not want to detract from this important lesson.
But, David Van Knapp was not an appropriate example for Cranky to use. Why? Not because it wasn’t instructive to mention that DVK failed to see that GE was about to hit a wall, but because of how this information was used by Cranky in the broader context of Cranky’s article.
DVK is on record to increase his yield on cost to 10% over ten years. DVK doesn’t pay attention to fluctuation in portfolio value except to the extent that his initial reason for buying a stock is no longer valid (as illustrated by his sale of ABT when Abbott split off AbbVie).
There are other reasons for a sale by DVK, but none related to what the “Market” does with pricing. DVK looks at sustainable growing income and, yes, he also looks for signs of a dividend cut or freeze.
By way of contrast, Cranky presented a view of how an initial investment of $100,000 in VYM made in Nov 2006 would have grown to $135,634 by May 2013 with dividends reinvested throughout that time. If you tally the total dividends paid, it comes to a bit more than $17.000.
Cranky' showed that VYM also took a hit but went on to write that "On the more important income front, VYM greatly outperforms Part-Time Investor's model. ..... We have an income increase of 30% moving through the recession."
But it was 30% off a low base (only $17,000+ of dividend income over all those years off an initial base of $100,000), and that’s pretty pathetic from DVK’s point of view (and mine).
Cranky used VYM as his one example.
I'm quite sure if I looked I could find one example of a dividend stock that beat the pants off VYM, and that stock is surely included as one of many in VYM.
That’s the kind of stock a stock picker like DVK goes after.
And, he probably did.
As for the example Cranky gave of DVK’s lack of ability to see GE’s future, I say that we all make mistakes in judgment and, more often than not, the mistakes are really decisions based on what we knew at the time.
So, I’m not convinced we should call them mistakes. Moreover, using selective hindsight, we can prove any point we wish to make.
As Cranky wrote (and you alluded to): "Even Warren Buffett sold his stake in MCD. He later admitted that was a mistake. SA writer David Crossetti held on to McDonald's through thick and thin, and has the returns to prove it."
Has Buffet done poorly over the years? Has Crosetti? Has DVK? Has Cranky? I would bet all four have done well.
But, I prefer to measure relative performance over long time periods than to focus on isolated examples and, more importantly, gauge performance against the goals and objective set by the specific investor.
It’s not wise to try to beat a benchmark other than one’s own standard for success.
Most often, it's the information that we worked with that's to blame. As we're outsiders and bombarded with vast amounts of information, it's a very difficult undertaking just to sift through it. That's surely what happened to everyone with the financial sector (i.e., every fund, every investor, every ETF including the example of VYM used by Cranky). DVK is just one example.
The financial community got all of us.
They succeeded in proving that bankers, financial analysts, the SEC, the Federal Reserve, fund managers, various companies, economists, Nobel Prize winners, and investors were all clueless.
The whole world was clueless.
I can’t beat myself up for also being clueless.
As for GE? Jack Welch is the person to nail for GE Capital. Yet, he is heralded as one of the most successful CEOs of all time. Hogwash. He is responsible for GE’s crisis.
I was also hit with a loss in GE but made the decision to not sell my shares. Why? I always liked GE and not selling was a buy decision at a price I thought was great. Good move on my part but that’s not good enough evidence for me to claim that I’m a good investor.
Most often, I continue to feel clueless.
Writing this note to you showed me why the feeling is justified.
++++++++++++++++++++++... I very much enjoy your comments and hope this reply hasn't put you off. I further trust you won't view my response in any way other than impassioned.
National Grid's Disappointing New Dividend Policy [View article]
Steven,
I think the damage of their new dividend policy is mainly psychological. I think of it this way. Where else can I lock in a yield of around 5.3% (at today's price) and get an annual increase that matches inflation?
Whereas the yield and price of the stock will fluctuate with the exchange rate and bond yields, over time the price will increase mainly because the dividend will increase and most equities revert to a mean. So, there is a very good chance I can get more than all my money back if/when I so choose all the while collecting dividends.
I imagine the long term TOTAL annual return will be around 6-8% which isn't terrible if one thinks of NGG as being an anchor to help stabilize a portfolio. prefer NGG over something like ED (paltry annual dividend increases and a current yield of only 4.3%).
NGG is not a growth/income stock but it can serve a useful purpose. There is no guarantee that RDS will not again freeze its dividend, and more reason to think that NGG wouldn't.
Own These World's Leading Brands And Never Fear A Recession Again [View article]
James,
In a nutshell, I think you're saying that all people are dimwits.
One by one:
“The substance and spirit of this article by Mr. Carnevale provides very bad advice.”
The advice he gives is to invest in sound companies at or below fair value. How could that be bad?
“1. The idea that you can solve the psychological anxiety that many people experience (due to the ups and downs of stock investing) by purchasing individual stocks of companies with good brands is extremely bad advice.”
To the contrary. He is trying to tell people not to panic, and to invest in high quality companies at or below fair value.
People panic out of funds, ETFs, and any other investment.
Are you saying that people should not invest but, perhaps, hoard money in mattresses, money market funds, banks CDs or savings accounts yielding low single digit returns (if that much), or spend it all?
Are you also claiming that Warren Buffet and Charlie Munger give out bad advice?
“What the author is advocating -- whether he calls it that or not -- is trying to time stocks.”
Yes. He is advocating timing purchases at or below fair value.
Are you also claiming that Warren Buffet and Charlie Munger give out bad advice, that people should not care about intrinsic value?
“2. Individuals, generally cannot properly manage a well-diversified portfolio of individual stocks. It takes about 35 stocks for a portfolio to be well diversified. The vast majority of individuals do not have the time, the resources, the ability, the training or psychological inclination to do this well. Once you start buying individuals stocks in your portfolio, you will sleep much less well, not better.”
I sleep very well. Sorry you don’t.
“3. When you buy individual stocks for your portfolio, you have much more to worry about than just the next recession. When you invest in individual stocks you worry just as much (or as little) about recessions. Plus, you need to worry about hundreds of other things that can and will go wrong with each of your individual stocks. This is not a formula for "not worrying" or "sleeping well at night."
Sorry this keeps you up at night. Those of us who learned how to construct a diversified portfolio of high quality stocks sleep soundly.
“4. Companies with good brands can and do become companies with bad and/or obsolete brands.”
Fully agree. But, the same thing happens in the index funds and ETF’s you claim are better for us dimwits.
All we try to do is get rid of the crap by buying the best of the lot.
“5. Of course Mr. Carnevale and his fans may counter that he does not really mean that the ONLY thing you have to do is buy good brands. They will probably say that you have to do a whole slew of things before buying a stocks -- such as due diligence and constant maintenance research."
Yup. Very good advice. Do a whole slew of things before buying a stocks.
But, "constant maintenance research"? I'm not sure how many stocks I own (I think it's about 60). I make my own decisions (such as today being very heavily invested in industrials and energy), and only buy rock solid, financially healthy companies. I may look at a stock I own once every few months.
"Ah, but this article omits these other things (except his pitch to use his FAST GRAPHS, of course)."
Doesn’t everyone except Jack Bogle monitor their portfolio? Bogle is 100% invested in Vanguard’s funds http://reut.rs/ZysAJo
Odd that Bogel thinks one’s bond allocation should roughly equal your age (he's over 80). Maybe he knows the exact date of his death, or maybe he’s so rich that a 1-2% return on investments yields manifold times more than he needs. Bad advice for the average person, I think.
But, don’t financial advisors and brokers monitor portfolios they assemble from individual stocks, including those who lose their client’s money, or underperform year after year?
FAST Graphs is nothing more than a tool. And, it is a very useful one.
Shouldn’t every person in business promote their business, including those selling soft drinks and hamburgers?
“6. Most individual investors should strive to become good asset allocators; not stock pickers. Doing the former reasonably well is within the possibilities of most individuals; the latter is not.”
What makes you think we pay no attention to asset allocation?
“7. Finally, some readers need a little background: Mr. Carnevale has some history of doing hatchet jobs on me in comment sections of my articles and in his own published articles -- including calling me a liar, and quite a few things that are even worse.”
No comment.
Despite the above rebuttal, I want to comment on the value you bring to the community at large.
I think you’re very intelligent (didactic, compensated for with intelligence). I read your articles from time to time because they make me think.
Sometimes, I don’t agree with your basic premises, as evidenced by a recent exchange between ourselves regarding the impact of falling commodity prices on US equities and the economy at large. In this debate, I held a view opposite to yours, that lower commodity prices are signaling a global growth slowdown. I posed the view that the fall in commodity prices could be a leading indicator for global expansion. http://seekingalpha.co... Greater differences in opinion between ourselves are here http://seekingalpha.co... There is no way to know the future, but the ideas were worth thinking about. I thank you for that.
Personally, I think you fail to consider that generalities are dangerous.
But, you are thought provoking, and therein is the value.
Own These World's Leading Brands And Never Fear A Recession Again [View article]
"Sorry, folks but this whole article wreaks of snake-oil salesmanship -- from its false and misleading title to its incessant hawking of the author's graphing product."
James,
Wow. You sure do like to pontificate.
Reread your comment and look for toothless allegations on topics not once mentioned by Chuck, and your judgment calls about those of us who prefer to select and monitor individual stocks.
Here's one:
"And a final warning: Do not let this author or others deceive you by giving you rote disclaimers about diversification. To properly diversify a portfolio, you need to have at least 35 stocks in it.?
Where in the article is there mention of portfolio size? Are you lecturing to hear the sound of your own voice? Do you think no one knows that?
Here's another:
"Individuals do not have the time or the qualifications to do this."
Really?
Do you really believe your own story?
Many of us beat *your* annual performance. Those of us who don't match your performance don't give a rat's ass because we are not measuring our performance with your yardstick.
My view of your comment is that it lacks both a balanced and sophisticated understanding of investing generally, and is accusatory and judgmental.
+++++++++++++++++++++++++ Chuck,
Your articles succeed in teaching people how to value stocks, including those held by funds and ETFs. I enjoy them. Moreover, FAST Graphs has helped me a lot.
Waste Management, Inc. Dividend Stock Analysis [View article]
Did not double my money. I have a roughly 30% gain (bought in early 2012 at around 31).
Waste Management, Inc. Dividend Stock Analysis [View article]
WM's close today was $39.68.
M* has a fair value price of $35/share, and FAST Graphs shows that WM is only slightly overvalued.
Yet D4L writes "The stock is trading at a 93.2% premium to its calculated fair value of $21.82."
This is roughly the same percentage D4L calculated in 2012 when the closing price was $33.96
http://bit.ly/11V0VTR
http://bit.ly/11V0VTV
Some time ago, one of the smartest authors on Seeking Alpha told me that the proper way to view and value WM is as a "semi-utility."
When David Fish told me that my eyes popped wide open and I bought WM. Ever since, I valued WM the same way I value a utility, or a railroad, or any other capital intensive business.
Since buying WM, I've doubled my money. Moreover, since calender year 2004, WM has *until recently*, increased its dividend to my satisfaction.
At today's price, FAST Graphs' estimator shows the 5 year total return as a paltry 7%.
I'll take it. I have no other use for the capital because I'm sitting on boatloads of cash. Moreover, 7%/year for an anchor isn't so bad.
Although old (2006), here's what an analysis should be:
http://bit.ly/11V0VTX
This article, written around the time D4L wrote his 2012 article, valued WM as fairly valued at $32/share.
http://bit.ly/1bOVwiH
WM just missed its earnings. http://bit.ly/11V0UPX Revenue for the quarter was $3.34 billion, up 1% from $3.3 billion last year. Analysts expected to see $3.36 billion in revenue.
Gimme a friggin' break. They wanted $3.36 and got teary-eyed at $3.34?
OK, I got it. It ain't a growth stock.
Here's another take on the recent miss:
http://bit.ly/11V0VTY
At today's price, it's not a buy. But, it's not a sell.
I don't know what it is except that continuing to own it isn't going to keep me up at night.
Searching For Value And Finding It In Today's Market - Sector By Sector [View article]
I join everyone else in singing your well-deserved praise.
+++++++++++++++++++++++++
Have you read about the threat Amazon poses to IBM in cloud services?
http://on.wsj.com/19aHV5R
http://bit.ly/19aHRTV
I think there's room for many players although Amazon's victory did surprise me.
IBM won a protest of the CIA’s $600M cloud contract with Amazon:
http://bit.ly/19aHSa9
Bill Gross's Misguided Diagnosis Of America's Economic Problems [View article]
So the crux of your argument is that banks have judged so many businesses applying for loans to be unworthy that we are to believe this to be the reason they are not making loans (so many, in fact, that they have been publicly called on this), and that the ulterior motives by banks have nothing to do with them shoring up their balance sheets and meeting or beating Tier 1 capital requirements under the Basel III Framework?
Banks are still playing lots of games. http://buswk.co/17bHsDp
For example, under the latest regulatory pact, called Basel III, large global banks’ safest capital, called core Tier 1, must equal 7.5 percent of assets and be predominantly common equity and retained earnings.
Deutsche Bank recently reported a core Tier 1 capital ratio of 8.8 percent of risk-weighted assets.
As the article states: They got to that number "with aggressive use of risk-weighting to reduce its assets from €2 trillion—about 56 percent of Germany’s total economic output—to about €325 billion, an 84 percent shrinkage. By comparison, the risk-weighted assets of the world’s largest financial companies equal about 50 percent of their total assets."
How was this possible? "The catch is that banks are allowed to weight their assets (such as loans to companies and individuals, securities, and office buildings) according to the level of risk they represent. A loan to a government, for example, is considered less risky than a loan to a startup company."
There will always be more than one side to a story. I am not taking sides, but I rarely take anything I read as the whole truth.
That said, I still have very cynical views of the entire financial community.
3D Printing Needs Apple And Apple Needs 3D Printing [View article]
This is one of your best articles, certainly the one of many that took me a long time to read because there was do so much to digest. You covered all the important areas of concern about 3D printing.
If those you mentioned, I have a few opposing thoughts and one area where I have different thoughts than yours about APPL’s possible journey into 3D printing.
My opposing thoughts have nothing to do with you, or your thesis (although I question if the value it would bring to AAPL would be adequate). Rather, they pertain to two sources you referenced, as follows:
(1) I do not agree with Atlas Shrugged’s argument (presented in this article: http://bit.ly/11BsuNN) that:
“Due to the regular and ongoing nature of 3D Systems' acquisitions, they should be understood as capital expenditures and subtracted from free cash flow calculations. Acquisitions are seen as an extraordinary event and receive accounting treatment as such under GAAP; yet for 3D Systems, acquisitions are an ordinary part of business. If the company had used its own research and development to develop the technologies and patents it gained from acquisitions, they would have been expensed the year they were incurred. If the company used its own sales force to expand its client base, the costs would have been immediately expensed as Selling, General and Administrative. Instead, they had already been expensed by the acquired companies and did not affect 3D Systems' Income Statement.”
One needs to accept that many businesses grow through acquisitions, and not all of them are made for revenue alone. Often, it’s the intellectual property that’s important, as exemplified by Google’s purchase of Motorola for $12.5 billion. Whereas I won’t speculate on all the reasons for 3D’s acquisitions, I will say that I think DDD’s accounting is proper and the argument Atlas Shrugged makes against it is not valid. In addition, if any company sees its own organic growth slowing and recognizes that the purchase of another company has long term accretive value, then we should be willing to wait longer than a blink of an eye for evidence of it.
(2) The article you referenced about 3D printed drugs is the dumbest I’ve read in my entire life.
For the avoidance of any confusion, let me repeat that I think it's DUMB.
In his words: “a) you go to an online drug store; b) you decide what you need (with a prescription); c) you buy both the blueprint and the ink; d) the "ink" comes pre-sealed in a safe cartridge; e) you print the drug with the special ink and the software; f) you take the drug.”
If it ever happens, as the lunatic Professor Lee Cronin (the scientist behind the technology at Glasgow University) says I will, it won’t be in any of our lifetimes. He should learn how to tone down the expectations he has for a 3D printer to do actual chemistry. It may be more likely that a 3D drug printer will be licensed for use in specific home or facilities that can deposit a needed preformulated drug (from a cartridge) on an as needed basis. But, I don’t think so. Why bother when it will always be cheaper to manufacture them in bulk in one facility and distribute them to those with prescriptions? And, that’s not to mention all the dosage forms and compositions that are customized for use with specific patients, and trhe regulatory hurdles needed for such licensing and home use. Even the excipients used in pills make a very big difference to distribution in the body.
Your idea about how:
“Apple's online store would sell DRM files that work with any 3D printer, a strategic move that Apple may want to make is to create and sell a printer that only prints files purchased from their store. This not only provides Apple with an additional bargaining tool to encourage companies to list their designs, it would also allow Apple to stay away from the bad press that comes from the printing and the manufacturing of dangerous or potentially harmful products/objects.”
…. is terrific.
The area of disagreement about APPL’s possible journey into 3D printing has to do with my feeling that, as you wrote:
“Even now, some of Apple's rumored, more exciting, products include a smart watch, a television, or even a more advanced Siri upgrade. The problem here is that Google, Samsung and Microsoft are already planning their own smart watches. There are also plenty of other competitors making televisions including Samsung. Even if Apple's version has an exciting new feature or two, as we have seen in mobile, it will take a very short amount of time before the others catch up.”
…. Apple will have fierce competition for any big market.
Said another way, APPL is no GOOG.
I think APPL’s best days are behind it. That’s not to say APPL won’t continue to thrive, but I have a very hard time understanding how AAPL can sustain its past growth rates and huge profit margins. If I were to bet, I’d bet on GOOG.
Something bigger than 3D printing is needed to revitalize AAPL because APPL does not own 3D printing (as it owns iOS and all parts of its ecosystem).
Fantastic article!
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
I need to correct what I wrote about fees being collected by Fidelity. I called to talk about various options and was told that the 0.01% return I am seeing for FDRXX (the Cash Reserves core account in my IRA) is the return after Fidelity subsidizes the expense ratio.
In other words, I am not earning 0.01% and then paying Fidelity 0.38% to hold cash. In addition, Fidelity does not charge a 12b-1 marketing fee on this account which, if it did, would be added to the 0.38% expense ratio.
From their website, as of 5/31/2013:
Compound Effective = 0.01%
7-Day Yield = 0.01%
7-Day without subsidy = minus 0.08%
It may be that we don’t pay enough attention to cash accounts because we think of them as virtual mattresses.
I was told that if/when interest rates rise substantially, then I can expect Fidelity to taper off and eliminate the subsidy.
My hunch is that Vanguard is also waiving/subsidizing your expenses as well.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
I have two accounts at Fidelity, and another account at JP Morgan Chase. I also have a lot of cash parked in each.
In my taxable account at Fidelity, I have cash parked in the "Fidelity Municipal Money Market Fund" (FTEXX). The 1 year return has been 0.01% (the 7-day yield: is also 0.01%). The fee is shown as 0.42% but they voluntarily reduced it to 0.17%. The footnote says: "The most current Annual or Semi-Annual Report as of 02/28/2013 reflects a net expense ratio of 0.17%. Prospectus expenses shown above may not include certain voluntary caps and waivers that reduce the actual expenses of the fund. The voluntary waivers and caps can be discontinued at any time."
In my IRA, I have cash parked in their "Cash Reserves" (FDRXX ). The 7-day yield: 0.01%. Here, the expense ratio is given as 0.38%. However, the voluntary reduction is not great "The most current Annual or Semi-Annual Report as of 11/30/2012 reflects a net expense ratio of 0.36%. Prospectus expenses shown above may not include certain voluntary caps and waivers that reduce the actual expenses of the fund. The voluntary waivers and caps can be discontinued at any time."
If we want to avoid the fees, then maybe it's best to buy 3 month banks CDs in 3 lots, 1/3 every three months so there is always 1/3 of the cash sitting as cash and available to invest every quarter. Or, half and half, etc.
Frankly, I agree with your last statement, that "it's the price I pay for convenience, accessibility and patience." And, maintaining a constant dollar.
++++++++++++++++++++++
Although I am now a little pissed my myself that it took so long for me to learn I am paying a whopping 0.36% ... which is friggin' nuts. I will call them tomorrow and switch to something else, maybe FTEXX (although they will probably tell me it's not a core account.
Or, maybe I'll move it to JP Morgan Chase where I pay no fees and earn about 0.4% on idle cash.
+++++++++++++++++++++
I had much more fun with money around the age of 5 than today. While in kindergarten, I stumbled on my fathers piggy bank (he used to stuff it with silver dollars) and took money out of it daily so I could bring it to school and buy everyone comic books, soda, ice cream, and candy after school let out. I got found out when the Principal called my parents to tell them they were giving their son an outrageously high allowance and that I was a bad influence on my classmates.
Hogwash. The man had no life.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Just curious to know why you would accept a risk-free 4% when there would be many other *almost as safe* choices for both income and capital appreciation that, when combined, would beat 4%. For example, an investment in IBM and XOM should safely provide 4% over 10 years (assuming one didn't overpay at the time of purchase).
I would park cash in a high quality money market account id it held the value of a dollar constant ... if it paid much higher rates than today, but 10 year notes don't preserve the dollar (unless one holds to maturity, at which time inflation will have reduced its value, as it also would for uninvested capital held in a MM fund).
Do Not Let The 1966-1981 Stock Market Dishearten You [View article]
Elle,
You are right. There is a lesson to be learned that even notable investors fail from time to time to make good calls and that, as you also wrote:
“if Buffett and SA "great" Van Knapp can misread companies, lesser investors will too. Hence one should be diversified and/or be aware that companies that cut dividends often do restore them within a few years.”
I would not want to detract from this important lesson.
But, David Van Knapp was not an appropriate example for Cranky to use. Why? Not because it wasn’t instructive to mention that DVK failed to see that GE was about to hit a wall, but because of how this information was used by Cranky in the broader context of Cranky’s article.
DVK is on record to increase his yield on cost to 10% over ten years. DVK doesn’t pay attention to fluctuation in portfolio value except to the extent that his initial reason for buying a stock is no longer valid (as illustrated by his sale of ABT when Abbott split off AbbVie).
There are other reasons for a sale by DVK, but none related to what the “Market” does with pricing. DVK looks at sustainable growing income and, yes, he also looks for signs of a dividend cut or freeze.
By way of contrast, Cranky presented a view of how an initial investment of $100,000 in VYM made in Nov 2006 would have grown to $135,634 by May 2013 with dividends reinvested throughout that time. If you tally the total dividends paid, it comes to a bit more than $17.000.
Cranky' showed that VYM also took a hit but went on to write that "On the more important income front, VYM greatly outperforms Part-Time Investor's model. ..... We have an income increase of 30% moving through the recession."
But it was 30% off a low base (only $17,000+ of dividend income over all those years off an initial base of $100,000), and that’s pretty pathetic from DVK’s point of view (and mine).
Cranky used VYM as his one example.
I'm quite sure if I looked I could find one example of a dividend stock that beat the pants off VYM, and that stock is surely included as one of many in VYM.
That’s the kind of stock a stock picker like DVK goes after.
And, he probably did.
As for the example Cranky gave of DVK’s lack of ability to see GE’s future, I say that we all make mistakes in judgment and, more often than not, the mistakes are really decisions based on what we knew at the time.
So, I’m not convinced we should call them mistakes. Moreover, using selective hindsight, we can prove any point we wish to make.
As Cranky wrote (and you alluded to): "Even Warren Buffett sold his stake in MCD. He later admitted that was a mistake. SA writer David Crossetti held on to McDonald's through thick and thin, and has the returns to prove it."
Has Buffet done poorly over the years? Has Crosetti? Has DVK? Has Cranky? I would bet all four have done well.
But, I prefer to measure relative performance over long time periods than to focus on isolated examples and, more importantly, gauge performance against the goals and objective set by the specific investor.
It’s not wise to try to beat a benchmark other than one’s own standard for success.
Most often, it's the information that we worked with that's to blame. As we're outsiders and bombarded with vast amounts of information, it's a very difficult undertaking just to sift through it. That's surely what happened to everyone with the financial sector (i.e., every fund, every investor, every ETF including the example of VYM used by Cranky). DVK is just one example.
The financial community got all of us.
They succeeded in proving that bankers, financial analysts, the SEC, the Federal Reserve, fund managers, various companies, economists, Nobel Prize winners, and investors were all clueless.
The whole world was clueless.
I can’t beat myself up for also being clueless.
As for GE? Jack Welch is the person to nail for GE Capital. Yet, he is heralded as one of the most successful CEOs of all time. Hogwash. He is responsible for GE’s crisis.
I was also hit with a loss in GE but made the decision to not sell my shares. Why? I always liked GE and not selling was a buy decision at a price I thought was great. Good move on my part but that’s not good enough evidence for me to claim that I’m a good investor.
Most often, I continue to feel clueless.
Writing this note to you showed me why the feeling is justified.
++++++++++++++++++++++...
I very much enjoy your comments and hope this reply hasn't put you off. I further trust you won't view my response in any way other than impassioned.
Do Not Let The 1966-1981 Stock Market Dishearten You [View article]
Cranky,
But, Tim showed what did work.
Best to not use an author's article to deflect attention to your own.
+++++++++++++++
Nice article, Tim .... and I agree with you about the remarks he made about DVK.
National Grid's Disappointing New Dividend Policy [View article]
I think the damage of their new dividend policy is mainly psychological. I think of it this way. Where else can I lock in a yield of around 5.3% (at today's price) and get an annual increase that matches inflation?
Whereas the yield and price of the stock will fluctuate with the exchange rate and bond yields, over time the price will increase mainly because the dividend will increase and most equities revert to a mean. So, there is a very good chance I can get more than all my money back if/when I so choose all the while collecting dividends.
I imagine the long term TOTAL annual return will be around 6-8% which isn't terrible if one thinks of NGG as being an anchor to help stabilize a portfolio. prefer NGG over something like ED (paltry annual dividend increases and a current yield of only 4.3%).
NGG is not a growth/income stock but it can serve a useful purpose. There is no guarantee that RDS will not again freeze its dividend, and more reason to think that NGG wouldn't.
Own These World's Leading Brands And Never Fear A Recession Again [View article]
When we read your posts, the privilege is always ours.
Own These World's Leading Brands And Never Fear A Recession Again [View article]
In a nutshell, I think you're saying that all people are dimwits.
One by one:
“The substance and spirit of this article by Mr. Carnevale provides very bad advice.”
The advice he gives is to invest in sound companies at or below fair value. How could that be bad?
“1. The idea that you can solve the psychological anxiety that many people experience (due to the ups and downs of stock investing) by purchasing individual stocks of companies with good brands is extremely bad advice.”
To the contrary. He is trying to tell people not to panic, and to invest in high quality companies at or below fair value.
People panic out of funds, ETFs, and any other investment.
Are you saying that people should not invest but, perhaps, hoard money in mattresses, money market funds, banks CDs or savings accounts yielding low single digit returns (if that much), or spend it all?
Are you also claiming that Warren Buffet and Charlie Munger give out bad advice?
“What the author is advocating -- whether he calls it that or not -- is trying to time stocks.”
Yes. He is advocating timing purchases at or below fair value.
Are you also claiming that Warren Buffet and Charlie Munger give out bad advice, that people should not care about intrinsic value?
“2. Individuals, generally cannot properly manage a well-diversified portfolio of individual stocks. It takes about 35 stocks for a portfolio to be well diversified. The vast majority of individuals do not have the time, the resources, the ability, the training or psychological inclination to do this well. Once you start buying individuals stocks in your portfolio, you will sleep much less well, not better.”
I sleep very well. Sorry you don’t.
“3. When you buy individual stocks for your portfolio, you have much more to worry about than just the next recession. When you invest in individual stocks you worry just as much (or as little) about recessions. Plus, you need to worry about hundreds of other things that can and will go wrong with each of your individual stocks. This is not a formula for "not worrying" or "sleeping well at night."
Sorry this keeps you up at night. Those of us who learned how to construct a diversified portfolio of high quality stocks sleep soundly.
“4. Companies with good brands can and do become companies with bad and/or obsolete brands.”
Fully agree. But, the same thing happens in the index funds and ETF’s you claim are better for us dimwits.
All we try to do is get rid of the crap by buying the best of the lot.
“5. Of course Mr. Carnevale and his fans may counter that he does not really mean that the ONLY thing you have to do is buy good brands. They will probably say that you have to do a whole slew of things before buying a stocks -- such as due diligence and constant maintenance research."
Yup. Very good advice. Do a whole slew of things before buying a stocks.
But, "constant maintenance research"? I'm not sure how many stocks I own (I think it's about 60). I make my own decisions (such as today being very heavily invested in industrials and energy), and only buy rock solid, financially healthy companies. I may look at a stock I own once every few months.
"Ah, but this article omits these other things (except his pitch to use his FAST GRAPHS, of course)."
Doesn’t everyone except Jack Bogle monitor their portfolio? Bogle is 100% invested in Vanguard’s funds http://reut.rs/ZysAJo
Odd that Bogel thinks one’s bond allocation should roughly equal your age (he's over 80). Maybe he knows the exact date of his death, or maybe he’s so rich that a 1-2% return on investments yields manifold times more than he needs. Bad advice for the average person, I think.
But, don’t financial advisors and brokers monitor portfolios they assemble from individual stocks, including those who lose their client’s money, or underperform year after year?
FAST Graphs is nothing more than a tool. And, it is a very useful one.
Shouldn’t every person in business promote their business, including those selling soft drinks and hamburgers?
“6. Most individual investors should strive to become good asset allocators; not stock pickers. Doing the former reasonably well is within the possibilities of most individuals; the latter is not.”
What makes you think we pay no attention to asset allocation?
“7. Finally, some readers need a little background: Mr. Carnevale has some history of doing hatchet jobs on me in comment sections of my articles and in his own published articles -- including calling me a liar, and quite a few things that are even worse.”
No comment.
Despite the above rebuttal, I want to comment on the value you bring to the community at large.
I think you’re very intelligent (didactic, compensated for with intelligence). I read your articles from time to time because they make me think.
Sometimes, I don’t agree with your basic premises, as evidenced by a recent exchange between ourselves regarding the impact of falling commodity prices on US equities and the economy at large. In this debate, I held a view opposite to yours, that lower commodity prices are signaling a global growth slowdown. I posed the view that the fall in commodity prices could be a leading indicator for global expansion. http://seekingalpha.co... Greater differences in opinion between ourselves are here http://seekingalpha.co... There is no way to know the future, but the ideas were worth thinking about. I thank you for that.
Personally, I think you fail to consider that generalities are dangerous.
But, you are thought provoking, and therein is the value.
Nothing Matters Much More Than Today's Income [View article]
I agree. There is a reason why some stocks like AGNC and WMC yield ~20%, and the reason is usually not good.
Own These World's Leading Brands And Never Fear A Recession Again [View article]
James,
Wow. You sure do like to pontificate.
Reread your comment and look for toothless allegations on topics not once mentioned by Chuck, and your judgment calls about those of us who prefer to select and monitor individual stocks.
Here's one:
"And a final warning: Do not let this author or others deceive you by giving you rote disclaimers about diversification. To properly diversify a portfolio, you need to have at least 35 stocks in it.?
Where in the article is there mention of portfolio size? Are you lecturing to hear the sound of your own voice? Do you think no one knows that?
Here's another:
"Individuals do not have the time or the qualifications to do this."
Really?
Do you really believe your own story?
Many of us beat *your* annual performance. Those of us who don't match your performance don't give a rat's ass because we are not measuring our performance with your yardstick.
My view of your comment is that it lacks both a balanced and sophisticated understanding of investing generally, and is accusatory and judgmental.
+++++++++++++++++++++++++
Chuck,
Your articles succeed in teaching people how to value stocks, including those held by funds and ETFs. I enjoy them. Moreover, FAST Graphs has helped me a lot.