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  • Wait For Realty Income To Fall $9 Before Buying [View article]
    Rose -- Yes, I agree those spread prices are as you describe.
    May 22, 2015. 01:09 PM | 1 Like Like |Link to Comment
  • Lessons Learned From The Grand Canyon [View article]
    Dave -- Thanks for the article. Your 5 multi-decade stock holdings are excellent performers (I've yet to catch CL at FV). Congratulations, for each I assume your capital at risk has declined to zero. For certain those tables appear to illustrate your point, and are well-received by those of us who prefer stock-select over indexing.

    I'm neither a market statistician nor researcher, but it occurs to myself when comparing 5 Consumer Staples stocks to indexing, the broad (10-sector) S&P 500 may be commonly used--but also may not be the most appropriate or best comparator upon which to draw relative performance conclusions versus indexing.

    OTOH, no sector index ETFs presently have 30-year histories.

    However, Fidelity has offered FDFAX, a mutual fund focusing on Consumer Staples since 1985 (and there may be others having superior performance to FDFAX). According to Longrundata, through April, it's annualized total returns are as follows:
    5 yr = 14.5%;
    10 yr = 11.7%;
    15 yr = 11.1%;
    20 yr = 10.9%;
    30 yr = 13.4%

    However, in the larger picture, I'm not interested in 'mine's longer/better than yours'. Both indexing and stock selection work very well--the sooner one adopts either, the greater their portfolio will compound over decades, and financial independence is achievable.

    In the real world, I suspect most investor don't decide between only stock-selection versus only indexing based upon maximum potential performance--they might decide based upon the advice often appearing in both finance and general media (which recommends indexing).

    Based upon my own experience, had I 30 years ago intended to select 5 staples stocks for a 30+ year holding period, I too would have picked those having 100-yr histories dating back to the 1800s. However, were I selecting 5 biotechnology companies to also be held 30+ years, I would most likely spread my risk using a sector index fund.

    In any event, both stock-selection and indexing have their advantages and disadvantages. Is there a price paid for simplicity and convenience? wouldn't surprise myself, as I've found that to be so in many aspects of life.

    IMO, if the typical new investor made a rationale decision between a stock portfolio versus a index portfolio, it would be based upon their comfort zone, knowledge, time available, and interest (or lack of) in learning the 'nuts & bolts' of stocks*. However, it is more likely most newbies will start with indexing, and possibly later migrate to stocks if/when they become more interested in stock investing. OTOH, equally plausible, some decades-long stock investors might migrate to indexing as they detect signs their stamina, general health, and acuity, have begun to deteriorate.

    BTW, where did you source your performance data, and what distribution assumptions are made?


    * Rarely would one successfully step into stock-selection with a zero-base of investing knowledge. For example, I would not expect most highly-compensated professionals and executives working 60+ hrs/wk to devote the required time to manage a stock portfolio in addition to family obligations, and social and other interests. Generally, they (rightly) decide to devote their time where it produces the greatest monetary and psychic returns, and employ either investment management professionals or index funds. Others have the time, but neither the capacity nor the interest for stock investing.
    May 22, 2015. 12:16 PM | 8 Likes Like |Link to Comment
  • Marathon Oil: Moving Towards A U.S.-Centric Resource Play Portfolio [View article]
    Thank you Richard -- I appreciate your in-depth look at MRO's footprint and divestiture program.

    Though long MRO for earnings growth (presently deferred by market forces), I also have it in the back of my mind MRO's transformative program could make it a M&A candidate for a larger competitor.
    May 22, 2015. 07:48 AM | 2 Likes Like |Link to Comment
  • General Electric's Future Dividend Growth [View article]
    IMO, Tim is right again on the dividend (Ge has announced the dividend is frozen into sometime in 2017), but fortunately there is more to total return than the dividend.

    Assuming the Alstom acquisition closes without a snag (as Immelt said yesterday it will), shareholders will likely continue to accumulate GE shares (GE is ahead of both its industry and the market YTD) and receive attractive total returns resulting from the share price impact of the massive buyback plus the new projection of $3 billion in GE/Alstom synergies.

    This is not to say the path ahead is without obstacles. However, encouraging signs should not be ignored...analysts are now more positive ('buy' rating); the 12-month price target ($30) is attractive (+8.5% above today's close, plus 92 cent dividend=15.4% projected TR); increased institutional holders and net increased shares held vs prior qtr; short-interest days to cover is reduced from year ago (1.7 days vs 2.8 days); and, in the last 3 months insiders have reversed the 12-month transactions from 'net sales' to 'net buys'.

    Long: GE

    May 21, 2015. 07:50 PM | 12 Likes Like |Link to Comment
  • Retired Investors: When Dividend Growth Slows What Should You Do? [View article]
    scoots -- IMO, you've penned a very interesting situation that touches on concerns of many here.

    I'll not offer buy-hold-sell advice (nor did I earlier to Bob); however, FWIW (and to save from reading it all!), I'm excerpting a portion of my profile should any of my own practices resonate during your weekend review:

    >>His portfolio is designed in ‘barbell’ fashion to combine companies offering different return characteristics, such as higher-yield / lower-growth; dividend ‘sweetspot’; and lower-yield / higher-growth. (The higher-growth companies are AMGN, CVS & MDT, also having attractive DGRs...not high p/e higher-risk ventures.) The mixture assists in approximating the market’s long-term performance (full 4-phase cycle). His intention is to limit the portfolio’s downside to about 50% of the market’s during deep bear markets, while also achieving at least 65% of the market’s upside during roaring bull markets. The resulting ‘smoother-ride’ levels out the peaks and valleys, but also cannot be achieved without some level of active management and continuous monitoring of positions--therefore TIME is an essential input.<< (Should that interest you, there is also an analogy of how those characteristics are intended to play-out over time.)

    May 21, 2015. 01:47 PM | 1 Like Like |Link to Comment
  • Wait For Realty Income To Fall $9 Before Buying [View article]
    Addendum to my 'hold the phone'...Paraphrased FV M* Update:

    The new FV = $50 estimate is mostly based upon a lower cost of equity (7.5%, based upon financial theory expressed as a formula, it is intended to reflect the return stockholders expect). For 2016, FV applies a 5.7% cap rate, 18 times AFFO forecast, and a 4.6% dividend yield on a $2.28 per share payout. Over the longer term, M* assumes 1.5% rent growth, and 97.5% occupancy (lower than historical). The $50 FV estimate ranges from a downside of $37 to an upside of $62.

    [The FV section is followed by a VERY interesting discussion of downside RISK.]

    BTW, Brad Thomas has followed O regularly since at least Aug 2011. Unless I overlooked a more recent mention, he last mentioned O's FV on April 13th, and said O was "slightly overvalued" when trading at $49. If "slighty" is
    about 3%, that would imply he was seeing FV around $47-$48 (roughly today's price).
    May 21, 2015. 01:01 PM | 1 Like Like |Link to Comment
  • Wait For Realty Income To Fall $9 Before Buying [View article]
    HOLD THE PHONE!...This morning Morningstar raised its FV estimate to $50. (I haven't yet read the details, and O may still suffer declines in a difficult market for high-yield)
    May 21, 2015. 11:17 AM | 2 Likes Like |Link to Comment
  • Retired Investors: When Dividend Growth Slows What Should You Do? [View article]
    >>we don't have to be perfect to succeed.<<

    TF -- Darnit, and now I know I could have said all that in only 8 word!

    To late I get so smart.
    May 21, 2015. 10:23 AM | 3 Likes Like |Link to Comment
  • Retired Investors: When Dividend Growth Slows What Should You Do? [View article]
    Michael aka Hilo -- In perfect hindsight, I have made every mistake that can be made; and some multiple times before I allowed their lesson to sink in.

    For myself, a lesson learned some time ago:
    BoDs may have collective wisdom (or be mostly cronies of the CEO). In any event, they are not omnipotent--they'll screw-up occasionally. Some of their mistakes are never known, some are whoppers.

    We know they'll sometimes focus on concern A, and neglect B, C, and D; competitors will outflank them; they'll expand at the worst time; and they'll spend billions buying back overvalued shares, and be frugal when shares are undervalued (and sometimes they have need of the cash no longer available).

    However, if before screwing-up, the company is/was a best-in-class industry leader (like INTC, MSFT, & CSCO for example), have strong credit ratings, have deep R&D & economic moats, have good management, and remain profitable--In my experience, the probability favors the value investor who builds a position at an average share price below FV, who takes the calculated risk the company can/will implement a recovery plan, and that others will than recognize the company's true value and buy the shares--providing abnormal total returns to the value investor. (Fortunately, stock prices turn positive months before the plan actually demonstrates results, which means the value investor's rewards come early.)

    [BTW, this view comes from a G&I investor...yet is consistent with that of Lowell Miller, generally considered the FATHER OF DGI; strangely, many DGIs have sell rules contrary to his statements on dividend freezes and cuts by sound companies.]

    As you know, our mistakes sometimes teach us cruelly...Don't beat yourself up. It could have been much worse. I've made mistakes that really did cost me $6k and more! Yours is (only) a loss of opportunity, and partially offset by gains in your alternate investment.
    May 21, 2015. 10:01 AM | 11 Likes Like |Link to Comment
  • Wait For Realty Income To Fall $9 Before Buying [View article]
    Tim has offered an excellent and value-added article.

    I'm long O, and I too consider it to be the crème de la crème of triple net leases operators, but (unfortunately) O is presently too popular. It appears investors seeking income and also willing to 'buy yield', have run the share price up to an overvalued $47 (18.2 x $2.58 trailing FFO).

    Like most investors, I prefer forward earnings. O's own 2015 FFO forecast is a range of $2.67 to $2.72. Thus assuming the rounded FFO mid-point of $2.70, today's $47 share price is 17.4 x forward FFO.

    Using either the trailing or forward basis, I consider O overvalued @$47.

    It is extremely difficult for SDIs (so inclined) to build a margin of safety if they buy at overvalued share prices. Nonetheless, as indicated in comments above, some are obviously willing to pay $47 or higher, and O could trade higher before lower.

    A brief examination of O trading pattern indicates O was outperforming the market up to the May 2013 taper tantrum, generally underperformed from then to December 2014, and has underperformed since in reaction to 2016's concerns of rising rates (and a distinct underperformance by O relative to the market since peaking at $54 in March).

    I lack a crystal ball available to some others which allows them to see the future certainty--therefore giving extra weight to the probabilities has worked well for myself.

    IMO, the probabilities favor O's share price again declining with the next 'tantrum' associated with rising rates (i.e., the recent widely acknowledged concern long-term rates could rise much more than short-term rates following the approaching Fed rate rise (June, September, later?).*

    For about 2 months, I've had a limit-buy in place @$42.50 (15.7 x $2.70 forward FFO). Today I find my buy-price is well-above Tim's low price. Tim didn't say the probability favors O trading down to $39 (but he did say O deserves a premium valuation, and a premium does not equate to 'pay any price').

    In my experience, greed is sometimes rewarded in pursuit of average stocks, but rarely when pursuing the crème de la crème. It is entirely reasonable that O will decline with higher rates; but because it declined by X% 2-years ago, does not suggest it will decline by the same % in the next tantrum. (It is reasonable to assume rates will rise gradually (as promised), and O could decline less than in 2013 because (a) unlike 2013, O has already declined due to the warning which was not made in 2013; and (b) in January, O topped it's 2013 pre-taper tantrum high, which demonstrates its ability to recover).

    If my limit buy is executed, and O declines still further, I'll gladly buy more.

    Patience is in short supply--usually that which is dear is rewarded.


    * IMO it's a mistake to paint stocks with a broad brush. REITs, like other high-yielders (BDCs, MLPs, etc.) initially react negatively to higher rates--and even the anticipation of higher rates. However, their price action is NOT duplicated in the broad market, as the share prices of many companies having strong earnings and little debt actually move higher. However, that is not to say strong and conservatively managed REITs, such as O, would not recover and perform well in a gently rising rate environment IF rates rise consistent with a strengthening economy and consumer.
    May 21, 2015. 08:59 AM | 6 Likes Like |Link to Comment
  • Health And Innovation: The New CVS Brand [View article]
    I'm long CVS. I could cite numerous fundamental stats. However, the total returns speak for themselves (within a smidgen of a 2-bagger in about 26 months) and yet it still trades at FV.

    May 20, 2015. 03:09 PM | 5 Likes Like |Link to Comment
  • Retired Investors: When Dividend Growth Slows What Should You Do? [View article]
    Hello Bob -- I certainly agree 100% you must manage your DGI portfolio in the manner fitting your strategy, comfort zone, and need for immediate income. Furthermore, being proactive tends to be rewarding.

    All our horses tire, and sometimes they eat loco-weed (or are fed it by an inept management). Setting them aside for closer monitoring is always appropriate. Maybe you will decide to allow one or more an extended rest, with 50 horses, you do have others pulling your wagon.

    Maybe at some point, you will 'pull the trigger', shooting one or more. It's unavoidable to completing a long and successful journey.

    I've said it a hundred times (mostly to no avail)--there is no rule of math that compounding can only take place among our individual horses. In the bigger picture, the compounding of the herd is far more important. (IMO, an excessive focus on YoC can inhibit decisions that benefit the herd.)

    So you'll get no criticism from this direction.

    However since you asked, and should they be helpful, I'll mention a couple points occurring to myself:

    a) Your 3 'benched' horses (PG, KMB, & WT) are breeds that pull better when the trail goes downhill (and not unlike bonds might have 'safety' characteristics).
    b) If you were to replace any one or more of those 3, your probability of greater DGRs likely come from moving to another breed having greater earnings growth characteristics.

    May 20, 2015. 12:51 PM | 17 Likes Like |Link to Comment
  • Learning From The Masters: Q&A Session With Rosenose [View article]
    I too welcome about 80% of the theme of Archman's comments.

    However, I also do not share his view of M* , VL, and Capital IQ, as many SDIs find them very helpful. I formerly poured over balance sheets and so forth pulling numbers for the formula of my choice (and there are many variations), but found the above sources zzzsuitable for my purposes.
    May 19, 2015. 02:39 PM | 2 Likes Like |Link to Comment
  • GE introduces the Digital Wind Farm [View news story]
    Ricardo -- A thoughtful comment. I'll be looking for you handle in other comment streams.
    May 19, 2015. 12:15 PM | 1 Like Like |Link to Comment
  • Learning From The Masters: Q&A Session With Rosenose [View article]
    Chowder -- Your analogy is VERY well done.
    May 19, 2015. 10:55 AM | 3 Likes Like |Link to Comment