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wdchil

wdchil
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  • Procter & Gamble Has Been Pushed Into The 'Buy' Zone [View article]
    Hi Ray,

    I had picked up some PG shares just before the "flash crash." I did OK but you did better. I should let you know when I am purchasing shares - so that you can wait for a better price :) Oh well. I seek to have a very low 5% turnover, so most of my purchases are very small and incremental relative to the portfolios.

    WD
    Aug 29, 2015. 02:08 PM | 2 Likes Like |Link to Comment
  • Retirement Strategy: Did You Freak This Week? [View article]
    RS,

    I didn't do much. I bumped up my position in UPS so that I am fully allocated in that stock in my before-tax portfolio. It was nice to get a slightly lower price.

    I have recently been "upping" my holdings in JNJ, PG, UPS, and T but these are small percentage changes. I seek to have about a 5% turnover overall but am typically a little higher than that.

    Having invested now for about 40 years I have seen many "flash crashes" and a few "big ones" like 08/09. The 08/09 was a great opportunity - it allowed me to get close to "retirement critical mass" in my portfolio. When the China worry came about I was convinced that we had another "flash crash" because all it will do is reduce the dollar cost of imports - since the Chinese currency is being devalued. However the drop in the market was not enough for me to trigger large purchases but is enough for some small incremental adjustments.

    WD
    Aug 29, 2015. 01:59 PM | 1 Like Like |Link to Comment
  • Retirement Strategy: Did You Freak This Week? [View article]
    I seem to remember a quote of Warren Buffett of being like the undertaker after the great plague when the stocks have plummeted.
    Aug 29, 2015. 01:47 PM | 2 Likes Like |Link to Comment
  • On IBM's 21st Century Transition Failing [View article]
    3WallPaul, Thank you for a great response. Very good points. The only sure-bet investment I have seen is one that I viewed in hindsight. WD
    Aug 28, 2015. 06:04 PM | 1 Like Like |Link to Comment
  • On IBM's 21st Century Transition Failing [View article]
    ZG, Good and rational article.

    There are certainly a number of folks that grew up in IBM's "glory days" and are disappointed in the current situation and loss of perceived benefits such as lifetime employment. It is easy to blame management who, no doubt, could have reacted more proactively earlier - that can be said of all management. I consider the present management of IBM to be reasonably good.

    This is an investment forum. Anecdotal negativity is a factor with every big company. The question is - if you lay down $150 per share for this company - will you prosper? I have decided so and have an investment in IBM. The metrics of this investment are compelling with a relatively low risk.

    Consider also Warren Buffett's increasing investment. Warren has access to the CIO's of virtually every major company - not to mention that Berkshire Hathaway owns a number of major companies. He can call them on the phone and ask them - do you use IBM? Are you considering switching? How painful is it to do so? And so on. You can bet that Warren did so before making his investment. He is one of the most logical investors I know of.

    How about these naysayers? Can any of you dial up the CIO's of 10 fortune 500 companies and ask them these questions? Did you do so?

    WD
    Aug 28, 2015. 10:58 AM | 5 Likes Like |Link to Comment
  • On IBM's 21st Century Transition Failing [View article]
    RLLH - Yours is an inspiring comment! WD
    Aug 28, 2015. 10:37 AM | 1 Like Like |Link to Comment
  • IBM's 21st Century Transition Is Failing [View article]
    Peter, Thank you for the reply. I have learned to be VERY patient with investments. Based on past history - investing for about 4 decades - I have rarely seen one like IBM - with all parameters considered - not provide a decent return. Sometimes the returns are less than I expect though. The only times I have lost substantial money is when a company went bankrupt or was overvalued. Neither scenario seems likely for IBM (or anything else I am investing in now). If you subtract out the finance business the debt is roughly equal to one year of free cash flow - or less. So bankruptcy likelihood is practically nil. In terms of valuation, IBM is substantially undervalued relative to the free cash flow. Even a slow deterioration in the business itself would not be fatal because the share buybacks and dividend would more than offset the decrease in aggregate value of the business - although I think the business will start growing again when the EU gets its act together - although who knows when that will happen. As you can see, I am not arguing a big vote of confidence in the management - just in the prospect of this as an investment. No emotions at all - as far as I know. WD
    Aug 25, 2015. 05:41 PM | 3 Likes Like |Link to Comment
  • IBM's 21st Century Transition Is Failing [View article]
    Peter,

    Oftentimes current and former employees of companies are not good investors in those companies. Why? Because it is hard to be objective. But there are some key factors to consider in evaluating IBM as an investment:

    Consider IBM's valuation. Based on M*'s forward PE, the company is valued at 50% of the broad index. Yet this is a company with a AA- credit rating and a return on equity of about 70% (due primarily to severely undervalued assets on the balance sheet). Adjusting for divested business and currency the revenues are currently flat in the core businesses like software and services. IBM's core business is certainly shifting (slowly) toward new business models. But probably the biggest single factor is the weak European economy and the EU bank actions that have devalued the EU and other currencies against the dollar. The currency and economic factors will swing the other way in coming years.

    I understand your concerns about employees and customer service. But these are not unique to IBM. My former employer (which I won't mention by agreement) has a similar track record. Sometimes the cost cutting also cuts the investors. But my former employer has at times been a very good value for the investor and I have tried to keep my emotion out of the equation - not always successfully though.

    When considering an investment one must factor in all of of the key parameters that determine a likelihood of getting a good return on investment in 5 years such as what I enumerated above. Based on a comprehensive view - at least to the best of my ability - IBM appears to be an above average investment for that timeframe - primarily because it is so severely undervalued.

    WD
    Aug 25, 2015. 01:07 PM | 4 Likes Like |Link to Comment
  • Chowder #, CAGR To Trim 100+ Stocks To <70 And Evaluate For Repurchase [View article]
    Rose, The Chowder number is a very useful metric and, in my opinion, is one of the most useful. The caveat is that the past is an imperfect guide to the future. SBUX is unlikely to maintain their growth rate and hence could wind up being a mediocre (or worse) investment going forward if the growth rate slows dramatically. JNJ, on the other hand, probably has an easier time getting close to their historical growth rate in earnings. So a purely mechanical adherence to the Chowder number may not be optimal. One must look at forward looking prospects for a company and factor that in too. WD
    Aug 24, 2015. 11:34 PM | 1 Like Like |Link to Comment
  • Crude oil enters the $30s [View news story]
    Fred, I always like to read your comments. I don't have the knowledge to make any reasonably oil price prediction for the next year. However, long term decline rates of wells WW are 5-8 % per year (weighted average). The industry will eventually have to spend hundreds of billions in capital just to stem the decline. Just when the long term decline becomes a dominate factor in oil prices is something I cannot predict. WD
    Aug 21, 2015. 04:38 PM | 3 Likes Like |Link to Comment
  • The Disturbing Truth About The S&P 500 [View article]
    "For the last 20 years or so, the average P/E of the S&P 500 is just about 19 and right now we're about 17.6 P/E if my numbers are right."

    John, a value of 19 might be reasonable if interest rates remain very low. However a more conservative nominal PE might be more in the 15-19 range or so. There is a high degree of uncertainty in those numbers. My gut feeling is that the S&P will return about 6% over the next 5 years (total returns including dividends). Keep in mind that sluggish earnings due to weak global economies and a strong dollar may really be a drag on the "E" side.

    Finding relative bargains might push that number closer to 8%. But in my financial planning, I estimating a 5% total return although I am investing to do better.

    WD
    Aug 21, 2015. 12:35 PM | Likes Like |Link to Comment
  • The Too-Big-To-Fail Banks: Canaries Of The Credit Cycle [View article]
    Donald, Thank you for the value you add on SA. I wish I had more time to review your articles more carefully because they are rich with information. My feeling about banks like Well Fargo and US Bank are that it would actually be detrimental to break them up. It would likely result in the capital being managed less efficiently and the result would be either higher losses and/or less credit availability where it is needed in the economy. But certainly the oversight and metrics (e.g., reserve metrics) need to be carefully optimized.

    Regarding default risk and credit ratings (e.g., Microsoft AAA or WFC at A etc.) one thing I have found missing is the confidence level in the default risk estimates. For example, how can anybody realistically give a 10 year risk percentage for Microsoft with a reasonable confidence interval. With their free cash flow, cash position, and interest payments the risk is almost nil in the short term. Yet we know that the PRIMARY risk is that the management will pursue some costly acquisitions or step up buybacks or some other action within the next few years that substantially weakens the balance sheet. Since I cannot look inside the brain of the management, I have no way of assessing the factor that likely dominates the equation. That is my issue with 10 year default risk estimates for these companies - there is a high degree of uncertainty in these estimates with no humanly achievable way of getting the data I need. My solution - don't put more than about 2-3% of your investment in any one stock - and then only for those with at least investment grade debt (cognitive of uncertainties). And when you see management pushing up the debt level, hit the exits.

    WD
    Aug 19, 2015. 06:41 PM | 1 Like Like |Link to Comment
  • Energy leads averages lower [View news story]
    38020336 - You are certainly correct. The energy of an electric car battery (a big one by the way, that makes up much of the weight of the car) is typically equal to less than about 2 gallons of gas. Of course one might argue that electric motors are more efficient with the stored power than internal combustion and that is true before considering all the costs of energy generation and distribution. But when heating and cooling are factored in the internal combustion is far more effective when it comes to energy storage. So electric cars may fulfill a niche for certain commuters they cannot replace the majority of internal combustion vehicles. Moreover, you will probably be using natural gas to produce most of the electric power - so your system efficiency kind of goes out the window because you have to burn hydrocarbons to produce the power and then transmit the power before receiving in the battery. And by the way, there is no battery technology that does not have hysteresis life problems. So you will have all these toxic batteries to dispose of. Unfortunately there is no panacea in autos, founder of Tesla animated opinions notwithstanding. WD
    Aug 19, 2015. 06:03 PM | 3 Likes Like |Link to Comment
  • Energy leads averages lower [View news story]
    Ray and Trinity, Consider:

    >The lack of cash flow has forced companies to cut their capital budgets by an annual run rate of roughly $150 billion per year. The cuts are to longer term exploration and early phase projects. Therefore it takes more than a year for these cuts to begin affecting production - probably closer to 2 years after they were announced - late 2014 which means that we may see the effects - meaning a drop in production capacity - after late 2016. I am unsure of the exact timing but you can bet that companies like XOM and COP have a pretty good idea!

    >The weighted average WW oil field declines at a rate of about 5-8% per year. (Obviously the rate of decline for a particular well varies dramatically and it even depends upon the time axis for the well, not just the geology but this is a weighted average). It takes hundreds of billions in investments per year just to maintain WW production at a fixed level. With current oil prices, WW capacity will be in a substantial long term decline in a few years without exploration re-started. But it won't restart at these prices and will probably be too low at prices below $80 a barrel.

    >WW demand continues to rise, although perhaps more slowly than the EIA modeling was showing. But even so, energy efficiency improvements are more than offset by added customers in developing countries.

    So the bottom line is - the price must eventually rise to enable exploration budgets to sustain long term demand. I expect that to happen in less than 5 years. If I worked at XOM I could give a more precise number but probably would not be allowed to. It is probably their trade secret. The rest of us in the peanut gallery (I am a charter member) have to look to the EIA and other reputable sources.

    WD
    Aug 19, 2015. 12:55 PM | 11 Likes Like |Link to Comment
  • Could Apple Eliminate The iPad Mini? [View article]
    Very unlikely. Getting rid of it would only reduce Apple's market share in tablets because some consumers would just start buying more Androids or Kindles that fit the same form factor and cost.

    The real issue is that tablets themselves are a niche. For those of us that read books and documents on tablets (like me), it is a great product. Doing so on a laptop or phone is not comfortable. I particularly like reading the classics on the iPad because I can get them free or inexpensively. I also read a lot of PDF's like patents. But I am sure that I am in the minority in that respect. Also a tablet is good for at least 5 years - no need to upgrade all the time. So this is a niche compared to the iPhone.

    Tablets are not replacing laptops because an integral keyboard is essential for productivity. So I have all three - iPhone, iPad, and Retina MacBook pro - and I use all three daily. They are each optimized for the particular task and I have no desire to see one perform all functions - that would just provide an substandard experience.

    WD
    Aug 18, 2015. 05:04 PM | 6 Likes Like |Link to Comment
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