Is Our Corporate Tax System Irrational? [View article]
What is totally missing from this article is an understanding that corporations are the only form of business that is taxed at the federal level (and in most cases at the state level). REITs, MLPs, Royalty Trusts and small businesses generally avoid any up front tax. Then corporations turn around and distribute some of the remainder of their income to their owners and it is taxed again as the so called "qualified dividend" rate. REITs, MLPs, Royalty Trusts and small businesses (and often mutual funds) get taxed once based on the distribution of income to owners. Unless you understand this your analysis is pointless. Is there any logic or equity in only one type of business getting double taxed? Do you wonder why so many corporations are converting to REIT status (recent examples--Rayonier, Iron Mountain, Correction Corp, Weyerhaeuser)?
The obvious answer (to me) is to allow dividend payments by corporations to be used to reduce taxable income, the same way that corporate bond interest is now. Then eliminate all preferential treatment of certain kinds of expenses (e.g., capital equipment depreciation) and reduce the rate to something like 20% and apply it to all types of business. Then allow foreign earnings to be repatriated at somewhere between zero and 5%. So easy when one person is making the law!
Share Buybacks Vs. Dividends: Which Is More Beneficial? [View article]
Heybrad: I don't get the picture. It is very fuzzy. You want us to believe that the managers of companies with dividends are just really good guys who will pass up all that bonus/compensation you talk about that the buyback managers are sucking up. Does that sound like the way the world works? Anything at all to back up your opinion?
Share Buybacks Vs. Dividends: Which Is More Beneficial? [View article]
Kang Wei--Don't want to beat a dead horse here but how do your 3 charts illustrate the benefit of dividends? As I mentioned the non dividend chart includes all the business failures so that comparison tells us nothing about the value of dividends. The S&P chart includes the same failures so what does it really tell us? In both cases there is no usable comparison to the dividend chart. Even more distorting might be the inclusion of REITs and MLPs in the dividend category (not clear what you are including ) and since no corporate taxes have been paid on these dividends they of course will outperform stocks where the companies have paid up to 35% in corporate tax (plus state tax) --so unless you use an after-tax comparison you have the proverbial apples and oranges. Statistical analysis is near worthless (or even dangerous) unless the input is meaningful.
Share Buybacks Vs. Dividends: Which Is More Beneficial? [View article]
A comment on your graphs comparing returns on dividend and non dividend stocks. Included in the non dividend category are all the failing and failed stocks of the last 40 years (think Lehman Brothers or Kmart). Most of these failures were once dividend paying stocks and even dividend aristocrats until bad times arrived for that company and then they get moved into the non dividend category of your graphs. (Think the passenger railroad industry of the 1950s--Penn Central ring any bells). The low rate of return of the non dividend portion of your graph has nothing to do with paying a dividend versus buybacks. A recent SA article compared dividend stocks versus stocks using buybacks and the buybacks won large. Anyone thinking dividends are a no brainer is probably right but not in the sense they mean.
David: I am not a fan of population growth in this country. If it had been up to me we would have tried to stabilize in the mid 60s when our population reached 200 million. That would have meant an end to most immigration (which was the case from the early 1920s until 1965). I think that would have been the optimum level to support a national defense, interstate transportation system, etc. and allowed a sustainable use of natural resources. If that had happened we would likely be energy independent today, have sufficient water resources, plenty of arable land. What have we gained by increasing that population to 300+ million. But I think that once you reach a level of population, such as that of Japan, that reducing it is difficult and maybe dangerous--has it ever been done successfully? How does population reduction stop for Japan once it starts--as it has. Can they really use tax policy to encourage parents to have more children. I am not convinced that would work.
David: I agree that the massive immigration increase that Johnson rammed through in 1965 has been a disaster in many areas from quality of life to environmental impact (think water problems in the west) but that immigration wasn't for the purpose of maintaining a stable population. It was instead (in my opinion) an effort to increase votes for Democrats--it has been very successful at that. Our recent unemployment rate is high compared to Japan but is very low when compared with Spain and most of Europe which is also suffering from a shortage of births. What is really depressing about our legal/illegal immigration over the last 50 years is what it does to the working poor/unemployed of this country--they have to compete with people who will work harder for less wages. We don't bring in many immigrants to compete against lawyers, doctors or politicians but instead we bring competition for those that can't compete. I think you are dead wrong about Japan solving their demographic problems with robots--it surely hasn't worked so far--more and more consumers of government and fewer and fewer taxpayers and now, as the author points out, Japan has a massive debt load that keeps getting worse.
Optimizing Triple Net Lease REIT Investment: Time To Sell Realty Income [View article]
Dane: Fine article and many good comments from your readers but what struck me was the lack of response to one of your key points. That often, the dividend increases from this company were so small as to be nothing but a game to keep the string of dividend increases alive. This is true of many dividend stocks. The so called dividend aristocrats seem to be favored by the DGI crowd because of these artificial records. Instead of focusing on the rate of dividend increase (and the ratio of dividends to FFO) they look at the number of years that any increase has occurred.
The other strange one is the value placed on monthly dividends. Yes there is some small compounding benefit to the investor (mighty small with current interest rates) but whatever benefit you receive your company is losing the exact same benefit. You readers are the owners--right?
Japan has pretty much avoided immigration to solve it's population problem--their desire for racial purity I suppose. If they don't go that route then it seems like cloning is their only long term solution. That isn't talked about now but my guess is that within 20 years the topic will have to be discussed--and not just in Japan.
Avoid The 'Hunt For Yield,' But Remember Treasury ETFs Are Priceless [View article]
Floating rate funds don't get a lot of coverage on Seeking Alpha. In passing you mention them but indicate you are shifting out. I have held Fidelity's Floating Rate fund (ffrhx) for the last two years. According to Morningstar it is the more conservative of these funds. Has a current yield of 3.16%, credit quality of BB, and a duration of only .37 years. I understand that if the economy tanks this fund could take a hit but other than that it seems like a winner in an environment where interest rates will probably go up. Could you expand on why you are shifting out of your floating rate fund/etf?
Why CEOs Should Be Rewarded For Stock Buybacks [View article]
In most cases I am a big fan of share buybacks but you use some questionable logic to make your case. First, in almost all cases, share buybacks are made in the open market. Those selling shares have no idea who is buying back their shares, Using your example, they are totally unaware that Safeway is buying back their shares. If they want to sell shares they don't need Safeway to buy them and unless you want to make the case that the price they get for their shares might be a few pennies higher because of the share buyback it is not "returning money to the shareholder". Your other option of holding shares that will increase in value when a share buyback occurs (when compared to dividends) make sense except you use it after basically telling us Safeway is dying. Why would a shareholder want more shares of a dying business. If Safeway isn't dying than there are other choices besides buybacks and dividends. If Safeway is dying they should liquidate at the best possible price now--whether that is PE or some other option.
Why Portfolio Managers Will Never Beat Warren Buffett Or Berkshire, But Are Happy Trying [View article]
I think Buffett would disagree with many of your arguments. He has been telling us for 20 years that Berkshire's best performance is behind us. He might gain from the insider type information you discuss and also from the reputation and cash reserves that allows him access to sweetheart deals when there's blood in the street (think GE and Goldman Sachs in 2008). Those benefits are more than offset by the lost of flexibility that size brings--there just aren't that many big, good deals out that for a company as large as Berkshire. Go back and look at the results year by year and you will see the best performance was when he had little (or none) of that insider information.
As to the 99% who don't have the flexibility to ignore the quarterly game playing, I think the number is much smaller. I don't see the endowment and pension funds needing to play those games--at least they have a lot more flexibility. I think many of the hedge funds like KKR have a lot more flexibility and there are even many mutual funds that make longer term decisions--either because they are basically family controlled (think of the Davis family funds) or because of long term reputation that allows them flexibility. Bob Rodriguez from FPA routinely goes to cash when he thinks the market is overpriced and stays that way for years. He might lose customers in the short haul but seems to survive.
If it was 1980 and Buffett started a mutual fund do you think he would play your game? How would he have performed?
I think most mutual fund managers underperform for one simple reason--short term greed. Play it safe and prosper--many corporate managers do the same. Buffett doesn't as a corporate manger and wouldn't have as a mutual fund manager.
Murder: You might be right. ITW might be the exception. The author says they have great management but you say they have a new CEO who isn't responsible for what has happened in the past. I assume the board selected the new CEO and most of them have been around for many years. I see that ITW unloaded some of these businesses in reaction to hedge fund pressure--they weren't too happy with the dropping revenue. I guess the new CEO can agree to that pressure and say "it's not my fault, I wasn't the CEO" and the board sits mute. My observation is that there seems to be many companies that are always reversing course--they spend years buying businesses then they decide to sell and tell shareholders they want to "focus on the core" or "reduce low margin businesses" or some other bureaucratic language. I never hear something like ''we made a mistake buying these businesses and we are going to unload them". What is amazing is that the market often rewards them in both directions--when they buy and when they sell--even if they sell for a loss.
James Altucher: Why The Stock Market Is A Sucker's Game Right Now (And What Stocks I Own) [View article]
About halfway through your article you're talking about the supply/demand of stock and say "supply will stop going down" and earlier "there's only so much stock that people can buy". I assume you are talking about share buybacks there and I don't know what you're basing the comment on. Companies are increasing their buybacks quarter by quarter for the last three years and can continue buying in large amounts as long as profits are strong, especially if they are afraid to invest in their businesses. If the cash is ever allowed to be repatriated from overseas without (a very large) penalty the buybacks could really shoot up.
Is Our Corporate Tax System Irrational? [View article]
The obvious answer (to me) is to allow dividend payments by corporations to be used to reduce taxable income, the same way that corporate bond interest is now. Then eliminate all preferential treatment of certain kinds of expenses (e.g., capital equipment depreciation) and reduce the rate to something like 20% and apply it to all types of business. Then allow foreign earnings to be repatriated at somewhere between zero and 5%. So easy when one person is making the law!
What Berkshire Sees In Chicago Bridge & Iron [View article]
Share Buybacks Vs. Dividends: Which Is More Beneficial? [View article]
Share Buybacks Vs. Dividends: Which Is More Beneficial? [View article]
Share Buybacks Vs. Dividends: Which Is More Beneficial? [View article]
The A.B.E. Of Economics [View article]
The A.B.E. Of Economics [View article]
Optimizing Triple Net Lease REIT Investment: Time To Sell Realty Income [View article]
The other strange one is the value placed on monthly dividends. Yes there is some small compounding benefit to the investor (mighty small with current interest rates) but whatever benefit you receive your company is losing the exact same benefit. You readers are the owners--right?
The A.B.E. Of Economics [View article]
Avoid The 'Hunt For Yield,' But Remember Treasury ETFs Are Priceless [View article]
Why CEOs Should Be Rewarded For Stock Buybacks [View article]
Why Portfolio Managers Will Never Beat Warren Buffett Or Berkshire, But Are Happy Trying [View article]
As to the 99% who don't have the flexibility to ignore the quarterly game playing, I think the number is much smaller. I don't see the endowment and pension funds needing to play those games--at least they have a lot more flexibility. I think many of the hedge funds like KKR have a lot more flexibility and there are even many mutual funds that make longer term decisions--either because they are basically family controlled (think of the Davis family funds) or because of long term reputation that allows them flexibility. Bob Rodriguez from FPA routinely goes to cash when he thinks the market is overpriced and stays that way for years. He might lose customers in the short haul but seems to survive.
If it was 1980 and Buffett started a mutual fund do you think he would play your game? How would he have performed?
I think most mutual fund managers underperform for one simple reason--short term greed. Play it safe and prosper--many corporate managers do the same. Buffett doesn't as a corporate manger and wouldn't have as a mutual fund manager.
Illinois Tool Work's Awesome Management Shines [View article]
James Altucher: Why The Stock Market Is A Sucker's Game Right Now (And What Stocks I Own) [View article]
I've Never Owned A Rolex, But Maybe It's Time To Invest In Taubman [View article]