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  • Know When To Fold (And When To Hold)  [View article]
    Mark: Good idea for an article. Always valuable to think about the philosophy we use to make that tough sell/hold decision and sharing your thought process gets all of us thinking. Would be great if you could expand on your Chevron decision. Looking at the 52 week range, Chevron has dropped 29 points from that high. Dividend is currently $4.28 so you have lost almost 7 years worth of dividends in the last year, offset by receiving a years worth of dividends (assuming no future dividend increase). But what seems to concern you is not so much that $29 loss or not even so much future losses that might occur if the price of oil drops (or maybe even stays at the current level) but the possibility that the dividend might not go up for the current year. I can almost understand that for the many buy and hold forever investors but you don't seem to fit in that category based on this article. It would seem that a dollar of stock value would be just about equal to a dollar of dividend in your decision process.
    Oct 24, 2015. 03:21 PM | 4 Likes Like |Link to Comment
  • Implications For Gilead Of The Problems With AbbVie's Competitive Hepatitis C Product  [View article]
    Doctorx: I always love to read the comments when the shit hits the fan. Out of the woodwork those who just knew ABBV was a rotten company come to the surface. CEOs should be fired--maybe someone should go to jail! Seems like in your Oct. 20 article you showed a long position in ABBV. I am thinking that was two days ago. We can all be wrong and we all are wrong but let's not climb up on that high horse less we get thrown. Damn if that GILD isn't the best thing since sliced whole wheat biscotti.

    As investors we should be thinking about the future. Assuming that ABBV is a buy at some price, what is that price? I have a small part of my portfolio that I call "Blood in the Streets". When a stock gets creamed, even for a good reason, when does it get overcreamed? I am guessing it will get creamed again tomorrow. What is a good blood in the streets price? And what is a new fair price for GILD--will the market overreact tomorrow?
    Oct 22, 2015. 07:19 PM | 2 Likes Like |Link to Comment
  • A New ETF In Town: The PowerShares S&P 500 Value Portfolio  [View article]
    Harm: Do you know how often they recompute the 100 stocks--and what turnover they should expect in an average year? Have they done any back testing to see how this system would have fared in recent years/decades?
    Oct 22, 2015. 12:27 PM | Likes Like |Link to Comment
  • Different Ways To Think About Dividend Reinvestment, Part 2  [View article]
    Bio: Don't see your logic. Buffett knows (or thinks) it is in the best interest of the stockholders of Berkshire not to get a dividend. I totally agree with him. He would be a hypocrite if he did issue a dividend. Both because of the tax efficiency issues I mention and because he thinks he can reinvest those funds more efficiently--and he has done that for 50 years (although those days seem to be past). He controls the dividend policy of Berkshire. He has also stated that he prefers to own entire businesses--that eliminates the dividends of those companies he buys. He doesn't control the dividend policy of Wells Fargo and Coke and has the same problem as I do--most of the well run companies feel forced to issue dividends so if he can't buy the entire business he often has to buy dividend paying stocks. Just like I end up buying dividend paying stocks when I would prefer not to. Add to that the fact that Berkshire (and all other C-Corps) don't pay as much tax on dividends as you and I. Now if you want to say that Buffett should speak out against the dividend policies of Wells Fargo and Coke--that is a little trickier since many pension and investment vehicles require that they only buy dividend paying stocks--Buffett doesn't care if they buy his stock but Wells Fargo and Coke might not have that luxury. I will also add that dividends make a lot of sense for investors in the 10 and 15% tax brackets, especially if they live in states without income taxes. So the issues vary depending on the investor.
    Oct 18, 2015. 12:44 PM | 1 Like Like |Link to Comment
  • Different Ways To Think About Dividend Reinvestment, Part 2  [View article]
    Nicholas: Wish it was true but I don't think there are plenty of high quality companies without dividends. I own some of them. Most stocks without dividends are tech stocks or start ups or companies on the downhill slide (think Sears and JC Penny). I can't find a single ETF or mutual fund that limits itself to non dividend stocks although there are many dividend ETFs. I think there are very few Warren Buffett's in the world who can withstand the screams for dividends (however misguided IMHO). You will even see many on this site who want Berkshire to start with the dividends and I think as soon as Buffett passes Berkshire will institute a dividend. You're right that when you sell some stock you pay a long term capital tax on the gain, which is the same 15% that most investors pay on qualified dividends. But there are three big differences (1)--if you get $20,000 of qualified dividends you pay 15% on the entire amount If you get $20,000 from selling stock you pay tax only on the portion that is profit (that might be $2,000 or it might be $10,000 but it is not $20,000) (2) you decide when you want and need the money, not the companies and (3) if you hold the non dividend stock until death you can pass it on to heirs and avoid totally the tax on the gain (except the super rich who might pay an estate tax). So if you have held Berkshire for 40 years you have never paid a penny in taxes and if you pass it to your heirs after death all of those deferred tax liabilities disappear. Personally I think there should be a tax on unrealized capital gains at time of death but I invest with the tax code we have.
    Oct 17, 2015. 04:48 PM | 1 Like Like |Link to Comment
  • Different Ways To Think About Dividend Reinvestment, Part 2  [View article]
    Nicholas: Let me add a third way to look at dividends. And after reading SA articles for the last four years I understand that I am in the very tiny minority with this opinion. I don't see dividends as new or free money. I see them as a return of capital. Not in the strictest sense of tax law return of capital (although there is some of that in the REIT world) but in the sense that as a stockholder I already own that cash--and I want the managers of my company to use that cash in the most efficient way possible (tax wise and future earnings wise). What I don't want is for those companies to return it to me. If I need the cash I can get it anytime I want by selling some of the shares. You make the statement that companies are "rewarding" shareholders by issuing a dividend. I see it more as a penalty--tax wise and future earnings wise. If I had a choice I would have a portfolio of Berkshire Hathaway type stocks with no dividends--thus perpetual tax deferral and as I need the funds I can get it anytime I want.
    Oct 17, 2015. 02:48 PM | 2 Likes Like |Link to Comment
  • Simon Property Group Or IBM? This Isn't A Joke  [View article]
    Caljac" My broker is Vanguard so I can tell you how they show the return of capital and from what I remember from my volunteer tax preparation days the other brokerage firms provide similar info. I place almost all my REITs in my IRA but back in 2013 I owned one in my taxable account (as I remember I had read that almost all of the REIT distribution was return of capital so I thought taxable account would be the best spot--Campus Crest which turned out to be a loser for me). Look at your 1099-Div and look in the summary box entitled "20xx Dividends and Distributions". Look at box 3 and you will see the line is "Nondividend distributions". That is the number that won't go on your 1040 but if you read the IRS manual they will let you know to adjust your basis down for this untaxed distribution. Then Vanguard has the details of this number in the attached details by stock--hooked right onto the 1099-Div. For Campus Crest they show four columns of numbers for the four quarterly dividends. For my account those add up to $31.44 for total ordinary dividends (that amount was fully taxed at my marginal tax rate); then they had $2.38 for qualified dividends--that is the one that was taxed at 15% and I assume is non real estate earnings of the REIT; then they had a capital gain distribution number of $5.71 (I assume sale of property) that is being taxed at 15% as a long term gain; and then the kicker Nondividend distributions" of $159.35. This is the return of capital. So in this case 80% of the dividend was return of capital. I think this is an extreme example--Campus Crest was a new REIT with a lot of depreciation on new buildings and in my opinion trying to entice investors with what seems like a large dividend (which was mostly nothing more than return of capital). Simon, on the other hand, seems to distribute just above the minimum required by law (the tax law requires some 90% of taxable income be distributed and Simon stays pretty close as I remember). But many REITs distribute 150-200% of taxable income--looks good to investors but requires the REIT to constantly issue new shares if they want to grow assets. If you want to see the numbers find a Value Line at the library and look at the individual REIT pages and check the dividends per share versus income per share and you will get a rough ratio and see how many REITs distribute far more then needed.
    Oct 17, 2015. 12:47 PM | 2 Likes Like |Link to Comment
  • Simon Property Group Or IBM? This Isn't A Joke  [View article]
    Caljac: Maybe not as much as it seems. Most REIT dividends include a lot of return of capital (not taxable although it does adjust your basis). I am also assuming that most investors would place REITs in their IRA/401k if they have a choice.
    Oct 17, 2015. 09:25 AM | 2 Likes Like |Link to Comment
  • Stocks: Once Predictive, Now Reactive  [View article]
    You seem to be making a lot of assumptions about who moves the market. Who buys Fed Fund Futures? I would assume a very small percentage of professional investors. Who reads the WSJ--a much larger group with maybe very different opinions on where rates are going. So maybe 30.5% of professional investors think that rates will go up in 2015 but maybe 50% of non professionals think that rates will go up. And maybe it takes those non professionals longer than 5 minutes to read and digest the article. And maybe there is a large group of fence sitters in both categories that don't show up in the percentages. Seems to me that in a fairly range bound market it only takes a small change at the margin to move the markets.
    Oct 17, 2015. 09:16 AM | 1 Like Like |Link to Comment
  • REIT Dividends Are Overrated  [View article]
    Mitchell: In your introduction you state that "the implication is that REITs that pay a higher yield will have a subsequently higher total return". I think after reading the comments you probably realize that a lot of DGIs don't really care about total return so the facts in your article won't convince them. The reason they want a higher dividend has nothing to do with wanting a higher return. Not saying that makes sense to you and I but that is the reality. I found this out when I first started reading SA some four years ago. Most DGIs don't care about total return and even more don't care about tax efficiency. They will accept a lower return for what they see as a "bird in the hand". What is really strange is that they will accept a lower return even if they reinvest dividends where the bird is no longer in hand. So some comments talk about compounding of those reinvested dividends where you and I might say that if the REIT retained more of the income (lower dividend) that the compounding would occur anyhow and it would be tax deferred--think of the compounding that has occurred in Berkshire Hathaway over the last 40 years with zero dividend--and it has been tax free/deferred depending on your situation. But the logic will convince close to none of the SA readers.
    Oct 13, 2015. 11:27 AM | 8 Likes Like |Link to Comment
  • PCI: Case Study Of The Largest Taxable CEF  [View article]
    Good article except your statement that "everyone knows short rates will go up". Nobody know squat about where short rates will go. They might think they know or they might hope but they don't know. I am thinking short term rates will stay where they are for close to forever. If we go into a recession they might go down. But I know that is nothing but a guess.
    Oct 5, 2015. 06:22 PM | 6 Likes Like |Link to Comment
  • Equity CEFs: Have CEF Discounts Really Dropped To 2008 Levels?  [View article]
    Another possible reason for the increase in discounts-- CEFs might be a dying breed. They have been losing market share for years. One of the few benefits of CEFs, when compared to open end funds, is the ability to trade at a fixed price intraday. Now ETFs have that same ability with generally much lower expenses and much better tax efficiency. CEFs seem to have only two remaining draws--use of leverage and ability to time the market and buy the discount. How long can that sustain them as a investment class? Is it time to bail?
    Oct 5, 2015. 11:00 AM | Likes Like |Link to Comment
  • The ABCs Of Bond ETF Distributions  [View article]
    Matt: Here's my take on distributions. Under the 40 Act, mutual funds, ETFs and closed end funds are required to distribute 95% of realized capital gains, after reducing that amount by expenses and transactions costs. But they can only distribute those once a year, and as you say they generally, but not always, occur near year end. They are required to distribute only 90% of the bond income, also reduced by the fund expenses and transactions costs but they can distribute those as often as they want so that is typically monthly or quarterly. This allows closed end funds to retain some earned income and it is referred to as UNII (Undistributed Net Investment Income). Allows those closed end funds to smooth out the distributions by holding that income for years when the distribution exceeds income. What many investors don't realize is that those UNII are already built into the NAV so when you buy a closed end fund with UNII you are buying a tax liability. Never been clear to me if ETFs and open end funds have UNII. Be a good topic for an article.
    Oct 2, 2015. 07:14 PM | 2 Likes Like |Link to Comment
  • How Survivorship Bias Distorts Reality  [View article]
    Boris: Those pesky assumptions again. I guess we define "trading decisions" differently. Take a medium size open end fund like Fidelity Overseas (FOSKX). They have $4 billion in assets. They currently have 163 stocks in their portfolio and an annual turnover rate that has ranged from 41% to 111% over the last 5 years. Let's say 70% average per year. Now I am guessing that a turnover rate doesn't double count for the buy/sell, so say 110 new stocks each year and the same number of sales (excessive in my opinion but they you have it). Now my definition of an investment decision. For each stock in their portfolio they have at least a quarterly review based on their research analysts work to decide to sell, hold, or add. That is about 4X163 or 650 reviews with three options for each so 1950 decisions. After they sell 110 stocks they probably review at least 5 choices for each stock being replaced, so 5X110 or 550 decisions. Add to that all the hundreds of quick decisions they need to make when the market moves--like the last few days--do they buy biotech on the deep dip or head for the hills. Then there are all the one of a kind/macro decisions. Do we raise cash, say like a Bob Rodriquez, to 20% or 40% thinking a bear market is coming? Do we close the fund to new investors? Is the Fed going to raise interest rates so maybe we should unload our dividend stocks.

    Even with my puny portfolio I must make 200 decisions a year (and I'm not a day trader) so how can a $4 billion fund make less than 5,000?
    Sep 29, 2015. 02:39 PM | 1 Like Like |Link to Comment
  • How Survivorship Bias Distorts Reality  [View article]
    All analytical studies start with a set of assumptions. Someone has to select those assumptions and most of us have agendas and biases that impact those assumptions. If a liberal democrat and conservative republican do a study on the rate of poverty they will use different assumptions and arrive at different conclusions but that won't keep the reader of those studies from nodding their head and saying "aha!"--never even thinking about the assumptions.

    Same is true of this article--so we are told that Mr. Wald's conclusion "that's where the bombers that didn't make it back were hit". Now how does he know that? They could have been hit in exactly the same places as the returning planes but maybe the pilot was less skilled or maybe a shot hit the pilot and co pilot or a million other reasons. So unless there was some verification study (check those assumptions) we are just guessing.

    And the statement that this decision "ended up saving the lives of thousands"--now think of the assumptions that would have been made to come up with that number. Maybe the surviving pilots learned as they survived. Maybe the planes improved. Maybe the best antiaircraft personnel were killed. Maybe the brass decided they couldn't keep losing pilots so adjusted the bombing process.

    The author adds to the fun by his statement (one of scores that could be questioned in this article) that "some are bound by pure luck, even over long periods of time, to produce superior performance". That must be based on that old canard about monkeys flipping a coin--as if managing money over a year is equivalent to a coin flip when it is more likely to involve thousands of decisions to buy/sell/pass.

    Never accept any financial or political analysis unless you know the assumptions and the agenda of the author.
    Sep 29, 2015. 12:16 PM | 2 Likes Like |Link to Comment