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  • Being Intelligent About Smart Beta [View article]
    I am just in the early learning stage about smart beta and what I call algorithm investing. I have been reading the articles by Wesley Grey and from what I know the issue of smart beta's value diminishing over time, as more people use it, might be overblown. There seems to be an almost unlimited number of variations of what works (or might work) as smart beta. As investors adopt value or momentum the algorithm will be adjusted to exclude them and move to the next magic bullet. My guess is that in any case the old smart beta will, at worse, approximate the typical index fund even if it doesn't greatly outperform. I see smart beta as similar to the "go anywhere" closed end bond funds run by Pimco and Blackrock.

    I am also enjoying the tribulations of the efficient market crowd. I think they are now up to five exceptions--areas where the market isn't efficient. They now adjust those out of active manager out performance. Not sure why the active managers don't fight back a little.
    Jul 19, 2014. 02:54 PM | Likes Like |Link to Comment
  • An Intelligent Investor Should Consider REITs [View article]
    Brad: Let me guess what the "cheerleader" comment was based on. I came to the same conclusion a few years back. Almost every one of your articles is "all in" as in Texas Hold Em. You are either 100% for a REIT or 100% against it (mostly 100% for). Very seldom will one of your recommendations provide both the pros and cons of the REIT being discussed. Every investment has pros and cons--if it didn't have any cons everyone would buy it and the price would soon be so high that the price would be the con. If it didn't have any pros than no one would buy it and it would disappear.

    You have all the skills to be a great REIT writer. You have the REIT knowledge, computer skills, writing skills, contacts in the industry but for whatever reason you have decided to be a cheerleader. Try writing one balanced article--maybe pick O since that is the REIT you love the most. Give us all the positives on one side and all the negatives on the other (force yourself to provide those negatives regardless of what the REIT management might think)--kinda like a balance sheet and see what happens.
    Jul 18, 2014. 08:24 AM | 19 Likes Like |Link to Comment
  • Dividends Don't Matter In Retirement Either [View article]
    Thud: I think you make a wrong assumption. In my case 50% of my portfolio (at this point I guess all of it is retirement) is in a taxable account. I am guessing the vast majority of SA readers above 60 are in the same situation. I place non dividend stocks in the taxable account and they compound tax deferred forever (all the benefits of a conventional IRA without the downside). Do you not have a taxable account?
    Jul 17, 2014. 09:37 PM | 1 Like Like |Link to Comment
  • Dividends Don't Matter In Retirement Either [View article]
    Dale/Cranky: "And the strategy that many Seeking Alpha writers have sold me on is the dividend growth model". That was Cranky on January 15, 2013. You have come a long way in 18 months but you are only half way home. You now see that what matters is earnings growth--or total return investing-in the working part of your life or the retirement phase. What I think you are still missing is the greatest benefit of non dividend stocks--deferral of taxes. Not sure how it works in Canada, but I will assume it is similar to the U.S. If you invest in non dividend stocks you defer taxes until you decide to sell--that could be in 20 years or 50 years. If you had bought Berkshire in 1980 you would have paid zero in taxes over the last 35 years. Think about the compounding of those tax deferrals for all those years (think about the share price growth over those 35 years). One day you might just die and you can (in most cases) pass those non dividend paying stocks on to your heirs with no taxes on all those unrealized capital gains (I think that is flawed tax policy but I invest with the reality) Best deal in the world.

    So I suggest you take a deep breath from all the attacks from the DGIs. Your next step is to realize that dividends are not just irrelevant they are a negative to your long term goals (and here I am only talking U.S. "C" corporation dividends--whole other story with MLPs, REITs, BDCs, Royalty Trusts). Also question any academia study that shows dividends outperforming the S&P--every study I see ignores the tax benefits of non dividend stocks and instead compares only the before tax results. Those studies also move failing dividend paying stocks (think K Mart and J.C. Penny) into the non dividend category as they slide to bankrupcy.
    Jul 17, 2014. 08:13 PM | 2 Likes Like |Link to Comment
  • Forget The Trains And Planes, Buy This Industrial REIT For A 20% Treat [View article]
    Sleuth: Yield might be partially a function of the market pricing the stock but I am thinking it is more a function of the payout ratio. Many REITs, instead of paying out the 90% required by REIT law, pay 150% to 200% of earnings. That results in a good chunk of ROC and impresses some investors with the artifically high dividend. If I wanted my money back I wouldn't have invested with the REIT in the first place. If they keep their payout in the 90-100% range that means they will have to issue less new shares or borrow less money. In the long run we investors will be better off. Same philosophy that EPD uses in the MLP world.
    Jul 16, 2014. 07:25 PM | Likes Like |Link to Comment
  • Forget The Trains And Planes, Buy This Industrial REIT For A 20% Treat [View article]
    You make a statement that the FFO number is "incompatible". Are you saying the 21.2 number for 2014 is wrong because it uses trailing earnings but a share count that has been inflated for the new issuance of 9 million shares? Since REITs seem to be constantly issuing new shares I would have assumed FFO would automatically be corrected for new issuance. This is the first time I have seen any mention of this topic in the many REIT articles I have read on SA.
    Jul 15, 2014. 12:50 PM | 1 Like Like |Link to Comment
  • Sell-Off In Refiners Is Overdone [View article]
    Clint: I hope you are right about GILD since I own a small chunk but it won't be because Vanguard is buying it. Most of the shares you mentioned are held in index funds--they are forced to buy the stock based on market cap. In their Health Fund, out of 89 stocks owned, it is 60th in value of holdings. If you listen to Vanguard there are 59 health stocks they like more than GILD--I think they are wrong but they just might know more than me. My guess is Fidelity's holdings of Gilead are also mostly index.
    Jul 13, 2014. 03:32 PM | 2 Likes Like |Link to Comment
  • Sell-Off In Refiners Is Overdone [View article]
    Your argument that Congress won't allow "opening exports fully" seems to be a typical straw man argument. IMO the issue is how many oil and pipeline companies will make the same request to export light oil and condensate (many) and how with DOE not allow all of those requests after approving two exceptions. Seems to me the key question is that if all those condensate requests are approved what happens to the refiners? It has to be negative so we have to determine how negative.

    Anybody out there have enough knowledge of the light oil/condensate market to hazard a guess?
    Jul 13, 2014. 11:40 AM | Likes Like |Link to Comment
  • Linn Energy: Value Gap Suggests Risk Of Underperformance [View article]
    Richard: Writing articles is a tough way to make a living. Every time there is a negative article on SA the termites come out of the woodwork crying "short". Funny how they never say a word about the writers of positive articles owning the stock. No wonder most analysts give only positive ratings to stocks. Ignore the termites and keep writing it as you see it.
    Jul 11, 2014. 01:02 PM | 6 Likes Like |Link to Comment
  • Leverage In Closed End Funds: Another Look [View article]
    A few observations from looking at Morningstar data. (1) looking at the expense ratio by fund (they show the expense with and without leverage)--in almost all cases the cost of leverage seems extremely small so I am not seeing support for your statement that many closed end funds have high borrowing costs. (2) some funds charge expenses not on net assets (assets less leverage) but on gross assets. Many of the closed end fund expenses are high to begin with (2% or higher) but when you add expense on leverage, that can reduce returns dramatically. Morningstar frowns on the practice but it might not be obvious to investors.

    In any case your results will continue to be questioned just because they are counter intuitive. Why not pick a category (such as general equity) and show the individual funds split between levered and unlevered and show the 1/3 year returns by fund. Then readers can double check any numbers that look questionable. I own only one of those general equity funds (SOR). It doesn't use leverage and has performed well. The answer might be as simple as the good managers don't use leverage because over a cycle it doesn't increase returns after expenses.
    Jul 8, 2014. 10:11 AM | 1 Like Like |Link to Comment
  • How To Prepare For The Upcoming Correction [View article]
    Varan: I think you are right about the writers that are selling something and the DGI crowd is ripe for the plucking. But I think it goes beyond that--I think most of us tend to use the right side of our brains far too often in the investing game. We might talk about "due diligence" but there seems to be a lot of going along with the crowd mentality, and right now (with the FED keeping interest rates at near zero real) the crowd is bidding up anything with yield so dividends and junk bonds are working just fine because of the supply/demand.

    I spent my first two years of reading SA articles trying to understand DGI and the conclusions I came to are that many (not all of course) don't seem to care that much about total returns, after tax returns or the possibility that the dividend stocks are overpriced. They do care about such fluff as monthly dividends.

    Jason: I forgot to mention that I think you are totally right about Gilead--it seems to be strangely underpriced. I own a decent chunk and would buy more except I assume I must be missing something--it looks too good to be true.

    Varan: Part of me is still on the investing dark side. I am slowly moving to ETF index funds (VOE, VBK, IESM, IPKW are purchases over the last year) but like Jason I am not fully convinced I can't beat the market. Even the ETFs I buy tend to be not the broad based indexes but instead the sector funds or those that use size/value factors. But if I am going to beat the market it better be with my very best ideas (GILD for example). I plan on moving to something like 50% ETF in the years to come which should mean I am half matching the market (however defined) and my best ideas might outperform (probably wishful thinking). Now, if I can just keep myself from market timing.
    Jul 6, 2014. 12:56 PM | 3 Likes Like |Link to Comment
  • How To Prepare For The Upcoming Correction [View article]
    Jason: Maybe like most of us your investing philosophy goes a lotta different directions at once. (1) You say the market can't be timed but you are calling for a definite correction--and I assume you don't mean in 10 years, so that sounds like timing to me--you're just not following your beliefs by selling . (2) You don't want to time the market but you're going defensive and buying silver--sounds like timing to me. (3) You think the market is going to correct but want to stay fully invested by buying "defensive" stocks and I assume accept a loss of capital as long as it's a smaller loss than the market will absorb (but a much bigger loss than going to cash). Sounds like timing to me.

    I am guessing your investing philosophy is in transition. Many of us have gone through that. You start out thinking you can time the market and you think you can outperform by selecting individual stocks but over time you find out that your market timing is wrong more often than right and when right it is way too early ( I called the internet bubble but unfortunately I was 3 years early) and you give up on market timing (you're not totally convinced yet!).

    Sooner of later you will realize that your stock selecting is not beating the market and then you can move toward the index route and stay fully invested or do what many SA readers do and pretend that benchmarks aren't really that important, which allows them to think they must be beating the market since those dividends keep arriving.
    Jul 6, 2014. 11:40 AM | 7 Likes Like |Link to Comment
  • The Sustainable Portfolio: Employee Ownership Ranking [View article]
    T Rail: Reading your article, it just doesn't seem like there is enough information available on employee ownership to use it as a filter. If you want to keep your portfolio from reaching that steady state you might consider corporate governance ratings (which to me might indicate the type of management philosophy you are looking for). Not sure if it is available on your European stocks but it is for most US stocks. Of your two US stocks, Ecolab has the best rating available (1) and HCP has the worst rating (10). Personally, I would never own a stock with a corporate rating of 10. You can get ratings at Yahoo finance. First get a stock quote, then go to "profile". Corporate rating is a number from 1 to 10, with some explanation provided of how they arrived at the number.
    Jul 5, 2014. 10:21 AM | Likes Like |Link to Comment
  • Value Over Glamor: 2 New Studies Reinforce The Argument That Book Value Is The Best Metric [View article]
    I was hoping that the comments would lead to an ETF (among the 2 million out there) that focus on book value (not dividends). Better yet, book value ex financials. Any recommendations?
    Jul 4, 2014. 08:10 PM | Likes Like |Link to Comment
  • Is Your Active Manager Beating The Benchmark Index? [View article]
    Looks like a typical flawed comparison that the index industry loves to trot out. Comparing actively managed funds to an index shows us almost nothing. Indexes don't have expenses or transaction costs and they don't need to maintain cash reserves to redeem shareholders wanting to cash out.

    The other distortion the index industry loves is to compare index funds to the number of actively managed funds that beat. Anyone can start a mutual fund and most of them never gather enough assets to be viable and disappear. Instead, compare the amount of dollars invested in actively managed no load funds that beat the average of index funds and you will get a different answer. Even more so if you adjust the risk downward for actively managed funds for the cash reserves.

    Lastly, investors in actively managed funds don't select funds at random. For example, compare Dodge and Cox International (DODFX), Vanguard Selected Value (VASVX) Prime Cap Odessey (POAGX) and you will see actively managed out performance.

    Whoever chooses the assumptions determines the outcome of all financial analysis.
    Jul 2, 2014. 01:41 PM | Likes Like |Link to Comment