A Portfolio For The Next Market Crash [View article]
Sure, but City also had a 5% dividend in 2007--what happened to that? I wouldn't be quite so sure of those dividends. A lot of things can happen to "quality" stocks. I'm guessing a lot of people thought of many coal companies as quality stocks not that many years ago.
How To Remain Solvent Longer Than The Market Is Irrational [View article]
Chuck: Well written article as usual but as an economist I think you know that the results of statistical analysis are only as good as the assumptions you start with. It seems that the backbone of your analysis is the orange line and for many stocks you seem to use 15 as a typical PE. I guess I question that number, even for a group of companies with "approximately 10% earnings growth per annum". The market knows that the value of 10% earnings growth varies widely depending on inflation and multiple other macros, as well as the quality of earnings, management, balance sheet, moat, etc. of the individual company. There are so many variables that I think it is impossible to arrive at a usable baseline for comparison that goes beyond the individual company. When it comes down to it, I think the market is disagreeing with your orange line --that might or might not be over/under valuation by the market.
A Portfolio For The Next Market Crash [View article]
VanGorkom: Not following your logic. REITS only get taxed once, as opposed to corporate dividends--those are the investments where people don't understand the tax implications. REITS are almost perfect for IRAs but are neutral in a taxable account. If I am missing something please explain. Their tax benefits are why so many corporations (think Weyerhaeuser) in recent years are trying to convert to REIT status--they understand they are a gift to taxpayers. I think the downside will come when Congress figures out what is happening and shuts them down--starts to double tax them like they do now for qualified dividends . Then we will see massive capital loss and a much reduced dividend for all REITS.
A Portfolio For The Next Market Crash [View article]
Seems like a well thought out plan but you never mention the rest of the world. Are all your stock investments in the U.S.? Can't remember the last time I saw a portfolio without international exposure. You mention real estate directly owned and home builders but not REITS--another rarity among investors.
What has always surprised me about Whole Foods is the long term lack of real competition. Around the edges they have had some (Fresh Fields, Wild Oats)--but generally just buy them out. To me there is nothing unique about Chipolte or Panera and even Starbucks is getting a fair amount of competition--but on a national level Whole Foods doesn't have any. So I'm not sure there is any stock where you get a good comparison based on the fundamentals. I am thinking the lack of competition merits a higher PE. But how much higher? So I won't buy at this level but wouldn't short either. I kinda like your $78 as a good entry level but this is a stock that will suffer in any recession--look at the long term price action.
Double Digit Growth Rates Make Whole Foods Market A Buy [View article]
For those of us who shop Whole Foods it is apparent that the store is far more than a "natural or organic" site. It is primarily a gourmet market--wine, beer, fish, pizza, etc. that has nothing to do with organic. And that means it gets crushed during a recession. During the last one (2008-9) it's stock price went from $80 to $7--now with that rearview mirror that was the time to buy. If the economy suffers in the future it is likely to happen again. Hard to buy a stock that has gone up 1,500 % in just a few years.
Can An Intelligent REIT Investor Over-Diversify? [View article]
Tom: Just for your information--this kind of info is available free on Morningstar. Just google the symbol+morningstar. The only yield info I find is for the 12 month SEC rate--Vanguard ETF is 3.43%, CSFAX is 3.39% and IGLAX is 3.90%. Of course those dividends are included in the total return numbers I quoted. One other big difference that causes underperformance of these actively managed funds-- Vanguard had a turnover rate of 10%, IGLAX had 36% and CSFAX had a whopping 105%. The transaction costs are not included in the quoted expense rate. Hard to overcome those costs--which are hidden from the investor. I guess what those numbers tell me is if we are seeking alpha, is to either buy an ETF or buy a small number of REITS and hold them--avoid those expenses and turnover where possible. But selecting the good, bad and ugly isn't as easy as it sounds since the market has already priced those qualities in. If not, maybe someone out there can select the ugly ones and short them--see how that pans out.
Can An Intelligent REIT Investor Over-Diversify? [View article]
John Bogle has been saying the same thing forever. Most actively managed funds cannot beat an index. That's true of REITs too. It might be hard to stomach for those of us who think we are smart enough to beat the market but the numbers don't lie. Instead of using your comparison of one year, use five years (which is the longest available for most ETFs). The Vanguard ETF (VNQ) had an average annual five year return (according to Morningstar) as of Feb 8, 2013, of 7.95%. The IGLAX had a return of 3.09% and the CSFAX had a return of 2.70%--Vanguard trounced these two funds.
How can that be? Vanguard had expenses of .10%-- IGLAX had expenses of 1.3% plus a front load of 5.75%. CSFAX had expenses of 1.57% plus a front load of 4.5%. Even without those high expenses those "smart stock pickers" couldn't beat the index.
In any one year you can find funds that beat the index but over time very few can.
Looking at the comments from SA readers on this article and most others it is easy to see the problem. These investors accept advice without question or analysis. No wonder they underperform.
3 Reasons To Dread Rising Stock Prices And A Few Potential Value Names [View article]
Mike: I understand that there are many DGI proponents on this site and I know they love dividends like a religion--and I'm not interested in a religious war. I saw this article to be more specifically about dividend reinvestment and how high stock prices make those less attractive (which I thought was a strange concept). Based on many of the DGI articles I have read, I assumed much of their dividends come in the form of cash, not dividend reinvestments, since many DGI talk about the need for regular income and a desire not to have to sell stock to meet their cash needs. If you take your dividends in stock you then must sell something to get the cash. The issue of placing qualified dividend paying stocks (as opposed to REITs and MLPs) in an IRA truly mystifies me, especially if you are using the dividends as current income. Outside an IRA the dividends get taxed (with now a few exceptions starting in 2013) at 15%--inside an IRA they get taxed at marginal tax rate, which I would guess is typically 25-31% for most SA readers. I can only assume that people who place qualified dividends in an IRAs most not have a taxable account, or they must not own any bonds or other investments that would be fully taxed outside an IRA. Please educate me if I am missing something.
You might be right but I always assumed that these numbers, reported on a regular basis in the media, are only related to retail customers and don't include institutional. If the numbers on the graph are correct, however for 2008, like you said that would show a large net purchase of stock funds by retail investors which makes no sense. That leads me to believe that the numbers are flawed--that the ETF numbers are already included in the net sale number of $40 billion and are not additive.
3 Reasons To Dread Rising Stock Prices And A Few Potential Value Names [View article]
The example I used, of course, is a hypothetical that would not happen in the real world. It was used to make the small point that dividend reinvestment is really no better than the company not issuing a dividend in the first place (think Berkshire Hathaway). Many dividend investors make the case that they use dividends as a source of cash in retirement, in lieu of selling shares. That makes sense for the person who has no turnover in their portfolio that can be used as a source of cash. However, if there is any benefit from dividend reinvestment it's not clear to me (and again, the one big negative of taxes when compared to non dividend paying companies). Getting back to your issue about reinvested shares--my understanding is that brokerage firms (not the companies themselves) buy shares in the open market (and even keep an inventory) to be used for reinvested shares--so theoretically all investors could reinvest their dividends and some would still sell their total holdings in the open market that could be used for the reinvested shares. No new shares would be issued by the company to meet these needs. I have never seen any research on what percent of dividends are reinvested--it could be 70% or 95%--anyone know?
Retailinvestor: You're right of course but the author is just looking at part of the small investor's share of stock purchases--open end and etf funds. Someone has to buy the stock sold by the public--hedge funds, endowment funds, pension funds, foreigners--but they don't show up in the analysis--nor does (I am thinking) direct brokerage purchase of stocks by retail investors. I think the numbers are only of value in trying to gauge the psychology of the small investor--if the mutual fund purchases are dropping that tells us something.
3 Reasons To Dread Rising Stock Prices And A Few Potential Value Names [View article]
Brant: I think I will take the unrealized capital gain every time. Let me try to convince you that reinvested dividends make no investment sense. Assume you own 1% of a company that pays a 6% annual dividend and you reinvest that dividend for 10 years ( to make the comparison simple, assume all investors reinvest). After 10 years you would own the same 1% of the company--the exact same percent as if the company had never issued a dividend. What have you accomplished? The only difference is that, assuming it is held in a taxable account, you have paid 10 years worth of taxes on the dividend. You are a net loser but maybe feel better because you have more shares? Kinda like mutual fund investors who love those annual distributions since they now own more shares (that in total are worth exactly the same as before the distribution).
Your point about the company not being able to buy back as many shares is a good one, but only if you assume the market will be correcting. If the market continues to go up, as it usually does, then buying back shares now will be a winner for the company and the investor. But you're right--companies usually buy at the wrong time--look at the big dividend stocks--most of them had major corrections in 2008/9--the perfect time for companies to be buying back stock--and what did those "dividend aristocrats" do? Increased their dividends instead!
Based on your picture you appear to be young enough to overcome your flawed understanding of dividends and the stock market.
QE's Folly: Diversion And Destruction [View article]
Not clear to me how much of the problem with pension funds should be attributed to QE. Look at the total returns of bond funds over the last 5 years--Vanguards Long Term Bond Index is up an annual 9.25% over 5 years. Interest rates are down in that period but the value of the bonds is up nicely. Pension funds should be able to do as well as Vanguard--they don't invest in CDs and MMFs (the small investors who rely on CDs are the ones who have suffered because of QE). Maybe some pension funds have done a lousy job in their stock market/hedge fund portfolios. My guess is that pension funds are playing the same old game of overestimating annual future returns so they can keep their contributions low--game they always play. If you want to talk about the future, where the value of their bonds might crater--OK--make that point but I don't think you have any argument (or facts) to support your article.
2013 Market Outlook: Optimism Must Be Grounded In Realism [View article]
I can't disagree with the fundamental analysis in your article but your forecasts for 2012 were wrong and your 2013 forecasts will probably be wrong for one big reason. As Marty Zweig used to tell us weekly on the old TV show "Wall Street Week"--DON"T FIGHT THE FED! It very seldomly works. I think what he was saying was, no matter how right you are on the fundamentals the FED can offset those fundamentals by pumping money into the system. If $85 billion a month isn't enought they will do $100 billion. The question is how long can they do it without causing massive inflation and I don't think you address that in your article or your forecasts.
A Portfolio For The Next Market Crash [View article]
How To Remain Solvent Longer Than The Market Is Irrational [View article]
A Portfolio For The Next Market Crash [View article]
A Portfolio For The Next Market Crash [View article]
Whole Foods Is A Short [View article]
Double Digit Growth Rates Make Whole Foods Market A Buy [View article]
Can An Intelligent REIT Investor Over-Diversify? [View article]
Can An Intelligent REIT Investor Over-Diversify? [View article]
How can that be? Vanguard had expenses of .10%-- IGLAX had expenses of 1.3% plus a front load of 5.75%. CSFAX had expenses of 1.57% plus a front load of 4.5%. Even without those high expenses those "smart stock pickers" couldn't beat the index.
In any one year you can find funds that beat the index but over time very few can.
Looking at the comments from SA readers on this article and most others it is easy to see the problem. These investors accept advice without question or analysis. No wonder they underperform.
3 Reasons To Dread Rising Stock Prices And A Few Potential Value Names [View article]
The Passive Aggressive Investor [View article]
3 Reasons To Dread Rising Stock Prices And A Few Potential Value Names [View article]
The Passive Aggressive Investor [View article]
3 Reasons To Dread Rising Stock Prices And A Few Potential Value Names [View article]
Assume you own 1% of a company that pays a 6% annual dividend and you reinvest that dividend for 10 years ( to make the comparison simple, assume all investors reinvest). After 10 years you would own the same 1% of the company--the exact same percent as if the company had never issued a dividend. What have you accomplished? The only difference is that, assuming it is held in a taxable account, you have paid 10 years worth of taxes on the dividend. You are a net loser but maybe feel better because you have more shares? Kinda like mutual fund investors who love those annual distributions since they now own more shares (that in total are worth exactly the same as before the distribution).
Your point about the company not being able to buy back as many shares is a good one, but only if you assume the market will be correcting. If the market continues to go up, as it usually does, then buying back shares now will be a winner for the company and the investor. But you're right--companies usually buy at the wrong time--look at the big dividend stocks--most of them had major corrections in 2008/9--the perfect time for companies to be buying back stock--and what did those "dividend aristocrats" do? Increased their dividends instead!
Based on your picture you appear to be young enough to overcome your flawed understanding of dividends and the stock market.
QE's Folly: Diversion And Destruction [View article]
2013 Market Outlook: Optimism Must Be Grounded In Realism [View article]