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  • Gilead Fires Back [View article]
    13302632: You put a lot of value on a 75% market share. The ABBV competition was approved by the FDA three weeks ago. Not sure how long it takes to get the production line in place and the distribution going but the past market share number for Gilead would seem to be meaningless until that happens and then all the price competition takes place. The $125-150 share price forecast for GILD has been talked about for 6 months, even before ABBV was approved. I am thinking there is a lot of wishful thinking going on. If ABBV decides to compete down to $30 or $40K what will happen to the GILD share price? Why would ABBV accept a minor market share if they are willing to drop the price?
    Jan 8, 2015. 07:24 PM | Likes Like |Link to Comment
  • Gilead Fires Back [View article]
    Looks like a price war to me and I don't see how that can be positive for GILD, at least compared to the situation of 6 months ago. Typically when there is a blockbuster drug you would expect a decent period of dominating the market--GILD has had less than a year. So how is it that a competitor appears so quickly and if two biotechs have arrived at market for this disease, how many others are close to the same for Hep C? I am thinking that DoctorX is right and maybe biotech is a dangerous game for small investors. It seemed strange to me last year how low the forward PE was for this stock--maybe the smart money knew what was going to happen. I know that Vanguard Health fund had a very low holding of GILD last year (and currently) and they have the record that suggests they are the smart money.
    Jan 8, 2015. 01:05 PM | Likes Like |Link to Comment
  • Of Course Year-End Targets Are Always Wrong [View article]
    For many small investors it probably comes down to the amount of conflict of interest the blogger/pundit/strategist has to deal with. If the blogger isn't trying to sell us something maybe his forecast just might have some value. If the forecast is coming from the Henry Blodget's of the world then why should anyone pay any attention. You said it yourself, the strategists will be fired in a minute if they give the wrong (honest) forecast. So strategists aren't being demonized for making forecasts or even making wrong forecasts--they are being laughed at for playing the conflict of interest game. I look at Jeremy Grantham, Bob Rodriguez or Warren Buffett and say they seem to ignore/override the conflicts and give us honest opinions so I will consider their forecasts.
    Jan 5, 2015. 10:32 AM | Likes Like |Link to Comment
  • How I Earned 17% Compound Annual Return For 6 Years [View article]
    Great story. Could you expand on how you managed to avoid energy and other commodities--you must have seen something most of us missed? Your thoughts on holding McDonalds--seems like you sold your losers--why hold on to this one? And why no foreign stocks?
    Dec 31, 2014. 08:40 AM | Likes Like |Link to Comment
  • Should I Have High Yield (Junk) Bonds In My Portfolio? [View article]
    Samuel Lee of Morningstar had a good article recently on junk bonds, entitled "Junk Bonds--go active or not at all". He started with the question--why do people own junk bonds? And to Lee the answer is "simple--skilled active managers can generate higher and more persistent excess returns in illiquid asset classes". He says don't go passive with junk bonds. I will add that with closed end junk bond funds you can take advantage of large amounts of leverage at a cost much lower than small investors can obtain on their own. So assuming that the Vanguard High Yield Corporate fund is an index fund I am not sure if there is much value in using it as a comparison. The spread of high yield, when compared to Treasuries, has increased dramatically in recent months so now might be the time to invest in junk bonds--especially if you think the economy is improving.
    Dec 28, 2014. 08:38 AM | 1 Like Like |Link to Comment
  • The 3 'Macro' Questions Investors Must Ask Heading Into 2015 [View article]
    I wonder if Buffett still uses the market cap to GDP ratio? With a growing share of earnings for U. S. domiciled companies coming from outside the U.S. (thus directly impacting market cap) and the GDP being a totally U.S. production number, I can't fathom how they can be compared. But they keep showing up in SA articles. The comparison might have been usable in 1970 but tell us how it works now.
    Dec 19, 2014. 10:17 AM | 1 Like Like |Link to Comment
  • Saudi Arabia: Do The Math [View article]
    As NC investor points out, we don't know all the reasons that Saudi Arabia is doing what on the surface seems crazy. My take is that they are concerned not only about US onshore shale production but future shale production that might occur in many other parts of the world if the price of oil is high enough and the cost of the technology continues to drop (think Russia, Canada, Norway, offshore U.S.)--then their concern would be much greater than 600,000 barrels and OPEC might lose total control of the price of oil. They might just have calculated that they are better off, long term, with $70 oil rather then making shale production attractive to the world at $100 and dropping.
    Dec 5, 2014. 10:13 AM | Likes Like |Link to Comment
  • Despite Recent Hiccup, Gilead Is Still A Blue Chip Gem [View article]
    Two weeks ago GILD issued $5 billion in 5-30 year bonds. With nary a peep from SA writers. It came with the usual explanation that the funds would be used for "general corporate purposes"--which of course tells us nothing. Yes, interest rates are low but they have been low for 5 years. With GILD cash flow high and getting higher there must be something else about to happen. Any rumors about acquisitions?
    Nov 25, 2014. 07:20 PM | 1 Like Like |Link to Comment
  • Understanding The Importance Of Income And Total Return [View article]
    Dave: You tell us that everyone knows what income is, so you don't define it. You do, however, mention that to you selling assets is income, as is realized capital gains. I don't think of selling assets as being income--it is cash but it's not income. I don't even think of realized capital gains as income. It's a part of total return and it might be cash but it's not income by my definition. I think of income as being interest and dividends and other distributions--then in my definition it is added to realized and unrealized capital gains, less taxes and other expenses to get a total return. Many would ignore taxes when getting a total return. The definitions aren't really that important other than the obvious problem of some readers misunderstanding how you are using the terms. So next time, I suggest you just go ahead and give us your definition of income. If you want to ignore taxes you might even want to mention why you don't think taxes reduce total return.
    Nov 19, 2014. 02:13 PM | 6 Likes Like |Link to Comment
  • Shiller CAPE And Contrarian Investing [View article]
    CAPE makes a lot of sense in theory but when you start thinking about the details I think it falls apart. The problem being all the hundreds (thousands?) of changes to the makeup of the S&P 500 and tax/income/reporting requirements imposed by various regulatory agencies over the last 100 years (I think he uses 133 years as his database comparison). I will give one example. Prior to 2001 there were zero REITs in the S&P 500. Now there are 19 included. We all know that REITs have very high PE ratios (caused by the high level of depreciation that reduces taxable income). In fact the PEs are so useless a valuation measure that the REIT industry has pushed for the use of FFO to value REITs. A typical REIT has a PE of 35-45 (whereas its FFO might be 15). What impact to the average market PE does the addition of 19 REITs have? Unless Shiller takes the time to identify all the major changes that have impacted the PE ratio over the years and then adjusts his database it seems that the data is near worthless.
    Nov 18, 2014. 02:44 PM | Likes Like |Link to Comment
  • Buffett's Brilliant Duracell Deal: A Reprise Of Past Deals, A Comment On The Present Market, A Whisper About The Future [View article]
    T&M: You make some good points about the Buffett companies and their returns being much higher than inflation. The numbers might even be accurate if they were calculated at the time of Buffett purchase instead of using 1980 as the start date. But since the debate is really one of capital gains let me throw out some wider numbers. Your comparison is inflation to total return--I will compare inflation with appreciation of the S&P 500. Capital Gain taxes, as we all know, are applied to appreciation, not total return. Let's save the debate on the qualified dividend tax for another day.

    From 1950 through 2009, S&P 500 appreciation averaged 7.2% per year. Inflation during that period averaged 3.8%. 53% of the total appreciation was inflation (not the 25% you mentioned). The info is provided in 10 year segments by I assume it is correct but if anyone has an alternative source of info please provide it Two of the 6 segments were similar to your assumption--the 1950s where inflation was only 19% of the appreciation and the 1990s when it was 22%. In two segments (1970s and 2000s) the inflation was higher than the appreciation--negative real appreciation.

    We can only guess what the future holds but the Jeremy Granthams of the world seem to think stock appreciation will be minimal over the next 10 years and we know the Fed is trying to get inflation to the 2% level.

    I recognize that since 2009 we have had low inflation and high S&P 500 appreciation but assuming the 53% inflation ratio is still close to correct for the longer period than using my suggestion of adjusting capital gains for inflation before applying a full marginal tax, the 15% capital gain rate would equate to a 32% marginal rate. That tells me that anyone in the 25/28/30% marginal tax rates is actually paying more in capital gains taxes than their marginal tax rate.

    The comparison would be even more lopsided if we recognize that there is a big difference between marginal tax rate and average tax rate. Because of the standard deduction and personal exemptions (let alone itemized deductions and the numerous refundable and normal tax credits) the average tax rate is less than 15% for most SA readers.

    I think that for most investors, if we want to tax all sources of income equally, than the capital gain tax is still too high--but close enough for government work.

    Nov 17, 2014. 11:55 AM | Likes Like |Link to Comment
  • Buffett's Brilliant Duracell Deal: A Reprise Of Past Deals, A Comment On The Present Market, A Whisper About The Future [View article]
    T&M: Of course there are some major differences between the athlete who gets taxed his $10 million in salary and a tax on a long term gain. The biggest is the impact of inflation. The gains on Berkshire investments discussed, KO, Washington Post, PG, are largely the result of inflation over the long period those investments have been held. Should Berkshire, or you, pay a capital gain tax on inflation? If you bought a stock for $10,000 in 1980 and sold it today for $20,000 you would pay a capital gain tax on the $10,000 gain. In reality you have a loss on the stock in inflation adjusted terms. If capital gains were adjusted for inflation (as is most of the rest of our tax system) there would be less justification for the tax rate differential. Our tax system is far from perfect but generally there is logic for what you see as inconsistency.
    Nov 15, 2014. 08:35 AM | 8 Likes Like |Link to Comment
  • 3 Signs Your Mutual Fund Is A Looming Tax Headache [View article]
    Mayhawk: Not sure what your point is on CEFs. The rules for distributing tax liabilities for CEFs, to my understanding, is exactly the same as open end funds. Both types of funds must distribute all income and realized capital gains each year. The only difference seems to be that often CEFs throw in a little return of capital and I don't think open end funds ever do that. Personally, I have a mix of open end, CEFs, ETFs and individual stocks but think some of the best managers are in the open end area. Check out the historical track record of DODFX and POAGX and tell me what CEFs or ETFs can match them.
    Nov 12, 2014. 03:33 PM | Likes Like |Link to Comment
  • 3 Signs Your Mutual Fund Is A Looming Tax Headache [View article]
    Selling a mutual fund before distribution is usually a terrible way to avoid taxes. Not only is the coming capital gain distribution built into the NAV (which means it will be taxed as a capital gain on sale in most cases) but the unrealized capital gain of the mutual fund (also included in the NAV) will also be taxed. Selling might make sense if you have a loss in the fund (who wants that?) or you are planning on selling anyhow in the near future and might convert the income portion of the coming year end distribution into a capital gain instead.

    If you want to avoid capital gain taxes you can look at the turnover rate of the fund (the lower the turnover generally the lower the tax) and that is why index funds are very tax efficient.
    Nov 12, 2014. 06:55 AM | 2 Likes Like |Link to Comment
  • Safe And Sound: The Tale Of Plumb Creek Lumber [View article]
    Michael: Maybe you mean it as a joke but the company you are writing about is Plum Creek not Plumb Creek.
    Nov 10, 2014. 08:09 AM | 3 Likes Like |Link to Comment