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  • Berkshire Invests $600M For Its Reputation [View article]
    Seems like the buildout of pipelines (with or without Keystone) is moving so fast that railroads will start losing oil business within the next few years. Everything I read says pipelines are not only less expensive but safer, when compared with rail, barge and trucks. New regulation of rail cars can only increase rail expenses and make the price difference greater. By the time these tank cars are delivered they might be close to obsolete. This might be close to the top for the railroad industry.
    Feb 21 01:32 PM | 1 Like Like |Link to Comment
  • Why The Allocation In Portfolios To The S&P 500 Is Sub-Optimal And What To Do About It [View article]
    John: If you have faith in your rating system then the obvious question is why do you only eliminate the "f" rated stocks? Looking at your table of performance of EQ, why not eliminate everything but a&b? Same for the forensic accounting. I assume you have back tested for many combinations. What are the results if you only invest in a&b? I am guessing better performance and lower transaction costs.
    Feb 20 08:47 AM | Likes Like |Link to Comment
  • My Three Stocks [View article]
    I drove across the middle of Canada this summer, from Ontario to British Columbia and almost every small town had a Tim Hortons. When a town had both a McDonalds and a Tim Hortons, the Tim Hortons seemed to have two or three times the number of customers as the McDonalds. I tried the Tim Hortons and was surprised to see they didn't sell hamburgers but the food they did have was superior to McDonalds (and the employees were VERY friendly). Checked out the stock on return and the general consensus was that Tim Horton has almost no room to grow in Canada and was having trouble breaking into the U.S. market. If it ever makes that crossover it will be a monster and McDonalds will be in even further trouble.
    Feb 19 07:55 AM | 4 Likes Like |Link to Comment
  • For An Uncertain 2014: 11.8% Yield From This Option-Income Fund [View article]
    Left Banker: I don't expect them to be below 100% of earnings but as I mentioned many distribute 150% or more--which is all of the earnings plus much of the depreciation that is added back to get to the FFO number. I like to see a number just over 100%--the biggest, Simon tends to be in that ballpark and some of the other more established REITs keep it low. Maybe being a little cynical by nature, I see some of the smaller REITs trying to attract investors who select investments based on yield without looking much further. It works. Realty Income (O) for example distributed approximately 190% of earnings for the four years 2010-2013. Maybe it is catching up to them based on their price drop in late 2013--we will see.
    Feb 15 06:30 PM | Likes Like |Link to Comment
  • For An Uncertain 2014: 11.8% Yield From This Option-Income Fund [View article]
    Camero: Interesting comment about REITs. I wonder if you can expand on the slight tax advantage you talk about for their ROC. I am not a fan of dividends but I understand that REITs must pay at least 90% of their taxable income to avoid losing status and I think 100% to avoid having to pay some corporate tax but most of them end up paying out way more than that--some 150-200%. A lot of investors love those distributions but I would much rather the REITs reinvest those excess dividends tax free (or at least tax deferred). Your combination of payout ratio below a certain level probably puts you in the middle, depending on what your "yield above a certain level" is.

    Not totally clear to me if the perceived lower risk/volatility of these buy write funds is worth the loss of total return. For example Left Banker thinks his STK had a good 2013 and it's return was some 14 points below the S&P 500.
    Feb 15 03:12 PM | Likes Like |Link to Comment
  • For An Uncertain 2014: 11.8% Yield From This Option-Income Fund [View article]
    Camero; I bought my first buy-write fund in December so I am definitely still in the learning mode. Based on a recommendation on this site I bought the Eaton Vance Tax Managed Buy Write (ETV). It's been around since 2005 but just like the STK, its NAV is quite a ways below its IPO ($20 down to $14). That tells me that it is not earning it's distribution and that seems to be a glide path that is unsustainable. At least with ETV it is headed in the right direction Over the last 4 years it has earned about 11% annually versus a distribution of 9.4%. Compare that with STK--if I am understanding the numbers it has earned about 6% a year for the last 4 years with a distribution of 12%. How long can that last?

    What seems to kill many of these managed distribution CEFs is one or two bad years. In 2008 ETV lost some 30%. Add a 9% distribution and the NAV drops almost 40%. That takes a lot of good years to overcome.

    So what I am learning is (1) unlike the title of this article, not to think of the distribution as "yield". Its not--much of it is ROC. (2) Before buying, look at the historical performance of the fund to see how it compares with the distribution, year by year. (3) No ROC is "good" --I think it is either bad (when the fund return is less than the distribution for the year, or neutral if the return is sufficient to cover the distribution, and (4) that as NAV drops the mangers lose flexibility to make the distribution--the cash has to come from someplace to pay the distribution and sooner or later they will be forced to sell core positions that will generate taxable gains. They will also be forced to reduce the distribution unless they can get the annual returns above the distribution.
    Feb 15 08:58 AM | Likes Like |Link to Comment
  • For An Uncertain 2014: 11.8% Yield From This Option-Income Fund [View article]
    Wkirk: Tell you the truth I don't understand any of what you are saying. Of course the NAV declines with declines in the portfolio. When the portfolio returns 6% per year and the distribution is 12% per year you have a net reduction in NAV. Nothing good about that. When your portfolio returns 6% per year over a 4 1/2 year period of time when the market has doubled I can't see how that makes for anything but a poor investment. Now I think I understand the concept of "good ROC". I don't see it as "good" but at least it's not harmful--but that requires that the portfolio return is higher than the distribution (at least over some period of time) and hopefully in line with an equivalent index fund or actively managed fund. This fund doesn't seem to meet any of those conditions.

    As to tax loss carry forward--I can't see how a ROC (good or bad) affects that in any way. No brainers are few and far between.
    Feb 14 05:00 PM | Likes Like |Link to Comment
  • For An Uncertain 2014: 11.8% Yield From This Option-Income Fund [View article]
    Left: Something else for you to think about on this one. I went into the Morningstar site and checked out STK. I might be missing something so correct me if I am wrong. It's IPO price back in late 2009 was $20.00. It's current NAV is $16.26. That tells me that the distribution has exceeded earnings by $3.74--that seems to me to be a real return of capital--not good in any sense. Now some of the loss occurs in the IPO process as brokers talk their customers into buying the IPO at NAV and the brokers get rewarded for this crime.

    So of the distribution of $7.40 a share (through EOY 2013) half was unearned (even counting unrealized capital gains). The fund seems to be earning about 6% a year--and that is at a time when the market has boomed--what would it look like if it included 2008/9?

    Normally your recommendations look solid but I don't see this one. Other than a big (but artificial distribution) the fund looks mediocre at best. And of the $7.86 in distributions through 2014, 33% has been taxable. Every mutual fund has unrealized capital gains where taxes are deferred until the position is sold so even the tax issue doesn't seem real.
    Feb 14 01:27 PM | Likes Like |Link to Comment
  • You Must Know This If You Own An MLP [View article]
    Value Doc: I think you are partially correct but I think you carry it a little too far. In the real estate area some depreciation is real--shopping centers and all other buildings get old and at some point get torn down (maybe not the Empire State Building). How many Shopping malls from the 1960s are still going? How many abandoned outlet malls have you seen (I've seen plenty). I'm no expert on gas/oil pipelines but I am pretty sure they age and have to be replaced even with perfect maintenance. So it seems to me that some amount of depreciation is real but in other cases the value of the pipelines and real estate might actually increase in value for some period of time and the trick is to know what the case is for each REIT/MLP. Would be great to have some real experts in those areas comment.
    Feb 14 12:49 PM | 1 Like Like |Link to Comment
  • For An Uncertain 2014: 11.8% Yield From This Option-Income Fund [View article]
    Left: Maybe it is a wording issue but you make it sound like ROC "adds to the basis cost". Just the opposite. From IRS topic 404 "a return of capital reduces the basis of your stock". That means that when you sell the fund you will pay a larger capital gain (when compared to no ROC distribution). Or when the fund sells those positions you will pay a larger capital gain tax--and maybe that is what happened in 2013. I would say this type of ROC is neither good nor bad--the "good" ROC is a result of unrealized capital gains. Sooner or later you will pay taxes on the gain (unless it evaporates in the next bear market). If the fund sold those positions you would get a "real" capital gain--instead they are holding and returning capital to meet the expectation of the shareholders for a distribution.
    Feb 14 09:47 AM | Likes Like |Link to Comment
  • Whole Foods Market: Random Walk Theory [View article]
    Not sure if it's perception or reality but for me Whole Foods has decent prices and high quality whereas Trader Joes has the reverse. Maybe it varies by region. For the few things that can be compared in Trader Joes (mostly just a small portion of the wine) their prices are very high. I think most of their products are house brands and of poor quality. Now Whole Foods has some high prices--their fish is outrageous and produce can be high but check out, for example, their house brand (365) water, charcoal, popcorn and you might find the best prices around--especially if you buy in case lots--usually 10% off. It might come down to your view of quality--I think Whole Food brands are better than most name brands and I think Trader Joes' stuff is mostly junk. I always use wine prices to compare stores and Whole Foods has a decent (not great) selection and decent (not great) prices if you focus on sale bottles and case discount.
    Feb 13 10:51 AM | 3 Likes Like |Link to Comment
  • MLP Brokerage Analysts Are Worthless [View article]
    Stockdox: As I pointed out in a comment above--for Boardwalk a month ago the analysts ratings were 2 strong buys, 4 holds, and 5 sells. How do you convert that to "analysts parrot what management tells them"? Maybe you should follow them a little more.
    Feb 11 11:46 AM | 2 Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Larry: Everything you say makes sense but it's what you don't say that concerns me with your passive approach. First--passive investors are generally not active in the world of corporate governance. If you are going to own x corporation in any case, just because it's in the index, does the fund manager vote the shares? Does the fund manager care (or even know) if the board is incompetent or corrupt? As the passive share of the market continues to grow towards 100% ownership, who will be the watchdogs?

    Second point is that I would think passive investors are also likely to be less knowledgeable about their investments (obviously you and John Bogle are exceptions). How many passive investors understand the tax implications of their investments? How many ever consider the advantages of MLPs or REITs. How many understand that if they place a foreign investment in an IRA they lose the foreign tax credit? You talk about tax loss harvesting--when does a passive investor gain that knowledge? I am thinking most active investors accumulate knowledge as they age and make better decisions. I would think most passive investors remain--passive.

    I am beginning to think that the best approach might be to apportion a portfolio into two buckets--active and passive. The active portfolio allows you to gain knowledge about investments that will allow you to invest passively. As you age the passive share of your portfolio grows but you will always have the investment knowledge to manage it.
    Feb 11 09:10 AM | 5 Likes Like |Link to Comment
  • MLP Brokerage Analysts Are Worthless [View article]
    Looking at the MSN analyst ratings of Boardwalk for one month ago. There were 11 analyst ratings with an average rating of 3.24 (poor as you say). Those 11 ratings included 2 strong buys, 4 holds, 2 moderate sells and 3 strong sells. That is a very high number (percentage) of sell ratings. If 5 analysts are telling you to sell and you hold (or worse, buy) you are a glutton for punishment (unless you place zero value on analyst ratings). The rating itself doesn't tell the whole story--11 hold ratings would get you a rating of 3.

    Who are the two strong buys? Who are the five sells? Are the analysts who gave us the two buys consistently wrong and are the five who said sell more accurate on average?. Is there a way to know who the buys and sells are (other than being customers of the 11 brokerage firms)?
    Feb 11 08:33 AM | 7 Likes Like |Link to Comment
  • Dollar Cost Averaging: When Not Playing The Game Can Make You A Winner [View article]
    Utah: Buffett does buy entire businesses when he can but he also buys shares in stocks--so not sure what the critical difference is. Are you saying the analysis only applies if the investor is buying the S&P index? I thought the point of the article was that dollar cost averaging is the way to go, not that the S&P index was the way to go.
    Feb 10 12:28 PM | 1 Like Like |Link to Comment