What Is In A Name??
Seeking Alpha Analyst Since 2013
Summary
- Being wealthy is vastly different than being rich. The key to wealth is preserving such -- hence my name.
- Know not only what you own, but why you such equities?
- Take advantage of market inefficiencies to increase your holdings.
- Pay homage to what John Templeton warned.
What is in a name? Well, as I mentioned during the market meltdown in March, my name is Wealth Preservation because the key to being wealthy is preserving your wealth. Mind you there is a difference between being wealthy and rich.
For those of you who do not understand the distinction, there are plenty of people who make $400,000 a year and live paycheck to paycheck. They are rich, but they are not wealthy, for they do not have the freedom to stop working, take a trip tomorrow, buy a Picasso if they wish, or a case of Scarecrow Cabernet Sauvignon. No, they are so laden with a lifestyle of expenses, and often appearances, that one false move and they can be in trouble.
Hence, my focus has always been on wealth. For me, that is defined as having the freedom to be a huge presence in my children’s lives, parents lives, be a passionate collector of Belle Époque art and wine, and set my own work schedules even though both my law firm of thirty-eight employees and my other business depend on my input and contributions.
I have owned stocks for most of my life and bought my first stock on my own in 1983, with money saved from a paper route. The commission for those 20 shares was over $140! I used to go to the public library and pour through Morningstar, Value Line, Better Investing Magazine, and printed annual reports. There was no Internet, no cell phones, no other forms of scalable data. That being said, at that time Peter Lynch was the Investment Rock Star, and the simplest thing he said, resonated, but took me ages to put it into practice. Lynch stated “Behind every stock is a company. Find out what it’s doing.”
I have made countless mistakes over those nearly 4 decades – often from selling too early – I first sold Amazon at 462… granted that was a 500% gain--- but then it went up over 600% before I started buying back in! It is not just AMZN, it was MCD, MSFT, LULU, and others. I realized I did not have a full understanding of why I owned what I did. As to late John Lennon said, “Living is easy with eyes closed!”
However, I have tried in the last few years, which has been made easier by the accessibility of information, to truly understand the companies I own and their trading patterns. In this day of hyper scalability, and excess liquidity with chat boards and websites often driving momentum in the stock market it is even more critical to know what you own, and more importantly why you own it.
In my personal opinion, there are very few buy and hold forever stocks these days. I have held Pfizer since 1983 (often trimming the size), and Altria previously Philip Morris since 1986 or so (lots of spin-offs including PM and Kraft). MO was a growth darling for decades but has lagged the last decade. I think it is one of the safest 8.5% dividends in the market. To me, it’s kind of my Iron Mountain, a stock often discussed on high-yield boards. Mediocre management, declining legacy revenue, big swings (often misses) – JUUL and Cronos, but a cash flow machine. I will tell you IMO a much healthier balance sheet than IRM and buying back shares. If I wanted growth, I would buy PM for growth and iQOS before MO, with still a near 7% dividend.
I am digressing sorry. IMO there are very few buy and hold forever stocks, or at least buy and do not constantly monitor. In that list in my opinion might be Apple (you all know how I feel about Apple, and it’s a perfect little pullback to start a Laddered downward buying position if you do not have one), Microsoft, Amazon, Johnson and Johnson, PepsiCo and McDonalds.
Again, we all have or SHOULD have our wealth-building stocks, which are the companies we feel can get us through the next few decades and achieve the consistent returns that enable us to PRESERVE our wealth, which IMO is our freedom of lifestyle. Again, define wealth how you will that is your prerogative. To me, being wealthy is about the ability to make your own decisions, and not being reliant on others.
There are many other reasons to own equities. Often, especially in a higher yield universe, it is exciting to build a passive income stream. There is no easier way to preserving your wealth than by replacing active income with passive income. We have each and every one of us on this board, given the thought that the day I reach (whatever the number is in dividends is) is the day I can… 1. Quit the job I hate, 2. Have my spouse or partner quit their job 3. Move 4. Buy that investment property or that Tesla or whatever it is –- I know we have all done that mental exercise or spreadsheet calculation.
I remember the first time I realized I was getting over $1,000 a month, then $2,000 a month, then $4,000 a month in dividends I was startled!! Again, I was initially slower to recognizes the inflow, because I have ALWAYS reinvested dividends. This is just MY personal preference, it does not need to be yours, and you do not have to agree it is the right or wrong thing to do.
The reason I have done such is 1. I believe in dollar-cost averaging, I always buy and sell in ladders. This I have learned through making mistakes; 2. No matter how small the dividend may seem it is impossible to time the market. One can Google it but statistically, if you have missed like the top 20 upwards days of the decades you have missed 80% of the return or more (again I am AWARE this is not the actual statistic, but it is an illustration to make a point that most humans are crappy market timers!) 3. Additionally, if you are so fortunate to have dividends no matter how small the growth can be exponential.
Two examples let’s use my two favorite stocks to talk about here on the HYL Board, Apple, and Macerich. Let’s say your tiny Apple dividend you got on your Apple shares produced 1 extra share in the first half of 2014. June 9, 2014, or so APPL split 7-1 and again 4-1 recently. That 1 share turned into 28 or roughly 3,640 extra dollars. Again, hindsight is easy, but it is JUST for illustration purposes, why I chose to reinvest my dividends. Additionally, this 28 to 1 number is actually a LOT lower than actual since those 7 shares then took on small dividends for 6 years before they split again so if that 1 share had grown to 11, it would be 1 share equal 44 shares after that latest split. WOW.
So now let’s turn to MAC. MAC issued its dividend on 12-3-20, less than 2 months ago this should be an easier task. People on this HYL board said they own 10,000 shares whether that is bold, brazen, or stupid that is up to them. However, MATH does not lie. You were roughly issued 14 shares per 1,000 MAC shares you owned on 12-3-20 at 10.9969. In other words, when MAC topped the other day at 26 your extra 140 shares were worth $3,640 instead of $1,539.44 7 weeks earlier when issued. In other words, they were worth 236% more, and on an annualized basis (if you sold at the top) 1,753% more, almost GameStop type returns!! It would be hard-pressed to achieve those types of returns on your own; however, by staying fully invested this is what you achieved (Again, this is just for illustrative purposes. 1. I am aware MAC did not even give you all cash option 2. Numbers might be slightly off 3. People are so sensitive on the HYL board that they miss the big picture). Finally, I AM AWARE price can go both ways, and maybe using AAPL and MAC distort the picture, but again as the focus is on building wealth, I would think it is SAFE to assume (although this is a dangerous board for assumptions) that you own stock because you believe that it will rise in value and help create wealth.
So finally, this all comes back to following closely what you own when they are not buy and hold forever stocks. The price action we saw in heavily shorted HYL stocks was clearly unsustainable, we should have all seen such, or recognized when others were telling us for our own good. Sadly, often the message gets lost because we are in the age of rejecting the source. If it is not from our favorite or chosen source of news, or in this case, stock news, then we refuse to understand the truth. Unfortunately, owning an equity-based on someone else’s belief, or understanding of why they own such, is speculating. Might as well spend that money on a great bottle of scotch, wine, a car, or something you can enjoy often since ownership without knowledge is tantamount to nothing. Or as Confucius said, “Real knowledge is to know the extent of one’s ignorance.”
Again, the beauty of wealth is that enables us to make our own decisions without worrying about how others see what we do or why we do it. At the end of the day, accept the decisions you made, but in terms of equities understand what you own!
There is no way that MAC, IRM, and EPR did not come close to temporary tops in my opinion. Again, this is my opinion, two use it how you like, three I never said do not own these stocks or at some price, they are not good values or that they are crappy stocks, and you are a fool to own them or whatever. All of those things might or might not be true, my point is if you do own those, and you have owned them for more than a few weeks you should have recognized that sharp upward moves based on potential tie into Reddit or Wall Street Bets were unsustainable, and it was prudent to trim if not sell and take advantage of this temporary upswing. If the Ontario Teacher's pension fund managers could unload their whole position, even at a loss, they recognized this brief blip up was a gift.
The point I have tried to make on the HYL while others have slung arrows, and personal attacks that truly expose their lack of education and insecurity, is when opportunities present themselves, they are fleeting, and if you know why you own something, this presents even a greater opportunity. As the investment legend John Templeton stated,” The four most dangerous words in investing are: this time it’s different.”
For instance, had I been bold, or brazen, or stupid enough (you judge they are just adjectives) to own 10,000 shares of MAC I would have leaped at the opportunity to lighten or sell near 26. Let’s say I missed and sold at 23. Then I would have taken the $230,000 and tried to buy a forever stock. Again, let’s say AAPL. And on the current dip, it’s on let’s say I end up with 1,800 AAPL. (Again, people illustrations but pretty close if not accurate). In my personal opinion, you are going to get to 260 double the current AAPL price WELL before the $46.80 you need to get in MAC to make this move, not an ideal one or a profitable wealth-building one. Again, I am picking two equities I know well for illustration purposes only, but I also feel one has a much larger downside percentage than the other.
What is the point??????? What is in a name? Wealth Preservation. How does one preserve wealth, recognizing opportunities to take advantage of temporary market inefficiencies and trade up! We all go through a trade-up period --- automobiles, homes, collectibles, spouses (:-0), whatever the case might be.
In my opinion, the true key to wealth preservation is to be able to recognize market inefficiencies in your portfolio, and proactively prune it so that you own better, forever stocks. Whether that is Apple, Microsoft, Federal Realty, Costco, STORE, PepsiCo, Johnson & Johnson, etc., the market is a forward-looking mechanism but for the most part rational, in moments of irrationally take advantage to upgrade.
This is what I was trying to share with the board earlier this week. The Reddit Melt-Up was a moment of irrationally for IRM, EPR, and MAC. Though they all one day may go higher, and hopefully much higher, none of the runs especially MAC was supported by fundamentals. Anyone owning for more than a few weeks should know that. If it was not telling that Ontario Teachers dumped a monster position at a large loss, which was down from a massive loss, or that short interest did not decline, it is that the smart money at least in the near future believes this stock will go lower, and it will. Again, I was told I need medical help when I stated at near 27 that I think we see 12 if not 10 before 28, but we will see.
That being said, preserve your wealth. You are all infinitely richer and smarter than me, I understand such. What I also understand is it is a fool’s folly not to know what you own, why you own it, and to recognize real opportunities are few and far between. As Ralph Waldo Emerson said, “Fear always springs from ignorance.”
Stay safe. Love your families, not your equities. Peace.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.