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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Wed Feb 25, 2009 6:16 pm Post subject: |
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| OneWayTraffic wrote: |
Yes, but unless you've done research and have calculated the company's value |
The company (BofA) has no value. All that remains is a small glimmer of hope that the government will dump 1 or 2 trillion dollars into it and plug all holes (and the property market stops tanking, and securitization comes back and, and, and, and). And anyways, it isn't like one would be unable to catch it on the (hyper-unlikely) upswing. You won't wake up one day to a 300$ BofA stock (from current values). If the system gets sorted out and trillions dumped into it, you'll have ample time to get in on the upside.
Good on you for referencing Ben Graham. I have both of his books (the major ones, Securities Analysis and The Intelligent Investor) in front of me.
I am staying 100% in cash (CAD and USD). There is too much volatility. It is too hard to value anything right now because of the speed of this depression and the uncertainty about potential policy responses.
My financial advice (for what it is worth)
1) Get out of debt. All debt
2) Build an emergency fund of between 6months and 12months pre-tax salary
3) Only buy what you fully understand and can value. Understand risk and be more conservative than your think your tolerance allows. If you really feel like you really must buy right now stick to index funds. Learn about the fund, the index and the industry/sector. Learn everything you can about it. Learn the CEO's names of the relevant companies. We work so hard for our money and it is insane to piss it away on what are essentially uninformed bets on what we "think" will happen.
When things calm, look to commodities and energy. Equities are dead for a long time. Pension funds, pensioners, hedge funds and everybody else will be in a prolonged period of selling. Boomers have lost huge equity and will need to sell earlier than they assumed to cover expenses. This goes for pension funds and other institutions as well. The equity market will be much smaller in the future. This means equity markets won't recover in the way that some of you are assuming. The Dow won't "come back" anytime soon. |
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OneWayTraffic
Joined: 14 Mar 2005
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| Posted: Wed Feb 25, 2009 8:12 pm Post subject: |
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Well in my experience, most future predictions about the Dow are as reliable as next years weather forecasts. Having said that, especially when the market is down there are real bargins to be had. But you must do your research.
Fully agree with your financial advice, but with the caveat: Not all stocks are American. With the exodus of investment dollars to the USA and Japan, there must be good values in (some) other countries.
I have the Intelligent Investor at home, but not Securities Analysis. Where did you get it? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 25, 2009 8:25 pm Post subject: |
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| Fully agree with your financial advice, but with the caveat: Not all stocks are American. With the exodus of investment dollars to the USA and Japan, there must be good values in (some) other countries. |
There will be good investments everywhere, but the problem I have in investing outside of my realm of knowledge (Canada and the US mostly) is that I would not only have to learn about that company, but also the regulatory structure and other unique circumstances in that country. I'd love to find a way to safely invest in firms doing business in the water industry in China, but I don't know the first thing about Chinese securities laws, standards and the rest. And I trust PRC firms books as much as I do Bank of America's (not at all). I could look for firms from America or other Western nations in that industry in China, but I'd still have a steep learning curve about Chinese laws/regulations etc. I'm very risk adverse. But if somebody was willing to put in the time to learn, I assume money can be made.
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| I have the Intelligent Investor at home, but not Securities Analysis. Where did you get it? |
I just checked, and Amazon.com has used copies available for 25$. It is still used at Columbia Business School, despite being published in 1934. |
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OneWayTraffic
Joined: 14 Mar 2005
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| Posted: Wed Feb 25, 2009 11:37 pm Post subject: |
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| Well Australian stocks are at record high yields, record low P/Es and the major banks all stayed relatively clear of the subprime mess. An index fund couldn't go too far wrong. |
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Jati
Joined: 13 Dec 2008
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| Posted: Thu Feb 26, 2009 2:39 am Post subject: Re: Bank of America...good stock buy? |
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| mole wrote: |
| Jati wrote: |
BTW, I do have skin in the game as a shareholder of C and USB. Since my stake is now pretty much worth-less, there is no point in bailing but waiting to see if dividend payments ever recover. If you never sell, then you never sell at a loss! Hahaha...
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You've got a good head, so to speak, for this kind of thing.
WHen I bailed out of my "managed portfolio," my broker kept talking about dividends, but never bothered showing me on paper what that might have amounted to.
So I just considered that a lost effort to maintain commissions/fees from my holdings.
Can you give a simplified scenario, sample portfolio tracked over a short time including dividends and compounding interest? (You mentioned that before, too.)
OR link me to something even a mole could understand?
No doubt I do not get the whole picture, but I want to.
Above, whether you sell at a loss or hold forever, aren't those funds basically out of action, thus useless?
Seems to me one has to be an active and lucky trader [gambler] to have SKIN in the game.  |
Although I agree with a lot of what mises says, I think that he is a bit more pessimistic than I am at this point. But, that will be another post.
Currently I hold shares in 24 individual companies (22 USA, 1 Australian, 1 Canadian) and 3 country ETF or closed-end funds (India, China, Brazil). This gives me diversification within the stock investing world, but usually when stocks go down, they go down together. (I also hold 3 mutual funds for reasons I don't want to go into.) I own my house outright, which gives me real estate exposure, I suppose, but I want to live in the house, not sell it.
Let me give you the rundown on one company, using a per share accounting. I bought 60 shares in Procter & Gamble (PG) over three years ago and am reinvesting the dividends. Here is what has happened.
60 shares bought @ $53.94 (which includes broker commission of $13)
2005 $16.80 total div. ($0.28 per share) 0.3103 shares bought
2005 $16.89 ($0.28 ) 0.2995
2006 $16.97 ($0.28 ) 0.2819
2006 $18.88 ($0.31) 0.3383
2006 $18.98 ($0.31) 0.3135
2006 $19.08 ($0.31) 0.3008
2007 $19.17 ($0.31) 0.2937
2007 $21.75 ($0.35) 0.3480
2007 $21.87 ($0.35) 0.3410
2007 $21.99 ($0.35) 0.3029
2008 $22.10 ($0.35) 0.3322
2008 $25.38 ($0.40) 0.3791
2008 $25.54 ($0.40) 0.3574
2008 $25.68 ($0.40) 0.4106
2009 $25.84 ($0.40) 0.5115
So, to date, each of the 60 shares has received back $5.08 in dividends, which is a 9.4% return on the invested money. Also, the dividend per share payment has grown 12.6% ($0.28 to $0.40) at an annual rate, but the total dividend that I have received has grown at an annual rate of 13.1% ($16.80 to $25.84). The difference between the two reflects the compounding effect.
Compounding grows quicker the further along you get, so don't expect dramatic results in the first few years.
Note also, that as the share prices have dropped (not shown), the fractional share reinvestment goes up (from ~0.3 in 2005 to >0.5 in 2009). So, if you can stomach the paper loss that you see from time-to-time, you are actually benefiting from your reinvested dividends buying more shares when the price is down.
But, of course, companies can cut their dividend payments such as did C and BAC. Since my stake in C is now just a few hundred dollars, I figure that that small amount would best be left in C in the hope that they will eventually return to profitability and increase their dividend payments once again. I received up to $0.54 per share in 2007, but C cut back to $0.32 and then $0.16 and now $0.01. Still, I think that C will come back, but that is for another post.
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Jati
Joined: 13 Dec 2008
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| Posted: Thu Feb 26, 2009 2:58 am Post subject: |
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| mises wrote: |
| OneWayTraffic wrote: |
Yes, but unless you've done research and have calculated the company's value |
The company (BofA) has no value. All that remains is a small glimmer of hope that the government will dump 1 or 2 trillion dollars into it and plug all holes (and the property market stops tanking, and securitization comes back and, and, and, and). And anyways, it isn't like one would be unable to catch it on the (hyper-unlikely) upswing. You won't wake up one day to a 300$ BofA stock (from current values). If the system gets sorted out and trillions dumped into it, you'll have ample time to get in on the upside.
When things calm, look to commodities and energy. Equities are dead for a long time. Pension funds, pensioners, hedge funds and everybody else will be in a prolonged period of selling. Boomers have lost huge equity and will need to sell earlier than they assumed to cover expenses. This goes for pension funds and other institutions as well. The equity market will be much smaller in the future. This means equity markets won't recover in the way that some of you are assuming. The Dow won't "come back" anytime soon. |
I agree that the DOW won't jump back to 14,000 anytime soon. But, I think that pension funds will eventually come back into the market when inflation rears it's ugly head again and the funds move to find higher returns than what the banks will pay. You do think that inflation will soon wake up, right?
Now, about C. I hear you on BAC, but I think that C may have a better chance at survival for the simple fact that one of the largest share-holders is a Saudi prince. And, ahem, the USA still buys a lot of Saudi oil. And those wind farms and solar panels aren't going to start pushing cars and trucks around anytime soon. So, politically, I think that the USA gov't has a vested interest in keeping C afloat.
As an equity-holder in C, I don't think that I will get "wiped out". I.e., the share price will NOT go to $0, nor will the dividend payments cease altogether. I suppose that we will muddle along at a $0.01 per share payment (only symbolic) until the company gets turned around and figures out new income streams. I mean C still has several million depositors, which means they are still a bank. And they have credit cards. They will make money in the future, but not at the rate they did over the past 5 years.
What will happen, however, is that we common shareholders will get diluted greatly by the US gov't stake, which means the earnings per share will be really low, so the dividend payments will stay really low also.
Like I said, my few hundred dollars remaining might be worth leaving in C even if just for the ride!
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Jati
Joined: 13 Dec 2008
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| Posted: Thu Feb 26, 2009 3:12 am Post subject: |
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| OneWayTraffic wrote: |
Well in my experience, most future predictions about the Dow are as reliable as next years weather forecasts. Having said that, especially when the market is down there are real bargins to be had. But you must do your research.
Fully agree with your financial advice, but with the caveat: Not all stocks are American. With the exodus of investment dollars to the USA and Japan, there must be good values in (some) other countries.
I have the Intelligent Investor at home, but not Securities Analysis. Where did you get it? |
I am using ETF and closed-end country funds to get international exposure. One country that I like for the long term is India, since they have a large and growing middle class that will want what middle classes usually want. India is less tied to the export scene than China, Brazil and Russia. I also like Brazil for the fact that it is a commodity play: oil, sugar, soybeans, cattle, and even small commuter airplanes.
Of course, one can also buy American Depository Receipts (ADRs) on the New York Stock Exchange and, thus, invest directly in companies outside the USA. For example, BHP-Billiton (world's largest miner, Australian) is sold on the NYSE. I also like some of those Canadian pipeline companies. I own one, which has pipelines from the Alberta tar sand projects down to the US midwest. Getting ready for Obama's Let's buy only from our friends policy. Hopefully, the US and Canada can continue to get along!
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OneWayTraffic
Joined: 14 Mar 2005
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| Posted: Thu Feb 26, 2009 6:21 am Post subject: |
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I've got exposure to BHP as well through one of my index funds. That one company alone has a bigger market cap than the entire NZX. Hence the reason I invested in Australia. (Buying Australian shares is just as easy as buying NZ for a kiwi.)
I was re-reading The Intelligent Investor on the subway home today. It struck me that a depressed stockmarket situation for the next 25 years would actually be rather positive for people like me. I'm 34 and over the next 25 years I'll be doing most of my investing. Having the opportunity to buy over long periods of time at lower prices is good. Of course there's the caveat that you have to keep your job.
Jati: I'm guessing by your holdings (house outright, various stocks and index funds, mutual funds) that you're either a good few years older than me, or you really lucked out somewhere. |
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Jati
Joined: 13 Dec 2008
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| Posted: Thu Feb 26, 2009 2:23 pm Post subject: |
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| OneWayTraffic wrote: |
I've got exposure to BHP as well through one of my index funds. That one company alone has a bigger market cap than the entire NZX. Hence the reason I invested in Australia. (Buying Australian shares is just as easy as buying NZ for a kiwi.)
I was re-reading The Intelligent Investor on the subway home today. It struck me that a depressed stockmarket situation for the next 25 years would actually be rather positive for people like me. I'm 34 and over the next 25 years I'll be doing most of my investing. Having the opportunity to buy over long periods of time at lower prices is good. Of course there's the caveat that you have to keep your job.
Jati: I'm guessing by your holdings (house outright, various stocks and index funds, mutual funds) that you're either a good few years older than me, or you really lucked out somewhere. |
A few years older and living in Malaysia. For what a down-payment on a house costs in the US (US$40k), you can buy one outright in Malaysia.
Graham was a value investor, and so is his disciple, Warren Buffett. But, you will notice that even Buffett's Berkshire-Hathaway is down big-time over the past year. And Buffett doesn't believe in dividends, so B-H doesn't pay. I believe in dividends.
My main investment advice has been gleaned from three books:
The Future for Investors - Jeremy Siegel
The Bull Hunter - Dan Denning
Some little book that I read back in 1995, and it made me want to set up my own portfolio of shares owned outright.
Siegel and his graduate students have done a lot of research on stocks going back to the 1880s in the USA. The company stock with the highest overall return over a ~100-year period is Altria (MO), which is the former Philip Morris company. MO has since spun off Philip Morris Int'l (PM) and Kraft (KFT) in the past two years. All three continue to pay decent dividends.
Siegel pointed out the leverage that a long-term investor will get with dividend reinvestment if the stock prices remain low. So, yes, you are correct in your belief that it is a good thing for you at 34. Let all of those hedge funds blow up and sell. Low prices do not bother me since I never plan on selling my shares. (My children will inherit.)
Denning's book at first appearance looked like one of those flavor-of-the-month kinds, you know, the ones that quickly go out of date. But he actually looks at long-term trends and that helped get me into stocks like BHP, and country closed-end funds and ETFs. The USA still leads the world in the manufacturing of some products: industrial equipment, pharmaceuticals, scientific equipment, bulldozers, drill bits, and etc. He suggested shorting the US consumer and that was a very good call. I don't own any US retail, airlines, or consumer cyclical (think cars, TVs, etc.) as a result of my read of his book.
I was really hoping that BHP-Billiton would buy Rio Tinto, but was glad when they backed off on the overpriced ask from Rio. I have received great dividend returns from BHP and am waiting for another entry point in the $30 range.
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OneWayTraffic
Joined: 14 Mar 2005
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| Posted: Thu Feb 26, 2009 4:24 pm Post subject: |
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Warren Buffet is an example of one guy who can really truly get a better return by reinvesting profits. However I will say that since Berkshire has grown to its enormous size that he will (by his own admission) find it more and more difficult to maintain outperformance of shareholder equity.
As for the share price, there's a considerable "Buffet effect" on it. People are willing to pay more for Berkshire than the value of the companies in it would indicate. So, ironically, the company owned by the world's greatest investor is a speculative buy.
A third factor is his age. No matter how good he is, the amount of years he has left to grow Berkshire gets less, year after year. He may have 10-15 years left tops. I'm sure that he will be able to pick a good successor, but share prices will drop upon his death regardless. They may even go below the NTA backing. That would be a great time to buy Berk.
Lastly we should remember that volume of his company is pretty low. The float is rather small, and that lends itself to fluctuations of price. |
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Jati
Joined: 13 Dec 2008
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| Posted: Thu Feb 26, 2009 8:06 pm Post subject: |
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| OneWayTraffic wrote: |
Warren Buffet is an example of one guy who can really truly get a better return by reinvesting profits. However I will say that since Berkshire has grown to its enormous size that he will (by his own admission) find it more and more difficult to maintain outperformance of shareholder equity.
As for the share price, there's a considerable "Buffet effect" on it. People are willing to pay more for Berkshire than the value of the companies in it would indicate. So, ironically, the company owned by the world's greatest investor is a speculative buy.
A third factor is his age. No matter how good he is, the amount of years he has left to grow Berkshire gets less, year after year. He may have 10-15 years left tops. I'm sure that he will be able to pick a good successor, but share prices will drop upon his death regardless. They may even go below the NTA backing. That would be a great time to buy Berk.
Lastly we should remember that volume of his company is pretty low. The float is rather small, and that lends itself to fluctuations of price. |
Yes. You can see the problem with Berkshire and Buffett. Not too many are able to pull back from the cult surrounding Buffett and see things clearly. (There is an entire financial publishing industry surrounding him, for example.)
He is a good investor, but he has some advantages that most of us cannot replicate. Personally, he started early, at 17 I think. His HQ is in Nebraska, which has lax insurance regulations which allowed him to invest a large amount of the insurance float (insurance premiums that do not yet have an insurance claim against them yet). Currently, he is mostly buying bonds and preferred shares, which are given to him on very good terms. Not too many others will get such a deal.
The price of B-H shares (A and B) have what I would call a Buffett premium in them. Once he goes (dies or retires from active mgmt), the premium goes also and the price will drop no matter who takes over. I see the same thing with Apple Computer, once Steve Jobs is out of the picture completely.
You seem to have a good handle on what is required to invest for the long term. Plan on putting a certain amount away each year in good dividend-paying stocks. Stay away from speculative plays unless it is truly play money that you are investing. (Means money that you can afford to lose.) Eventually, you will see the compounding take hold and when it does, it will be fun to watch. |
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