In July 2011 I wrote: On page 480 of 1962’s Security Analysis by Graham, Dodd, and Cottle, I underlined the above header. Since that time, I must have worn out a thousand red pens underlining books, but rarely are they investment books. I have never required another book on investing. I have since read a handful of other books on investing that I have found somewhat useful, but it has been a couple of decades since the last one. And I have no need to add to the list. Successful investing is to me more an art than a science. And intuition plays a big part. Since I graduated from Babson College … [Read more...]
The Three Word Secret to Sound Investing
If you aren’t getting paid regularly for your investment in a company’s stock, you are taking it on faith that someday, at the precise moment you need to sell to generate cash, the price will sit at a gain for you. Buy low, sell high, right? But what happens if there is no “high?” Stock prices can remain depressed for agonizingly long periods of time. From year-end 1965 – 1981, the Dow Jones Industrial Average was down 10%. Investors who were counting on capital appreciation to fund a comfortable retirement were short changed. Meanwhile, those investors who demanded a margin of safety in … [Read more...]
Stock Market Playing Defense?
Defensive industries have been leading more speculative sectors in the S&P 500 this month. Akane Otani writes in The Wall Street Journal: This month, the biggest gainers in the S&P 500 include firms focusing on telecommunications services, consumer staples and utilities—so-called safe sectors whose steady dividend payouts have long made them investor favorites when markets are volatile or declining. These shares typically lag behind major indexes during rallies, in part because they are perceived to offer limited potential gains. But in September, telecom shares are up 3.1%, consumer … [Read more...]
The Good News Continues for Dividend-Centric Investors
There’s a certain discipline required of the stock investor whom adheres to a dividend-centric investment strategy. It’s not for the FOMO (fear of missing out) crowd that talks up their latest stock heroics at cocktail parties—a never in doubt but often wrong crowd if I’ve ever seen one. At the end of the day, it’s the dividend investor whom usually has the last laugh. Looks like a truckload of cash from the recent tax cut will be paid out in the form of dividends. Young Research's Retirement CompoundersSM Portfolio, a dividend-centric stock portfolio, has outperformed the DJIA and the … [Read more...]
Do Old Investing Rules No Longer Apply?
Do the old rules no longer apply? Can you live on corporate earnings alone? Is ignoring your margin of safety advisable? It turns out, unsurprisingly that the answer to all these questions is no. Back in November of 1997 I wrote the following (my emphasis added in bold): Ben Graham’s Margin of Safety Graham died in 1976, yet his wisdom is as fresh as if he were standing before us today. Ben Graham & Co.’s advice to investors is to evaluate a stock as if you were considering buying the entire company. Graham’s secret of sound investing can be distilled into three words—margin of … [Read more...]
This is Why Dividends are Better than Buybacks
The WSJ reports that U.S. companies have announced $200 billion in share buybacks over the last three months. That’s double the pace of last year. Management teams love buybacks because they boost share prices, which in turn make executive stock options more valuable. The problem with buybacks is that they are discretionary. And corporate boards and management teams have terrible timing. Buybacks tend to be highest late in the business cycle. During recessions, when share prices are at their most attractive levels, buyback activity falls as companies look to conserve cash. Buying back … [Read more...]
Dividends are on the Rise
Dividends are the backbone of the Retirement Compounders. Now Michael Wursthorn reports in The Wall Street Journal that dividends are on the rise. Dividends are on the rise when investors have fewer reasons to buy the stocks that pay them out. More than a fifth of the companies in the S&P 500 have boosted their dividends to shareholders so far this year, while none have slashed their payouts, a first since 2011, according to S&P Dow Jones Indices. The increases are getting bigger too, with companies on average raising their payouts by 14%, the biggest jump since 2014. The … [Read more...]
Dividends are Better than Buybacks: Here’s Why
The FT reports that stock buybacks are fading and the performance of companies that buyback shares is trailing the broader market averages. Companies that return cash to shareholders in the form of buybacks are better than those that don't return any cash at all, but companies that favor dividends are the clear winners in our book. Dividends are more consistent and most often more reliable than buybacks. Corporate share buybacks have been the single biggest source of demand for US equities since the financial crisis, as companies largely shunned business investment plans in favour of … [Read more...]
This is One of the Most Conservative Stocks in the World
Nestle is adding to its coffee business with an acquisition of the high-end coffee roaster and retailer Blue Bottle Coffee. The Wall Street Journal reported on it here. The acquisition is a small one for Nestle, but it is a savvy move to remain competitive and relevant in the food business. Change is afoot in the packaged foods industry. Brands that have dominated the industry for decades are under assault. Changing consumer tastes and shifting media consumption patterns are eroding the competitive position of branded packaged foods companies. Nestle’s Strategy for a New Environment As … [Read more...]
Are Investors Too Bullish?
As a group, the retail investing public tends to arrive to the party late and stays too long. This chart comes courtesy of the WSJ Daily Shot and TD Ameritrade. According to TD Ameritrade, retail investors are more bullish than they have been in years. Elevated levels of investor sentiment tend to be most useful as a contrary indicator. The higher investor sentiment, the lower you should set your return expectations and the more you should demand those returns in the form of dividend payments. Share prices tend to fluctuate wildly as sentiment shifts, dividend payments do not. … [Read more...]
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