Money and Finance
Its been a crazy week in the market, but it has been another quiet week in Lake Wobegon. Usually, people think about hunkering down in the winter time, but Josh Peters has a great quote on the pullback (emphasis added)-
Glaser: The pullback was caused by a lot of things--everything from concern about China to the Federal Reserve. Do any of these concerns lead you to think there could be dividend cuts on the horizon or weakness in the real economy, or are these just things that are impacting the market but not the businesses themselves?
Peters: Nothing new has emerged on that front. I still think that, in looking at the energy sector, you have to be concerned. You want to make sure that you're on very high ground and that you've got companies with very strong balance sheets so that they can afford to have their earnings and cash flow drop significantly for a period of time without having to force a dividend cut.
Outside of that area, we're still at a pretty high level of profitability across the board. Where payout ratios are generally higher tend to be in the more stable industries--like your REITs, like your utilities, like your staples. So, overall, the backing for dividends in most of the market still looks pretty good. The question that arises is, "Does this presage some recession that, even if it starts in China or in some other emerging market, rolls around the world and eventually drags the U.S. down with it?"
This is why I try to stay hunkered down all the time and why the bulk of my portfolio--typically 75%--is going to be in very defensive names like the ones we've already been talking about. I reserve some of my portfolio for more cyclical names. I own Chevron (CVX)--that falls in the cyclical category. Wells Fargo (WFC)--a bank, to me, is cyclical. Industrials are cyclical. But even in those cases, I feel like I'm getting the sufficient protection, as well as long-run total-return prospects, that make owning those stocks worthwhile. The rest of it, I really want to be able to trust those cash flows and trust the dividends and even continue to grow the dividends even in the downturn. That's a standpoint that has served the strategy very well over more than a decade now.
Indeed, why not stay hunkered down all the time?
I wrote about some research via John Authers and SocGen that showed that patient quality investing beats the market and that patient value was better still. However, most people do not work in finance, they have jobs and lives. And so this is a case where second best (quality) is beats first (value) when you have a job. Monday was a prime example.
I know a few folks got great bargains on Monday am, kudos to them. I would have been very excited to buy Visa in the lows 60s, for example. Here is the thing - I was too busy to act on it, because I am not a full time pro I missed the brief window.
Here is another point, I know a handful of folks who got great bargains on Monday, but I know multiples more who spent the weekend worrying about their portfolio. You know what? You only get a few dozen Augusts. Do you really want to burn any time on an August weekend fretting? No. How much time would you spend worrying about whether people are going to still eat Cheerio's between Sunday and Monday? I will round it down to the nearest digit - zero.
So value is great when it works, but quality is a fantastic plan B, you may be a step behind the great value investors, but you will still have a fair chance to beat the market and enjoy your summer weekends, too.
- Weekly Roundup - August 9, 2014
This past week was pretty crazy and honestly it was a really tough week. It started off good enough with the same old routine of finish up one job, drive home, do some paperwork, then spend some time with my wife. I love when the summer is in full...
- Weekly Roundup - April 13, 2013
This has been a great week at home, although anytime at home is a great week. Last Saturday we went hiking with our dog through one of the local state parks and had an awesome time at the hockey game on Sunday even though it made for a long day after...
- A Great Time To Go Hunting For Dividends
The market downturn this past week -- indeed, over the past month -- has reignited my interest in buying stocks, and particularly dividend payers. Stocks were in general looking a bit expensive earlier in 2012 and I struggled to find many good opportunities....
- When Second Best Is Better - The Case For Patient Quality Over Bravery (if You Have A Job)
Having a job is great, but its good to have extra income sources as well. A common one is to buy some rental property, but they have always seemed like a hassle to me. For one thing I do not have the handy man skills and for another my friends who do...
- July Review: One Step Forward And Two Steps Back. Nobody Gets Too Far Like That.
Oi. It has been a rough month. Stock market going crazy and dividends being cut. So many opportunities so little capital. July’s Dividend BAX$27.04PNY$4.62NRZ$1.35KO$13.90GE$11.73LTC$3.57HASI$13.52WPC$14.31DIS$1.53KHC$180.21PEP$3.30FCISX$23.64 Total:...
Money and Finance
The Joys of Hunkering Down
Its been a crazy week in the market, but it has been another quiet week in Lake Wobegon. Usually, people think about hunkering down in the winter time, but Josh Peters has a great quote on the pullback (emphasis added)-
Glaser: The pullback was caused by a lot of things--everything from concern about China to the Federal Reserve. Do any of these concerns lead you to think there could be dividend cuts on the horizon or weakness in the real economy, or are these just things that are impacting the market but not the businesses themselves?
Peters: Nothing new has emerged on that front. I still think that, in looking at the energy sector, you have to be concerned. You want to make sure that you're on very high ground and that you've got companies with very strong balance sheets so that they can afford to have their earnings and cash flow drop significantly for a period of time without having to force a dividend cut.
Outside of that area, we're still at a pretty high level of profitability across the board. Where payout ratios are generally higher tend to be in the more stable industries--like your REITs, like your utilities, like your staples. So, overall, the backing for dividends in most of the market still looks pretty good. The question that arises is, "Does this presage some recession that, even if it starts in China or in some other emerging market, rolls around the world and eventually drags the U.S. down with it?"
This is why I try to stay hunkered down all the time and why the bulk of my portfolio--typically 75%--is going to be in very defensive names like the ones we've already been talking about. I reserve some of my portfolio for more cyclical names. I own Chevron (CVX)--that falls in the cyclical category. Wells Fargo (WFC)--a bank, to me, is cyclical. Industrials are cyclical. But even in those cases, I feel like I'm getting the sufficient protection, as well as long-run total-return prospects, that make owning those stocks worthwhile. The rest of it, I really want to be able to trust those cash flows and trust the dividends and even continue to grow the dividends even in the downturn. That's a standpoint that has served the strategy very well over more than a decade now.
Indeed, why not stay hunkered down all the time?
I wrote about some research via John Authers and SocGen that showed that patient quality investing beats the market and that patient value was better still. However, most people do not work in finance, they have jobs and lives. And so this is a case where second best (quality) is beats first (value) when you have a job. Monday was a prime example.
I know a few folks got great bargains on Monday am, kudos to them. I would have been very excited to buy Visa in the lows 60s, for example. Here is the thing - I was too busy to act on it, because I am not a full time pro I missed the brief window.
Here is another point, I know a handful of folks who got great bargains on Monday, but I know multiples more who spent the weekend worrying about their portfolio. You know what? You only get a few dozen Augusts. Do you really want to burn any time on an August weekend fretting? No. How much time would you spend worrying about whether people are going to still eat Cheerio's between Sunday and Monday? I will round it down to the nearest digit - zero.
So value is great when it works, but quality is a fantastic plan B, you may be a step behind the great value investors, but you will still have a fair chance to beat the market and enjoy your summer weekends, too.
- Weekly Roundup - August 9, 2014
This past week was pretty crazy and honestly it was a really tough week. It started off good enough with the same old routine of finish up one job, drive home, do some paperwork, then spend some time with my wife. I love when the summer is in full...
- Weekly Roundup - April 13, 2013
This has been a great week at home, although anytime at home is a great week. Last Saturday we went hiking with our dog through one of the local state parks and had an awesome time at the hockey game on Sunday even though it made for a long day after...
- A Great Time To Go Hunting For Dividends
The market downturn this past week -- indeed, over the past month -- has reignited my interest in buying stocks, and particularly dividend payers. Stocks were in general looking a bit expensive earlier in 2012 and I struggled to find many good opportunities....
- When Second Best Is Better - The Case For Patient Quality Over Bravery (if You Have A Job)
Having a job is great, but its good to have extra income sources as well. A common one is to buy some rental property, but they have always seemed like a hassle to me. For one thing I do not have the handy man skills and for another my friends who do...
- July Review: One Step Forward And Two Steps Back. Nobody Gets Too Far Like That.
Oi. It has been a rough month. Stock market going crazy and dividends being cut. So many opportunities so little capital. July’s Dividend BAX$27.04PNY$4.62NRZ$1.35KO$13.90GE$11.73LTC$3.57HASI$13.52WPC$14.31DIS$1.53KHC$180.21PEP$3.30FCISX$23.64 Total:...