tag:blogger.com,1999:blog-226468042024-03-13T21:21:40.835-07:00Confused CapitalistA celebration of the stock market by Jay Walker, author of <u>The Brink's Truck Burst Open on Wall Street! A Holistic Approach to Finding The Easy Money In Common Stocks.</u><p></p>
Facts and ideas on how to outperform the general market, portfolio management and risk, with a growing focus on how climate change should affect your investment strategy. All wrapped nicely with a value-oriented investing bias.Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.comBlogger296125tag:blogger.com,1999:blog-22646804.post-5846355086440966052011-01-09T19:22:00.000-08:002011-04-09T08:39:33.047-07:00Avoiding obvious errors is an important part of investing<a href="http://randomroger.blogspot.com/">Random Roger</a> has written often about avoiding overvalued sectors as an important "value add" that he brings to the investing table on behalf of his clients. He often stated that the banking sector valuation in the 2003-2008 period was out of whack to its traditional ratio of the value of the US stock market. Thus, he avoided that sector during the later part of its run-up and the subsequent decimation of values. <br />
<br />
I was similarly reminded of the importance of avoiding obvious investing errors by a recent Globe and Mail article regarding Priszm Income Fund (QSR.UN - Toronto Stock Exchange). This fund owns many KFCs, Taco Bells and Pizza Huts in Canada. When the initial offering was made in 2003 (at $10/share), I remember thinking about the growing discussion of healthy food choices and wondering how in the world a fund like this (focused on fatty fast-foods) could possibly have a sustainable, long-term, future. <br />
<br />
After peaking at $13, the fund has declined ever since. They have recently missed several franchise and debt payments, and their future looks bleak, to say the least. <br />
<br />
When you buy a stock, ETF, or other investment product, give some thought to the future, and never ignore what you think might happen there. Eyes wide open, so to speak.<br />
<br />
-----<br />
Priszm Income Fund (QSR.UN); closed Friday at $0.15. <br />
-----<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-22671993681152205912010-09-19T20:28:00.000-07:002010-09-19T20:28:06.158-07:00Please rethink your bond purchases ... please think ...<div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/_kyOZIwkNQdM/TJbUbxlgWmI/AAAAAAAAAQE/vlG2daC5Ctg/s1600/quotation+marks.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="39" qx="true" src="http://4.bp.blogspot.com/_kyOZIwkNQdM/TJbUbxlgWmI/AAAAAAAAAQE/vlG2daC5Ctg/s200/quotation+marks.jpg" width="45" /></a></div>We just saw money flow out of domestic funds for 19 straight weeks…who is selling? Those who can’t imagine an improving economy, or better investor sentiment, or new and exciting innovations. Certainly there are hardship cases forcing people to cash in stocks to pay expenses, but with prices the same that tells us someone has accepted the risk that the sellers can no longer take.<br />
<br />
<br />
<a href="http://derekhernquist.com/2010/09/17/imagine/">Posting here</a><br />
<br />
<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-71018454692581784982010-09-12T07:59:00.000-07:002010-09-12T07:59:36.147-07:00Inflation begins - food inflation is the startWhen does serious inflation really start? Well, if you had to pick a point, it might be at a point when many pundits believe deflation is likely, as has been widely discussed this spring and summer by professional money managers.<br />
<br />
Two to three years ago, many investment talking heads (myself included) spoke of the potential for emerging and developed countries stock markets to diverge in, at least, the strength of their upward market trend. The idea being that the developed country markets would move sideways, while emerging markets would continue to thrive.<br />
<br />
The credit crisis which culminated in the stock market plunge of 2008/2009 of course showed how correlated these markets could be during times of panic. However, there is nothing wrong with the general divergence thesis during normal times, with many emerging markets getting close to re-testing their 2007/2008 price levels. Divergence is or will be here, and remains as real a prospect as ever.<br />
<br />
However, there is one place where divergence currently exists: the "anticipation" of inflation/deflation. In developed nations, the worry is that future deflation will set these rich economies on a two-decade Japanese-style slump. In developing economies, the worry is the opposite and, rather than an intellectual debate about the future, the issue is immediate and proximate: inflation, which IS (t)here. Especially food inflation.<br />
<br />
Large developing nations, such as India, China, and Russia, have all recently reported jumps in their inflation rates, headlined by significant jumps in food inflation (see <a href="http://www.atimes.com/atimes/South_Asia/LI11Df05.html">here</a>, <a href="http://online.wsj.com/article/SB10001424052748703897204575487350817633606.html?mod=googlenews_wsj">here</a>, and <a href="http://blogs.ft.com/beyond-brics/2010/09/03/wheat-price-soars-kremlin-scrambles/">here</a>). This has even resulted in an overall significant jump in global food inflation too (see <a href="http://www.fao.org/news/story/en/item/45006/icode/">here</a>). This is the result of climate change generally, which of course plays out via specific "natural events", such as drought, flooding, and "rainfall dosing" (which is a term I am using to describe the phenomenon of growing season rainfall remaining relatively the same, but is concentrated in far fewer days [but does not consist of "flooding", per se]). This is in addition to the lower yields that are produced from heat-stressed plants. Climate-change induced food issues are here, and they are here to stay for some time. <br />
<br />
The only reason that inflation remains off the radar screen of many professional investment types is that, in the western world at least, the food budget typically consists of a very low proportion of overall income. Whereas, however, the opposite is true in the developing world (or more so, even, in the undeveloped world), food budgets constitute a much higher proportion of the total income. So, food inflation has a much greater effect in those countries and feeds into the total inflation picture very quickly. In food, the principle of substitution (the idea that, during inflationary times particularly, folks substitute cheaper but roughly similar items for more expensive ones) has only limited applicability: after all, everyone needs to eat.<br />
<br />
Food inflation also enters the general inflation cycle very quickly too (especially farther down the income ladder a country is) because, aside from an inflationary element of its own, the inflation knock-on effect is very pernicious, as the factory worker, et.al, marches into the boss' office, and demands a raise to deal with his deteriorating ability to feed his family. This scene plays out exactly the same way, hundreds of millions times, in hundreds of thousands of bosses offices.<br />
<br />
The dream that (some may have that) food inflation emanating in one part of the globe won't spill over somewhere else is likely to be met by the insistent ringing of the morning's alarm clock: free trade in food. As pricing for food rises - there and here - the knock-on effect will also be felt as like looking into a mirror - here and there.<br />
<br />
Climate change, and its resultant outputs, will have effects ranging from the evisceration of the capital value of, particularly, long-dated low-yielding stripped bonds, to the more pragmatic, of the renewed popularity of the <a href="http://www.google.com/search?hl=en&rlz=1T4ADBR_enCA303CA308&q=high+yield+home+garden&aq=f&aqi=&aql=&oq=&gs_rfai=#sclient=psy&hl=en&rlz=1T4ADBR_enCA303CA308&q=high+yield+home+garden+-amazon&aq=f&aqi=&aql=&oq=&gs_rfai=&pbx=1&fp=f15f489f05fd40f5">high-yielding home garden</a>.<br />
<br />
So, the weather issues of this summer's northern hemisphere's growing season provide a glimpse into the future: a future which is coming fast. For those who want to understand it better, there's no better place to point your binoculars than at the emerging market countries.<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com1tag:blogger.com,1999:blog-22646804.post-47835807783208890822010-09-11T06:00:00.000-07:002010-09-11T06:00:00.143-07:00Emerging Markets - Are you sufficiently exposed?<div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/_kyOZIwkNQdM/TIlzjcph0cI/AAAAAAAAAPk/g_HDhMm5Ags/s1600/hammer+nail.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" ox="true" src="http://2.bp.blogspot.com/_kyOZIwkNQdM/TIlzjcph0cI/AAAAAAAAAPk/g_HDhMm5Ags/s200/hammer+nail.jpg" width="133" /></a></div>Pounding the point home, once again.<br />
<br />
I have written a great many times (e.g. <a href="http://confusedcapitalist.blogspot.com/2006/07/china-file.html">1</a>, <a href="http://confusedcapitalist.blogspot.com/2006/05/its-different-this-time.html">2</a>, <a href="http://confusedcapitalist.blogspot.com/2008/08/emerging-markets-choices.html">3</a>, <a href="http://confusedcapitalist.blogspot.com/2010/08/outperformance-comes-many-ways.html">4</a> or all, <a href="http://www.google.ca/search?hl=en&as_q=&as_epq=emerging+markets&as_oq=&as_eq=&num=10&lr=&as_filetype=&ft=i&as_sitesearch=confusedcapitalist.blogspot.com&as_qdr=all&as_rights=&as_occt=any&cr=&as_nlo=&as_nhi=&safe=images">5</a>) since this blog started over four years ago, about the need for any forward-looking, growth-oriented investor to have a very serious weighting in emerging markets. A <a href="http://www.financialpost.com/Emerging+markets+rule+world/3496866/story.html">recent article</a> in the Financial Post, highlighting information from Goldman Sachs Global Economics Paper No. 204, makes the point worth repeating, once again. <br />
<br />
They point out that the emerging markets now total some 31% of the global stock market capitalization, and suggest that this will expand to 55% by 2030. Is that shocking? Hardly. According to the OECD, a global club of rich countries, emerging markets already have 49% of the global GDP, on a purchasing power parity basis; and they appear slated to continue growing rapidly. Is it a surprise to think that their stock market valuations are slated to follow their growth?<br />
<br />
What is shocking, is that against that, Goldman Sachs estimates that developed market investment funds hold just 6% in emerging market equities, out of their total equity allocation. They believe this will rise to 18%, by 2030. In other words, if you are a typical rich country investor, a peek behind the curtain of investments that YOUR investment advisor has gotten you into, would reveal that you are sitting at just 20% the emerging market exposure you should be at, assuming you simply want to mirror the world economic powers (e.g. 6% divided by 31% = 20% exposure). By 2030, the situation gets somewhat better, but your exposure would still be wildly low, compared either to world GDP then, or emerging market stock market capitalizations. <br />
<br />
If you wanted to simply mirror global market returns going forward, then seriously underweighting one of the two most easily visible growth investment themes going forward sure isn't the way to do it. If you wanted outsized returns, then you'd likely seek even more participation in rapidly growing economies, assuming you have decent entry points, e.g. valuations not stretched. (Are they currently too high? Not in my book. They are trading at an average PE ratio of just 12, <a href="http://blogs.ft.com/beyond-brics/2010/09/06/indian-equities-no-time-wasters/">according to the Financial Times</a>, which compares to a <a href="http://seekingalpha.com/article/223882-why-the-s-p-500-should-reach-1245-by-year-end-2010">PE on the S&P 500</a> of 14.7).<br />
<br />
The other thing to know here, is that the emerging markets are no longer the wild west. They have solid economic principles they are managing their economies on, and populations of great savers (oh, if only the western world were so lucky now!). This makes it pretty easy to suggest that their stock market volatility is going to continue to move down, especially compared to the overleveraged and overspent rich countries. <br />
<br />
If you are a growth investor, go wake up your investment advisor, and demand he or she explain exactly why your emerging market exposure is so darn limited. <br />
<br />
Disclosure: Participant in the emerging markets theme via DEM, DGS.<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-30614959691353399552010-09-09T06:00:00.000-07:002010-09-09T16:00:52.668-07:00And this is how inflation starts ... climate related food price increases<div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/_kyOZIwkNQdM/TIUru9m1NgI/AAAAAAAAAPU/NVTbxYdAFWg/s1600/Russia+Map.gif" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="241" ox="true" src="http://4.bp.blogspot.com/_kyOZIwkNQdM/TIUru9m1NgI/AAAAAAAAAPU/NVTbxYdAFWg/s320/Russia+Map.gif" width="320" /></a></div>The Russians have recently decided to continue the ban on wheat exports, <strong><em>until late 2011</em></strong>, as the Russian heat wave and associated drought have reduced this year's harvest to what is currently estimated to be about two-thirds a normal harvest (of course, once they actually harvest and weigh the harvest, I suspect they'll likely find that the actual harvest is less than that; just as happened in America following the 2009 harvest). <br />
<br />
In a climate-changed world, this is just what will be one of many stories about inflation arising from food issues. Current estimates are for Russian inflation to increase to 7% from <a href="http://www.bloomberg.com/news/2010-08-04/russia-s-inflation-rate-fell-to-5-5-lowest-level-on-record-last-month.html">the current 5.5%</a>, due primarily to a "price shock" associated with the reduced harvest. <br />
<br />
A very broad view of a long-term climate-change investment strategy, would be to go long on soft commodities - however, expect lots of volatility, sometimes wild volatility, as part of this equation.<br />
<br />
<a href="http://www.reuters.com/article/idUSTRE68125J20100902">Reuters story here</a><br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-16877148808932029922010-09-07T09:00:00.000-07:002010-09-07T09:00:04.096-07:00Dividend Oriented Portfolio Poised to Outperform?<div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/TIUtMc4W9cI/AAAAAAAAAPc/06XQeTH2umU/s1600/dividend-graph.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" ox="true" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/TIUtMc4W9cI/AAAAAAAAAPc/06XQeTH2umU/s320/dividend-graph.jpg" /></a></div>I've recently written about the relatively high dividend yields available from some of the major S&P 500 companies in comparison to the terrible yields in things like US government bonds (10 years at 2.5%) and municipal bonds. <br />
<br />
In my opinion, the bull market in bonds is due to come sliding - possibly crashing - down, just as other inflated investments have in the recent past, eg NASDAQ, peak years 2000-2001, US housing market years 2006-2007. Tears are inevitable.<br />
<br />
On the other hand, with the idea in mind that you can construct a reasonably safe dividend-oriented, relatively diversified stock portfolio going forward, which provides a yield well above that, AND with decent potential for dividend growth, I screened the S&P 500 for stocks yielding above 3%, in market-leading names I recognize, and with decent (more than 10%) returns on invested capital (ROIC). <br />
<br />
Here's the list I came up with, that I think will outperform the S&P500 significantly in total return over the next two years:<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/_kyOZIwkNQdM/TIUqSnjITII/AAAAAAAAAPM/DQhwm1Eih-A/s1600/ScreenHunter_04+Sep.+06+10.51.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="208" ox="true" src="http://2.bp.blogspot.com/_kyOZIwkNQdM/TIUqSnjITII/AAAAAAAAAPM/DQhwm1Eih-A/s320/ScreenHunter_04+Sep.+06+10.51.gif" width="320" /></a></div><br />
The only name that doesn't strictly meet that criteria is General Electric, which has a relatively low return on invested capital, given the capital intensive nature of its business and its past actions as, effectively, a bank. <br />
<br />
The dividends all appear reasonably safe with these companies, as they have either relatively moderate payout ratios, or have recently lifted their dividend payments. <br />
<br />
The last thing to consider is the potential impact of climate change on these companies over the short to medium term. In my view, none of them have the potential for short-to-medium term implosion, like I detailed <a href="http://confusedcapitalist.blogspot.com/2010/08/compass-minerals-international-inc-cmp.html">for Compass Minerals</a>. <br />
<br />
However, some have a bit of climate-change short-to-medium-term risk as I see it, as discussed below:<br />
<br />
<strong>Altria</strong> is a cigarette manufacturer/retailer. It is possible that climate change could affect their business in two ways: <br />
<br />
Firstly, smokers tend to be in the lower economic strata; these are the folks who will be most effected by potential food inflation. If they are spending more for food, then less is available for things like cigarettes which, despite their addictive qualities, are still a discretionary purchase. Some smokers may choose to quit if their budgets become more squeezed, accelerating the already evident trend of sales degradation, or they may trade down to lower margin brands. <br />
<br />
Secondly, its possible that there could be some tobacco crop failures going forward (drought or too much precipitation/at wrong time), resulting in higher input costs. This would put Altria in the unenviable position of a margin squeeze, or having to hike prices (resulting in sales loss), or consumers trading down to cheaper brands.<br />
<br />
On balance, I would rate their short-to-medium-term climate risk issues as moderate.<br />
<br />
<strong>Heinz</strong> is a food manufacturer who could also be affected moderately over the short-term in a manner fairly similar to Altria. While consumers are unlikely to quit Heinz's type of product (they still need to eat), they may well trade down to cheaper brands with lower margins. Secondly, crop failures could also have a similar impact as described to Altria, above.<br />
<br />
<strong>Sysco</strong> has moderate short-term climate risk, since they are a food distributor who supplies many restaurants. If food inflation picks up, then the general consumer will spend less on restaurant meals, meaning that many of Sysco clients could reduce volumes/orders (lowered revenue for Sysco) and suffer some financial distress (meaning Sysco's accounts receivables could also balloon).<br />
<br />
<strong>Procter and Gamble</strong> is the final one which I believe also has some short-to-medium term climate risk. If food inflation occurs, and leaves fewer dollars on the table of their customers, then their customers may very well trade down from the PG family of premium products, to more economically priced ones. <br />
<br />
On balance, I would say that this portfolio probably has average climate-change risk on a go-forward basis. <br />
<br />
Disclosure: No positions.<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com1tag:blogger.com,1999:blog-22646804.post-1158876734333676222010-09-05T17:50:00.000-07:002010-09-06T11:14:25.540-07:00End of the Equity Cult? Maybe - but don't buy bonds!<div class="separator" style="clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TIQSHw5v6GI/AAAAAAAAAO8/g57VPP6fQYs/s1600/Hare+Krishnas.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="120" ox="true" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TIQSHw5v6GI/AAAAAAAAAO8/g57VPP6fQYs/s200/Hare+Krishnas.jpg" width="200" /></a></div>Citigroup says that it's the <a href="http://www.scribd.com/doc/36860154/The-End-Of-A-Cult">end of the equity cult</a> ...<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TIQQ34Z39II/AAAAAAAAAO0/48SwlYDWRmY/s1600/quotation+marks.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="45" ox="true" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TIQQ34Z39II/AAAAAAAAAO0/48SwlYDWRmY/s200/quotation+marks.jpg" width="50" /></a></div>It has taken 10 years, and two 50% bear markets, to reverse this cult. European and Japanese equities are already trading on dividend yields above government bond yields. US equities are almost there as well. An immediate reincarnation of the equity cult seems unlikely. Global corporates, especially the mega-caps, rushed to exploit cheap financing as the equity cult inflated. They have been slow to redeem equity now that the cult has deflated. Equity oversupply remains a drag on share prices."<br />
<br />
_____________<br />
<br />
The <strike>investing</strike> buying public is now pouring into bonds, with tragically low yields, at a fraction of the purchase volumes for equities, a ratio signalling a top for bond prices, unless long-term deflation really is coming. <br />
<br />
My question is ... how can deflation truly be on the long-term horizon, <a href="http://agitatedecoist.blogspot.com/2010/09/drivers-of-global-famine.html">in the face of obvious and growing disparities between food production, and consumption</a>? Food inflation, always and inevitably, leads to all other kinds of inflation. Long term deflation like Japan - not a chance! (Post-script addition: this food inflation will be caused by, mainly, climate change as the primary driver).<br />
<br />
So what piling into bonds will get you, over the medium to longer term (5-10 years), is a yield unlikely to keep pace with inflation, or a price which virtually ensures that you suffer a capital loss if you sell early. <br />
<br />
Instead, you can take a dividend yield for a great many S&P 500 stocks which are well above the 10 year US government bond rate, something that hasn't happened for a very long time. <br />
<br />
Bonds or stocks? Well, at the yields offered, bonds are now very risky.<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-54623312124208597612010-08-30T22:12:00.000-07:002010-08-30T22:44:02.084-07:00A cautionary tale for bubblicious portfolios<div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/_kyOZIwkNQdM/THyKxgyj67I/AAAAAAAAAN8/5AAgia_cSxA/s1600/ScreenHunter_02+Aug.+30+21.52.gif" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" ox="true" src="http://4.bp.blogspot.com/_kyOZIwkNQdM/THyKxgyj67I/AAAAAAAAAN8/5AAgia_cSxA/s320/ScreenHunter_02+Aug.+30+21.52.gif" width="277" /></a></div>What chart is this?<br />
<br />
I am sure that a lot of you are thinking that it must be some internet stock. <br />
<br />
Well, it could be: the chart resembles many which peaked in the 1999-2001 period. I recently looked at the stock prices for Microsoft (MSFT) - it peaked around $59 back then, and is currently in the $25-$30 range - about half its peak value. Intel (INTC) peaked in the $75 range, and is now in the $25-$30 range. Cisco (CSCO)? $77 then and $21-$28 recently.<br />
<br />
But no, this is not from the tech sector. This is a cautionary tale of how inflated prices can get in one, or many, sectors during a bubble. <br />
<br />
No, this is the behemoth drug maker Merck & Co (MRK). which peaked around the same era at $94 and is now in the $35-$40 range. You can pull up the charts for the other pharmaceutical giants, then and now, like Pfizer (PFE), Abbott Labs (ABT), Novatis (NVS), etc. and find the same cratering effect: most of these still haven't reached the halfway point of their bubble prices.<br />
<br />
Have some things changed for both sectors? Sure - but not nearly to the extent implied by both a lost decade of price appreciation and, worse, price declines that could have eviscerated some over weighted portfolios. <br />
<br />
One thing remains constant - investors, whether buying single companies or weighing into sectors via ETF's etc., have to be very cautious on the flavour of the year. Avoiding the most popular sectors, especially after several years of popularity, can be one of the best things you can do for your portfolio's health - and can help you get a good night's sleep too.<br />
<br />
Disclosure: No positions.<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com2tag:blogger.com,1999:blog-22646804.post-66788312743807393002010-08-26T17:18:00.000-07:002010-08-28T06:06:56.044-07:00Investment Earworm Contest Winner - RickA fairly <a href="http://confusedcapitalist.blogspot.com/2010/08/investment-earworm-contest.html">recent posting</a> of mine challenged readers to identify the speaker of the following comment, together with the asset class he was speaking of. <br />
<br />
The comment is, essentially, this:<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/THkJdFk3lcI/AAAAAAAAANU/84rJ7dg3sIc/s1600/quotation+marks.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="45" ox="true" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/THkJdFk3lcI/AAAAAAAAANU/84rJ7dg3sIc/s200/quotation+marks.jpg" width="50" /></a></div>Commodities wins both the optimistic and the pessimistic scenario."<br />
<br />
<br />
<br />
Rick has correctly identified the speaker and the asset class as being Jim Rogers (the commodity guru) and speaking of the commodity asset class. <br />
<br />
What Rogers is saying here, is that if the emerging economies continue their assent - and with it demand for commodities - then commodities prices will continue rising, even if inflation is benign. This is the optimistic scenario.<br />
<br />
On the other hand, if inflation starts to run away, due to the extremely high levels of monetary and fiscal stimulus with continuing budgetary deficits (the pessimistic scenario), then the only thing that'll hold their value, are "real" assets, namely commodities and possibly real estate.<br />
<br />
Congratulations Rick. You will receive your book choice, The Ultimate Dividend Playbook, shortly. <br />
<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-2630636787497297002010-08-24T05:00:00.000-07:002010-09-05T23:07:48.588-07:00Compass Minerals International Inc (CMP) likely a future victim in climate change?<div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/THH6wI9vYyI/AAAAAAAAANM/KG_aP-8YSeE/s1600/winter+road+scene.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="150" ox="true" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/THH6wI9vYyI/AAAAAAAAANM/KG_aP-8YSeE/s200/winter+road+scene.jpg" width="200" /></a></div>As this blog begins to grow its focus on climate change investment strategy, I thought I'd highlight a company that was mentioned in the fine Josh Peters book, <u>The Ultimate Dividend Investor Playbook</u>, which I <a href="http://confusedcapitalist.blogspot.com/2010/08/book-review-ultimate-dividend-paybook.html">recently reviewed</a>. In the book, Mr. Peters, of Morningstar, mentions Compass Minerals International Inc. (CMP) as then (sometime in 2006 or 2007) perhaps being a candidate worthy of consideration for addition to a dividend stock portfolio. <br />
<br />
Compass' main business then, as now, "is highway deicing salt, so its profitability is determined by cold, snowy, or icy winter weather." So says Morningstar. <br />
<br />
Morningstar currently provides a three star (average) rating to Compass, meaning they perceive its total stock return outlook to be approximately comparable to the universe of stocks they cover. Owing to a wide economic moat (in this case, a low cost to bring the salt to market), balanced against other factors, is what produces the overall three star average rating. <br />
<br />
Me - I think that Compass is an implosion waiting to happen, whether it's this coming winter season, the next year, or in three of the next six years. This is not owing to any prescient thoughts on my part about debt, customer loss, or competitors acting irrationally by pricing below the cost of production. No, I worry about the climate. Notwithstanding occasional contrary hickups, winters are growing shorter and less severe. The scientists say so, and it matches the global warming theory (first postulated by Nobel Prize winner <a href="http://en.wikipedia.org/wiki/Svante_Arrhenius">Svante Arrhenius</a>, in 1896).<br />
<br />
Trying to continue to maintain salt volumes in the face of this reality, is the investment equivalent of expecting buggy whip makers to continuing to pump out similar volumes, something Morningstar apparently expects, as their quote in their outlook on growth states ...<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/_kyOZIwkNQdM/THH221p7ukI/AAAAAAAAANE/Zjo4mObxqWU/s1600/quotation+marks.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="45" ox="true" src="http://2.bp.blogspot.com/_kyOZIwkNQdM/THH221p7ukI/AAAAAAAAANE/Zjo4mObxqWU/s200/quotation+marks.jpg" width="50" /></a></div>Growth: We expect long-run demand growth for Compass' salt <u>to be quite minimal</u>. Earnings growth will depend on increasing sales prices and cost efficiencies. (emphasis not in original)<br />
<br />
<br />
Note that they do NOT say they expect growth for salt to actually decline for Compass, something that can realistically be expected, unless competitors throw in the towel, and they gain a larger share of a shrinking pie. Even if that were to occur, most investors recognize the futility of fighting a secular "headwind". No pun intended.<br />
<br />
Climate change investment strategy, as I will begin to explore over the coming while, involves a very few great opportunities, some good opportunities, and a whole lot of businesses to stay away from, unless you have the stomach for shorting stocks. <br />
<br />
Compass is one example of a stock I'd be extremely cautious of getting involved with, especially since it is priced at roughly the same PE ratio as the S&P500.<br />
<br />
No, if I were you, and thinking of holding Compass for a year or more, I would take Morningstar's rating, in this case, "with a grain of salt". <br />
<br />
Disclosure: CMP - no investment position.<br />
<br />
<br />
On a blog aggregator? Go here, <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a>, for additional content and our growing focus on climate change investment strategy.<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-49588885635001308092010-08-22T19:20:00.000-07:002010-08-22T22:29:15.714-07:00Book Review - The Ultimate Dividend Playbook<div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/THHS85qU0cI/AAAAAAAAAM8/uP4pYkOQ4Cs/s1600/dividend+playbook.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" ox="true" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/THHS85qU0cI/AAAAAAAAAM8/uP4pYkOQ4Cs/s200/dividend+playbook.jpg" width="133" /></a></div>Any investor worth his or her salt, who doesn't want to rely on the vagaries of capital appreciation to grow their net worth, and who would readily lean on the best shortcut in the world to wealth creation, dividends, simply must seek to understand them. Numerous studies have shown that dividend paying stocks outperform all other stock classes, and usually by a wide margin of 2% or more annually. <br />
<br />
This book, by Josh Peters of Morningstar, helps the investor understand the case for dividends, and how to select individual stocks for a modestly diversified portfolio. While many investors may think dividends are suitable for income investors only, the fact is that dividend paying stocks should be a or the major stock holding style in most investors' portfolios. <br />
<br />
Why? Well, as Josh points out, it's very simply because they outperform most other stocks, and generally with reduced volatility. So, it's a more stable, higher-returning investment. What could be better than that?<br />
<br />
As Josh points out, dividends are a sign of many things investors like to see:<br />
<ul><li>An alignment of managements and the investors interest (return of, and return on, cash);</li>
<li>Corporate self-discipline (have to keep grinding out the cash to pay and grow the dividend);</li>
<li>Financial strength;</li>
<li>And a Valuation basis (dividends can show when a stock is overpriced, and underpriced).</li>
</ul>Josh covers economic moats, which he likes all his dividend-paying stocks to have, as well as return on equity (see his book, or mine, on why this is important). He suggests looking at the trend of the dividend (the trend is your friend, in terms of projecting the future), so see how the dividend might grow into the future. <br />
<br />
He covers handy items like payout ratios, high yielding stocks (generally, be careful) and high payout ratios (look out if ratio has been continuing to rise). <br />
<br />
In the book, Josh covers especially two items that make the book an entirely worthwhile addition to any investors bookshelf: the dividend drill, and the dividend drill return model. <br />
<br />
The dividend drill focuses on three items;<br />
<ol><li>Is the dividend safe;</li>
<li>Will the dividend grow;</li>
<li>What does the dividend stream tell me the stock is likely to return to me as a shareholder?</li>
</ol>Attempting to answer these questions will help you decide whether or not a prospective stock investment is one that you can or should add to your portfolio.<br />
<br />
In relation to #3 above (the total return from the stock), he also introduces one very handy shortcut (and investing is full of them, from PE ratios, to inventory turns, to PEG ratios). Think about the potential of the total return of the stock as the sum of the actual dividend yield, plus the likely growth rate of dividend over the next while, say ten years. <br />
<br />
A couple of simple examples showing how the total return might be different for two stocks, is that one might be yielding a 5% return, and has recently been increasing the dividend by about 4% annually. If you think that increase would continue over the next decade or so, then the likely total return on that stock would be about 9% annually (5%+4%). In the case of a stock which has a lower initial yield, but is increasing the dividend more rapidly, the projected return might look like this; a 3% dividend yield, plus expected future dividend increase at 8% annually, suggests an 11% (3%+8%) total return. The book is full of handy advice like this, written in a straightforward and uncomplicated style. <br />
<br />
The book also details the more complicated (but not complex) Dividend Drill Return Model, which encourages you to think more deeply about the company and its prospects. Yes, it's more work, but relies only on elementary/grammar school arithmetic, so it's within the reach of virtually any investor.<br />
<br />
I highly recommend this book, and thank Josh Peters for writing it. The information is handy, practical, simple, and timeless. <br />
<br />
<a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-3218090485115984322010-08-16T20:55:00.000-07:002010-08-16T20:55:46.862-07:00Retail Investors Indicate Bonds are lousy deal right now ....<div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/_kyOZIwkNQdM/TGoErDl9lAI/AAAAAAAAAL4/7f3r6JXUx24/s1600/clueless++no+excuse.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" ox="true" src="http://2.bp.blogspot.com/_kyOZIwkNQdM/TGoErDl9lAI/AAAAAAAAAL4/7f3r6JXUx24/s200/clueless++no+excuse.jpg" width="200" /></a></div>The retail investor has long been a contra-indicator of what's truly both a timely and good investment ... <br />
<br />
Firstly, they often have trouble knowing the difference between a savings vehicle (holding time frame of under five years, generally; and very low expected return) and an investment vehicle (holding time frame of over five years; and relatively high expected return). <br />
<br />
Add to that the mistiming of buying and the comedy of errors reaches Shakespearean proportions. <br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TGoDQjqSdQI/AAAAAAAAALw/fwj8LS4FuDM/s1600/quotation+marks.jpg" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="45" ox="true" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TGoDQjqSdQI/AAAAAAAAALw/fwj8LS4FuDM/s200/quotation+marks.jpg" width="50" /></a></div>Municipal bond mutual funds that report their figures weekly reported $953.9 million in new money from investors during the week ended Aug. 11, according to Lipper FMI. That was the biggest weekly inflow since March, and heavier than all but 33 inflows since Lipper started tracking the data in 1992 — 970 weeks ago.<br />
<br />
AND <br />
<br />
Solender said because expectations are that the Federal Reserve’s target for interest rates will remain near zero well into next year, people are growing increasingly comfortable with the yields offered on municipal bonds — <u><strong>even though they have never been lower</strong></u>. <em>(highlighting not in original)</em><br />
<br />
The yield on a 10-year triple-A rated municipal bond sank below 2.5% for the first time last week, according to Municipal Market Data.<br />
<br />
<a href="http://www.bondbuyer.com/issues/119_405/mutual_muni_funds-1016058-1.html">Article here</a><br />
<br />
_____<br />
<br />
As opposed to that, <a href="http://indexarb.com/dividendYieldSortedsp.html">IndexArb</a> reports that the current average dividend yield of all the S&P500 dividend-paying stocks is 2.51% (with a reasonable expectation of future dividend growth), yet the retail <strike>investor</strike> saver piles into the bond market, potentially locked into a 2.5% yield for 10 years.<br />
<br />
Yikes!<br />
<br />
The Confused Capitalist<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-944329303272063302010-08-13T12:44:00.000-07:002010-08-13T12:44:27.121-07:00Management TinkeringThe management of this blog is tinkering with the layout ... feel free to comment and let me know what you think ...<br />
<br />
<br />
The Confused Capitalist<div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-52763327740668793902010-08-12T13:40:00.000-07:002010-08-12T13:51:09.780-07:00Commodities ReportAs <a href="http://confusedcapitalist.blogspot.com/2010/08/big-price-jump-following-next-crop.html">predicted</a>, wheat prices did indeed <a href="http://www.marketwatch.com/story/wheat-prices-rise-sharply-after-usda-report-2010-08-12?reflink=MW_news_stmp">jump</a> following the latest USDA report. Given the issues with flooding (<a href="http://www.cbc.ca/world/story/2010/08/07/pakistan-flood-zardari.html?ref=rss">1</a>, <a href="http://www.guardian.co.uk/world/2010/aug/10/floods-asia-death-disease-continent">2</a>, ) in other parts of the planet, eg South-East Asia, we can probably expect more upward price pressure on foodstuffs in the short-term.<br /><br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a>JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-64090456532713942452010-08-12T04:30:00.000-07:002010-08-12T04:30:00.498-07:00Investment Earworm Contest<a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/TGMaq0BSrhI/AAAAAAAAAIs/DYw6vwkWVsQ/s1600/1.jpg"><img id="BLOGGER_PHOTO_ID_5504272492397768210" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 200px; CURSOR: hand; HEIGHT: 200px" alt="" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/TGMaq0BSrhI/AAAAAAAAAIs/DYw6vwkWVsQ/s200/1.jpg" border="0" /></a> <div>Ever get a <a href="http://www.urbandictionary.com/define.php?term=earworm">music earworm</a>? Sometimes it happens with other things too. </div><br /><div>As readers of this blog may suspect, my most prolific posting often comes when I am also doing the most investment reading. Obviously, one of those times is now.</div><br /><div>The many earworms <a href="http://www.brainyquote.com/quotes/authors/w/warren_buffett.html">of Warren Buffett</a> have worked on my investment thinking over the years. However, I recently caught another investment earworm which I just can't shake, because it seems to make far too much sense. </div><br /><div>The investment earworm is, essentially, this:<br /></div><br /><br /><div><a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/TGMWRuwz9jI/AAAAAAAAAIU/potkMXBAjQg/s1600/quotation+marks.jpg"><img id="BLOGGER_PHOTO_ID_5504267663443228210" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 40px; CURSOR: hand; HEIGHT: 38px" alt="" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/TGMWRuwz9jI/AAAAAAAAAIU/potkMXBAjQg/s200/quotation+marks.jpg" border="0" /></a>.... (this asset class/type/sector/leaning) wins both the optimistic and the pessimistic scenario."</div><br /><div>This was a recent utterance of a well known investor. The first one to name both the asset class/type/sector etc. and the investor, wins their choice of either of the two following good investment books:</div><div><br /><a href="http://4.bp.blogspot.com/_kyOZIwkNQdM/TGMYdJB-RvI/AAAAAAAAAIc/GYx9ppczD5E/s1600/active+value+investing.jpg"><img id="BLOGGER_PHOTO_ID_5504270058496345842" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 125px; CURSOR: hand; HEIGHT: 188px" alt="" src="http://4.bp.blogspot.com/_kyOZIwkNQdM/TGMYdJB-RvI/AAAAAAAAAIc/GYx9ppczD5E/s200/active+value+investing.jpg" border="0" /></a> </div><br /><div></div><br /><div></div><br /><div></div><br /><div></div><br /><div></div><br /><div></div><br /><div><br /></div><br /><p></p><br /><p></p><br /><p></p><p></p><p><a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TGMZGPkvvOI/AAAAAAAAAIk/nPdLKhMxh0Y/s1600/dividend+playbook.jpg"><img id="BLOGGER_PHOTO_ID_5504270764627442914" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 125px; CURSOR: hand; HEIGHT: 189px" alt="" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TGMZGPkvvOI/AAAAAAAAAIk/nPdLKhMxh0Y/s200/dividend+playbook.jpg" border="0" /></a></p><br /><br /><div><br /><br /></div><br /><br /><div></div><br /><br /><p></p><br /><br /><p></p><br /><p></p><p></p><div></div><div></div><div></div><div>Please post in the comments section, and I will monitor for the winner. The contest is open for the next two weeks - limit of one entry per day per person.<br /></div><br /><br /><div>Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a></div><br /><div></div><br /><br /><div><br /></div><br /><br /><div><br /></div><br /><br /><div><br /></div><br /><div></div><br /><div>JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a></div><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com5tag:blogger.com,1999:blog-22646804.post-5771402873746931632010-08-11T07:45:00.001-07:002010-08-11T08:57:47.181-07:00Outperformance comes many waysThere are many ways to outperform the general market, some adding incremental value here and there, such as finding undervalued individual companies, or staying away from seemingly overvalued sectors (bearing in mind of course, that over [under] valuations can stay that way for very long periods of time).<br /><br />However, the one of the seemingly most riskiest ways is to find an unacknowledged secular tailwind, and ride it to outperformance. These are always present, but difficult to figure out how much return they'll produce, and how long the ride will go on for, or even when it will begin.<br /><br />In some cases, like the tech sector beginning in the late 1980's, should have been very visible to figure out, and ride it for a very long period of time. Some, like the hard commodities boom, beginning in the very late 1990s, were a bit tougher to figure out, given the nearly two decades of very weak performance in that sector. Even if you figured it was on the cusp of a long term revival, it would have taken considerable courage to move against the thinking that had solidified over two decades: namely, that this was a poor investment area.<br /><br />Today, soft commodities (eg foodstuffs, generally) and emerging markets (both personal holdings; GRU, RJA, DEM), seem like excellent bets to overweight a portfolio in, something I have been writing about for three years or more now. Will these bets produce the outperformance I think is available there?<br /><br />When thinking about these types of potentially big portfolio moves, it might hearten you to think about what one of the deep management thinkers of the last century, <a href="http://en.wikipedia.org/wiki/W._Edwards_Deming">Dr. W. Edwards Deming</a> had to say about the unknowability of things .... which can reverberate in investment thinking ....<br /><br /><p><span style="font-size:180%;"><strong>"</strong></span>The most important things cannot be measured."<br /><span style="font-size:180%;"><strong></strong></span></p><p><span style="font-size:180%;"><strong>"</strong></span>The most important things are unknown or unknowable." </p><p> </p><p><br /><a href="http://4.bp.blogspot.com/_kyOZIwkNQdM/TGK_BaaCWiI/AAAAAAAAAIE/SnSRkV0aXME/s1600/w+edwards+deming.jpg"><img id="BLOGGER_PHOTO_ID_5504171725589469730" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 134px; CURSOR: hand; HEIGHT: 200px" alt="" src="http://4.bp.blogspot.com/_kyOZIwkNQdM/TGK_BaaCWiI/AAAAAAAAAIE/SnSRkV0aXME/s200/w+edwards+deming.jpg" border="0" /></a>Given that Dr. Deming was a statistician who preached quality improvement through process management and statistical output measurement to the ready post-war Japanese, the first comment might seem surprising, but he is simply acknowledging a fundamental truth. The quality of management, their philosophy, for example, simply can't be directly measured. These are, however, long-term drivers of corporate success.<br /><br />The second comment simply builds on the first, and speaks to the relative unpredictability of the future, trends that may be building below the surface, or simply events that are virtually not predictable.<br /><br />If you can keep these thoughts in mind, long enough to take advantage of the trend you have researched, thought about, and are willing to take a flyer on, then you too might enjoy outperformance in this way.<br /><br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a><br /><br />JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-328968537280573542010-08-10T22:27:00.000-07:002010-08-10T22:46:53.391-07:00John Hussman - Valuator extraordinaire?<a href="http://2.bp.blogspot.com/_kyOZIwkNQdM/TGI4Oc1Q7_I/AAAAAAAAAH0/3mVzHFUagf4/s1600/John+Hussman.gif"><img id="BLOGGER_PHOTO_ID_5504023515509092338" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 100px; CURSOR: hand; HEIGHT: 180px" alt="" src="http://2.bp.blogspot.com/_kyOZIwkNQdM/TGI4Oc1Q7_I/AAAAAAAAAH0/3mVzHFUagf4/s320/John+Hussman.gif" border="0" /></a> <div>A short <a href="http://confusedcapitalist.blogspot.com/2010/07/is-67-inadequete-return-for-stock.html">while ago</a>, I chided Dr. John Hussman for not properly considering the increased demand for stocks in a posting of his, and for suggesting that a 6.7% annual return was inadequete for stocks. </div><br /><div>However, I also have to note that some of his prior predictions are, so far, spot on track. In <a href="http://hussmanfunds.com/wmc/wmc050222.htm">February 2005</a>, John suggested that a valuation trend for the next decade, suggested a potential return, based on historical average and median trends, portended a 2 to 3% annual return over the next decade. To date - five and a half years in - after adjusting for dividends, the SPY SPDR (S&P500 index) has produced an annual return of under 1%, while the DIA SPDR (Dow Jones index) has produced just 2.5% annually. While John may seem like a perma-bear, you would be unwise not to consider his thoughts on various valuation issues.</div><br /><br /><br /><div>Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a><br /><br />JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a></div><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-91532047835983181812010-08-05T16:00:00.000-07:002010-08-05T16:00:00.130-07:00Big price jump following next crop report<a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TFm5fyie2-I/AAAAAAAAAHI/yAzAHPKUNNY/s1600/Wheat+heads.jpg"><img id="BLOGGER_PHOTO_ID_5501632375603256290" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 256px; CURSOR: hand; HEIGHT: 192px" alt="" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TFm5fyie2-I/AAAAAAAAAHI/yAzAHPKUNNY/s320/Wheat+heads.jpg" border="0" /></a>The next major USDA international crop report is due <a href="http://www.fas.usda.gov/wap/current/toc.asp">August 12, 2010</a>. Watch for a big jump in prices thereafter ... surprise to the upside folks (unless you are a humanitarian, in which case you'll consider it as a crash to the downside) ...<br /><br /><br /><p>The classic definition of inflation, as I remember it from my college days, is "Too much money, chasing too few goods." Most concerned with inflation these days have all the argument on the "too much money" side of the equation - does it arise from monetary issues, or fiscal imprudence? They totally forget the other side of the equation, because it rarely is the problem - the "too few goods." Watch for this to be the difference in the coming years, as agricultural production declines ("too few goods") begin to become part of the "new normal".</p><p>Quote of the day:<br /><br /><blockquote><a href="http://agitatedecoist.blogspot.com/2010/08/gmo-jeremy-grantham-global-warming-in.html">Global warming will be the most important investment issue for the foreseeable future.</a> <strong><em>But how to make money around this issue in the next few years is not yet clear to me.</em></strong> In a fast-moving field rife with treacherous politics, there will be many failures. Marketing a “climate” fund would be much easier than outperforming with it.<br />- GMO's Jeremy Grantham<br /></blockquote><br />As a side-bar note, I get tired of dealing with dum-dums who, for reasons of mental and emotional convenience, <a href="http://agitatedecoist.blogspot.com/2010/08/climate-dummies-by-ideology.html">want to continue denying global warming</a>. The comment forum is open as always, but if you disagree with what real, professional climate scientists say, please take it up directly with them. If you have a stunning piece of scientific evidence that disproves one side or the other, don't waste time on my channel, write a paper, get it peer-reviewed, and then published in a reputable journal.<br /><br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a><br /><br />JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-9342341292474147852010-08-03T22:47:00.000-07:002010-08-03T22:54:56.390-07:00Wheat Prices Jumpin' - Global Warmin' to blameHas anyone been checkin' the news lately 'bout wheat prices - they's a jumpin'.<br /><br />Hello people - is anyone really gunna start to take gobal warming seriously - like the massive crop failures; forests a burnin' everywhere... Or are we gunna continue to pretend everything is alright?<br /><br />We are a seriously fussked up species ... not a happy camper today ... no ... just start clicking on the various weather network reports, and crop reports ... you wouldn't be too happy either ... if any of us had half a brain, or half a heart ... we might be inclined to takle this problem ... strawberry fields forever people ...<br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a><br /><br />JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-80794083750966763202010-08-02T04:30:00.000-07:002010-08-02T04:30:00.875-07:00Can't see the forest for the trees<a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TFM6gLQ3bAI/AAAAAAAAAGo/u9LfgzcVRmg/s1600/forest.jpg"><img id="BLOGGER_PHOTO_ID_5499803894403263490" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 320px; CURSOR: hand; HEIGHT: 256px" alt="" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TFM6gLQ3bAI/AAAAAAAAAGo/u9LfgzcVRmg/s320/forest.jpg" border="0" /></a> I couldn't decide what to entitle this post, but ultimately settled on the above caption. Leading contenders were ... <em>Looking backwards doesn't help you going forward</em> ... <em>Driving by the rear view mirror a recipe for disaster</em> ... <em>I'm a tree hater</em> ...<br /><br />Anyway, the theme here is trees <strong><em>and</em></strong> thinking about the future ... I've recently read many articles suggesting forest land has historically been a good investment, and is a good hedge against inflation. The fact that big institutions like Harvard and various hedgies like it, obviously isn't too bad for leading the "me too" crowd to think it might be a good investment. I have to say though, that trees scare the crap out of me.<br /><br />With global warming accelerating, as anyone who lives in a moderately dry forest belt can tell you, the idea that you can get a reliable return from forest land/trees is an open question in my mind. As I have watched our summer "weather" grow to include a period of smoke haze for one or two weeks, from fires near and far, I have to tell you I don't think the prospects are promising. If invested in a single specific company, you could well see your total investment wiped out or severely impaired by a major forest fire; the number and severity of fires seems to be rising rapidly. The open question relating to risk/reward in my mind is this:<br /><ul><br /><li>Will the increased prices for the remaining trees be sufficient to offset the obvious forest wipe-outs that are going to occur? </li></ul>I am doubtful that sufficient price escalation will occur (or if it does, it'll be so high that it will foster the production of substitute products) and is contrasted against the possibility of severe value impairment on any particular specific forest asset as it burns down. In my mind, on a go-forward globally-warmed planet, I can't think this is an investment I want any part of, at this time.<br /><br />However, if you are only thinking about the past, driving by the rear view mirror as it were, then you would be likely to miss the impact that global warming might have on such an investment.<br /><br />NEWS FLASH: Russia is dealing with its' hottest recorded summer temperatures, and one-quarter of a million people have now been deployed to fight forest and peat fires.<br /><br />As a side-bar note, I get tired of dealing with dum-dums who, for reasons of mental and emotional convenience, want to continue denying global warming. The comment forum is open as always, but if you disagree with what real, professional climate scientists say, please take it up directly with them. If you have a stunning piece of scientific evidence that disproves one side or the other, don't waste time on my channel, write a paper, and get it peer-reviewed and published in a reputable journal.<br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a><br /><br />JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-39336405369900719102010-08-01T00:07:00.000-07:002010-08-01T00:28:29.326-07:00Employee compensation still seriously messed up<a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TFUhOOhV9UI/AAAAAAAAAHA/DbM3FpEUgzk/s1600/gold+bricks.jpg"><img style="MARGIN: 0px 10px 10px 0px; WIDTH: 292px; FLOAT: left; HEIGHT: 250px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5500339048202761538" border="0" alt="" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TFUhOOhV9UI/AAAAAAAAAHA/DbM3FpEUgzk/s320/gold+bricks.jpg" /></a> No, this isn't an issue with your average unionized or non-unionized <span id="SPELLING_ERROR_0" class="blsp-spelling-error">shmo</span> worker. It's a complaint about the "man at the top", the CEO, CFO, <span id="SPELLING_ERROR_1" class="blsp-spelling-error">CIO</span>, <span id="SPELLING_ERROR_2" class="blsp-spelling-error">CCO</span>, <span id="SPELLING_ERROR_3" class="blsp-spelling-error">CRO</span> ... (OK, I made the last one up) ...<br /><br /><br />It's about board's doing their duty to the owners of the company, even if they are transitory traders, and making sure that the pay of the high level executives are reasonable. What is reasonable? <span id="SPELLING_ERROR_4" class="blsp-spelling-error">Weeeell</span>, if you need an executive compensation firm to provide you some base thinking around that, then you are too dumb to be a director. So please quit now.<br /><br /><br />When the compensation levels begin to look like some stratospheric sports hero - overpaid but at the peak of his game - you are paying far, far, too much. Pay them in shares that must be held for long periods of time, in addition to a reasonable base salary. And everything measured on performance, relative ONLY to the industry they are in. Did I really need to tell you this? Grow some balls, as my kids say, and do what is right. Stop looking for an executive compensation firm to give you the dirty, so you can continue do what is wrong about Wall Street.<br /><br /><br />Want to feel good about yourself? Stand up for a principle for a change. Me, and other <span id="SPELLING_ERROR_5" class="blsp-spelling-error">shareowners</span>, are begging for it. Stop gold-bricking - both the board, and for the overpaid executives.<br /><br /><br />Note: If you're on a blog <span id="SPELLING_ERROR_6" class="blsp-spelling-error">aggregator</span>, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 100px; FLOAT: left; CURSOR: hand" border="0" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" /></a><br /><br /><br /><br /><br /><br /><br /><br /><span id="SPELLING_ERROR_7" class="blsp-spelling-error">JW</span> <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-18282699776796533802010-07-30T11:43:00.000-07:002010-08-08T18:03:11.710-07:00Financial Advisors/Blogosphere asleep to global warming<a href="http://4.bp.blogspot.com/_kyOZIwkNQdM/TFMtLINytqI/AAAAAAAAAGg/wQm5eCYN0sQ/s1600/katrina-08-28-2005.jpg"><img id="BLOGGER_PHOTO_ID_5499789239156651682" style="FLOAT: left; MARGIN: 0px 10px 10px 0px; WIDTH: 200px; CURSOR: hand; HEIGHT: 125px" alt="" src="http://4.bp.blogspot.com/_kyOZIwkNQdM/TFMtLINytqI/AAAAAAAAAGg/wQm5eCYN0sQ/s200/katrina-08-28-2005.jpg" border="0" /></a> <div>With a notable few exceptions (<a href="http://www.gmo.com/websitecontent/JGLetter_SummerEssays_2Q10.pdf">1</a>, <a href="http://www.beearly.com/pdfFiles/SprottClimate262006.pdf">2</a>, <a href="http://www.ritholtz.com/blog/2010/07/climate-change-the-scientific-debate/">3</a>) the impact of global warming on future returns of virtually all investment activities remains un-noted and undiscussed by financial advisors and the financial blogosphere. They are generally asleep - or worse - unconscious to the threat to global warming. Even from the strictly narrow and selfish point of view of market returns, they are failing their clients and readers in not discussing this widely and frequently.<br /><br />The cause of my latest missive was the front page of Canada's Globe & Mail yesterday, replete with charts, graphs and discussion of the latest release (July 28th) of the annual <em>State of the Climate</em> report by the National Oceanic and Atmospheric Administration (NOAA) (complete report [<a href="http://www1.ncdc.noaa.gov/pub/data/cmb/bams-sotc/climate-assessment-2009-lo-rez.pdf">224 pages</a>], or highlights [<a href="http://www1.ncdc.noaa.gov/pub/data/cmb/bams-sotc/2009/bams-sotc-2009-brochure-hi-rez.pdf">10 pages</a>]). Given that <strong>all 10 indicators</strong> pointed to continued global warming, would it have been unreasonable to expect that at least a few financial bloggers/advisors to discuss this, and the short, medium and long term portfolio implications?<br /><br />Apparently. A quick search around various financial blog aggregators revealed a collective yawn - nothing, or virtually nothing. A collective sigh went out, and the children all went back down for their afternoon naps.<br /><br />Unfortunately, we have now reached a point where the temperature of each year as it passes, is now higher than the average year of the past decade. Further, each passing decade is now setting new records for warming, compared with the prior decades. Here's a couple of highlights from the highlight report:<br /><blockquote><br /><p>Continued temperature increases will threaten many aspects of our society, including coastal cities and infrastructure, water supply and agriculture. People have spent thousands of years building society for one climate and now a new one is being created – one that’s warmer and more extreme. </p></blockquote>The report noted some of the extreme events during the past year:<br /><br /><blockquote>• In Brazil, extreme rainfall in the Amazon basin caused the worst flood in a century. Forty people were killed and 376,000 were left homeless.<br />• In southeastern South America, the wettest November in 30 years displaced thousands of people.<br />• In northwest England, heavy rainfall flooded the Lake District, setting new records for river flows and damaging 1,500 properties.<br />• In northern Iberia and southern France, a North Atlantic storm raked the land with record winds, downed power lines, closed airports and blocked railroads.<br />•Three intense heat waves broke temperature records in Australia. One of them was accompanied by high winds that fanned bushfires, killing 173 people.<br /></blockquote>By the way, with it all the rage to talk about the possibility of deflation (a distinct short term possibility, I admit), I will go out on a limb and say that the longer term picture is very disturbing, and includes the very high possibility for runaway inflation. All starting at the beginning of all stored wealth - food. Watch for it there first.<br /><br />In defence of saying nothing however, these are the kind of dummies they have to deal with ... contrast and compare kids ...<br /><br /><a href="http://www.informationisbeautiful.net/2009/climate-change-a-consensus-among-scientists/">Scientists views</a><br /><a href="http://www.ritholtz.com/blog/2009/12/are-humans-responsible-for-climate-change/">Investors views<br /></a><br />At the end of the day, however, you are supposed to either a) inform and challenge your audience (bloggers) or b) protect and grow assets (advisors). Your silence embarrasses you.<br /><br />Well, now that this commercial intermission has awoken a few fellow bloggers and perhaps to a financial advisor or two, the rest of you can fall back to sleep to la la land, where the sky is beautiful all day long and nothing ever changes. Strawberry fields forever.<br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="FLOAT: left; MARGIN: 0px 0px 10px 10px; WIDTH: 100px; CURSOR: hand" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" border="0" /></a>JW<a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><br /><br /><br /><br /><br /><p></p><br /><blockquote></blockquote></div><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com2tag:blogger.com,1999:blog-22646804.post-41877880075129622522010-07-27T07:00:00.000-07:002010-07-27T20:17:45.441-07:00Insurance costs money<a href="http://1.bp.blogspot.com/_kyOZIwkNQdM/TE7XN6mJPgI/AAAAAAAAAGY/uGXZJJRrTGA/s1600/LaurelHedge1.jpg"><img style="MARGIN: 0px 10px 10px 0px; WIDTH: 320px; FLOAT: left; HEIGHT: 240px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5498568829133471234" border="0" alt="" src="http://1.bp.blogspot.com/_kyOZIwkNQdM/TE7XN6mJPgI/AAAAAAAAAGY/uGXZJJRrTGA/s320/LaurelHedge1.jpg" /></a>Portfolio insurance, e.g., hedging, costs money.<br /><br />Warren Buffett has said in the past that he'd prefer a company that can grow its earnings at an average, but lumpy, 12% per annum, compared to one that can grow its earning a smooth 10%.<br /><br />That's because he's well aware that the compounding effect of the two rates over a long period of time will produce significantly different end values.<br /><br />In a similar vein, I want to discuss the cost of portfolio insurance. This can be considered to be anything that smooths out the rate of return for the investor. For most of us retail folks, and for most brokers, this insurance comes in the form of inverse ETFs.<br /><br />Inverse ETFs are usually bought when the market is trending downwards, and many brokers use some sort of technical signal, like when the 200 day moving average falls below some other shorter term average (notwithstanding that these signals no longer appear to work <a href="http://www.marketwatch.com/story/track-record-of-the-death-cross-2010-07-09?siteid=rss&utm_source=tf">1</a>, <a href="http://www.cxoadvisory.com/technical-trading/10-month-versus-200-day-sma/">2</a>).<br /><br />If you accept the general premise that the stock market virtually always ends up higher after long periods of time, e.g. 10-20 years, then buying inverse ETFs can only have a adverse effect on your return rate over time, especially if they are bought midway through a downtrend. Inverse ETFs explain this themselves in their prospectus' and there are the trading costs themselves to also consider.<br /><br />The problem is usually further exacerbated since most folks have no idea of how far the market is going to decline and, with all due respect to brokers and their technical signals, neither do they. Using a 200 day moving average as your sell signal, usually means that the market has already been drifting (or vomiting) downwards for some period of time, so you would be buying insurance when its utility is already lessened.<br /><br />The <strong>only</strong> reason to buy it, is if it helps you stay in the market, and earn a long term average of 8%, as opposed to buying some other smoother, but inferior returning, investment vehicle.<br /><br />Myself, I'd prefer a lumpy 9%, to a smooth 8%, thank you very much.<br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 100px; FLOAT: left; CURSOR: hand" border="0" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" /></a> JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-3618253229494310972010-07-25T21:50:00.000-07:002010-07-26T07:44:51.817-07:00Is 6.7% inadequete return for stock investments?John Hussman, <a href="http://hussmanfunds.com/wmc/wmc100726.htm">in his latest missive</a>, suggests that the S&P500 is poised to return about 6.7% annually over the next ten years, based on historical averages, etc. Furthermore, based on other historical averages, eg the return from the stock market itself, he suggests that this isn't an attractive valuation, and the S&P500 could very well breach the March 2009 lows (not all that an attractive valuation in his viewpoint either).<br /><br />I certainly don't argue with the idea of 10 year normalized earnings producing a better indication of total return on a forward basis. However, to point at some of these historical examples of market lows and suggest that they might be reasonably attainable, isn't probably all that thoughtful.<br /><br />Thirty or forty years ago, the average middle class person was not involved in the stock market whatsoever. Period.<br /><br />That simply is not the case today, and it's doubtful those days would return soon, if ever. Financial advisors, for all their warts, have served a large purpose in educating the public to accept that ownership of a business/share ownership, is a lasting and real way to create wealth. Many savers of yesteryear have been replaced by investors of today.<br /><br />Therefore, the underlying demand curve is different today - so it isn't logical to expect valuation metrics of the market to be reproduced today - sans very extreme market events, which would need to last a considerable period of time.<br /><br />Finally, while 6.7% may seem too low for Mr. Hussman, what are the alternatives to that?<br /><br /><ul><li>Real estate - dead money for 5-10 years;</li><li>Bonds - much lower returns;</li><li>CD's - don't even go there;</li><li>T-Bills?</li><li>Mortgage backed securities - please ...</li><li>Commodities - perhaps, but very volatile and, realistically, <a href="http://www.marketfolly.com/2009/01/how-contango-affects-crude-oil-etfs-and.html">subject to contago</a> for the average investor.</li></ul><p>In this environment, 6.7% isn't actually as bad as it may have sounded historically and, anyway, those days are gone, and have been gone for some period of time now. In my book, I suggested some 13 years ago, that having an average S&P 500 return of more than 5% over T-Bills (the then historical average), probably over-stated the risk profile of those companies in their aggregate.</p><p>Of course, there are <a href="http://confusedcapitalist.blogspot.com/2010/07/new-normal-low-returns.html">ways to increase your chances</a> of exceeding 6.7% but, realistically, this is the context to think about stocks over the next decade. Does that make them a bad deal? Not when you consider the alternatives. Mr. Hussman needs to tune himself in to the new reality (15 years and counting now).</p><p>Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 100px; FLOAT: left; CURSOR: hand" border="0" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" /></a>JW<a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a></p><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0tag:blogger.com,1999:blog-22646804.post-37692837269028247032010-07-25T07:14:00.000-07:002010-07-25T07:36:36.937-07:00Morningstar ... Hello, hello .... HELLO?<a href="http://3.bp.blogspot.com/_kyOZIwkNQdM/TExLIWXr2tI/AAAAAAAAAGQ/u9TjzZKnCPw/s1600/bean.gif"><img style="MARGIN: 0px 10px 10px 0px; WIDTH: 254px; FLOAT: left; HEIGHT: 320px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5497851851928492754" border="0" alt="" src="http://3.bp.blogspot.com/_kyOZIwkNQdM/TExLIWXr2tI/AAAAAAAAAGQ/u9TjzZKnCPw/s320/bean.gif" /></a>Long-time readers here know that I am a bit of a Morningstar fan, appreciating their truly independent coverage, and an unconflicted (eg investment banking activities) viewpoint, that so tainted any so-called independent research that emanated from the so-called major institutions.<br /><br />Nevertheless, I have to call them out today. Came across a residential apartment owner, Equity Residential (EQR), to whom they assign a "three-star" rating (average). They estimate the fair value of the shares at just $35 (last traded at one-third OVER than level, at $45). They also say the business has no moat, and say their valuation is subject to high uncertainty (two factors that usually lower their star rating). Furthermore, they estimate the forward PE as 64, and the current price/cash flow as 19.<br /><br />They also add...<br /><br /><blockquote>In the near term, Equity Residential's main geographies are suffering from high unemployment, and a deteriorated housing market. All else equal, high unemployment and consequential lower job mobility lowers housing demand, and makes it difficult for landlords to increase rents. Equity Residential's ownership share of a given metropolitan area is, by and large, less than 3%, so it can't readily affect the sector's pricing discipline.</blockquote>On the positive side, they note that EQR has above-average balance sheet strength, leading to the potential for future residential "trophy" acquisitions. However, they also say ...<br /><br /><br /><blockquote>While we think this environment will present the firm with more attractive acquisition opportunities, we do not bake unannounced acquisitions into our valuation model ...</blockquote>The final kick is the closing statement that they think EQR can earn 7% on its capital over the next ten years, LOWER than their estimated cost of capital at 7.9%.<br /><br />So, let's see if I have this all correctly: overvalued, no moat, trading at high income/cash-flow metrics, weak "same-store" price increase income prospects going forward from existing portfolio, no pricing pricing power in the market, and can't earn its cost of capital.<br /><br />Jack ... JACK ... assign this one an "average" rating, on the account of the "magic beans" that the CEO has in his pocket.<br /><br />Note: If you're on a blog aggregator, you can visit The Confused Capitalist <a href="http://confusedcapitalist.blogspot.com/">here</a> (or here: http://confusedcapitalist.blogspot.com/) for additional articles and exclusive content!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg"><img style="MARGIN: 0px 0px 10px 10px; WIDTH: 100px; FLOAT: left; CURSOR: hand" border="0" alt="" src="http://www.realestate.umn.edu/images/confused%5B2%5D.jpg" /></a> JW <a href="http://confusedcapitalist.blogspot.com/">The Confused Capitalist</a><div class="blogger-post-footer"><script type="text/javascript"><!--
google_ad_client = "pub-1778688136365237";
google_ad_width = 120;
google_ad_height = 600;
google_ad_format = "120x600_as";
google_ad_type = "text_image";
google_ad_channel ="";
google_color_border = "A8DDA0";
google_color_bg = "EBFFED";
google_color_link = "0000CC";
google_color_url = "008000";
google_color_text = "6F6F6F";
//--></script>
<script type="text/javascript"
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
</script></div>Jay Walkerhttp://www.blogger.com/profile/09864804379266346012noreply@blogger.com0