hc, I have never put anyone on ignore. With only one exception, "NJ Flo" (see below), almost everyone brings something of value to a discussion. The particular trade that seems to fascinate (to no end) several folks on this board, doesn't bother me in the least. My hypothetical loss on that trade is simply the difference between what I would have made on BRK-B and what I actually made on VPU. Nothing to loss any sleep over. The trade that really haunts me is my 1982 purchase of Apple. On the 5Apr1982, I bought 100 shares at $18.50 per share, and then sold them, less than a year later after a fantastic run up, on the 30Nov1982, at $28.375 per share, to lock-in a 53% profit. Those prices, by the way, include the market maker's (Dean Witter Reynolds) commission. But, if I had simply held onto them, those shares would have grown, after four splits (2x2x2x7), to 5,600 shares, now worth more than half a million dollars. In my defense, you need to remember that IBM introduced their PC in August of 1981, and it was clear to me by late 1982 that it was taking sales away from Apple. My "market research" consisted of monthly visits to the local ComputerLand store during that period of time.
"Flo" is short for Florentine, and I'm sure you know what ingredient that generally refers to in Italian cuisine.
I gave your post a positive recommendation for both creative writing and sense of humor, even if I'm the butt of the joke.
IF SPY pays a dividend equal to 2% of its price at the start of each year AND grows both the dividend and the price by 5% per year (for a total annual return of 7% per year) THEN a 1 M$ initial investment would have returned (a decade later) a total of ~1.880 M$; ~0.252 M$ in dividends with a final portfolio price of ~1.629 M$ (IRR, 7.00%).
IF BRK grows 7% per year AND at the start of each year, 2% of the stock is sold to fund a distribution THEN a 1 M$ initial investment would have returned (a decade later) a total of ~1.857 M$; ~0.250 M$ in distributions with a final portfolio price of ~1.607 M$ (IRR, 6.86%).
Note: IMO, both syzygyzys & sean_erickson2000 are very good with the numbers, if either of them find fault with the above, you may disregard this post.
GMO's 2Qtr2014 letter was released today.
Ben Inker's paper: "Free Lunches and the Food Truck Revolution", discusses selling puts.
« Some investors and strategists have suggested that put selling is a free lunch, and on the face of it, they
seem to have a point ... »
One of Jeremy's papers: "Bubbles Again ...", puts a number on it.
« Accordingly, my recent forecast of a fully-fledged bubble, our definition of which requires at least 2250 on the S&P, remains in effect. »
That's a Price to Revenue ratio of about 2.00 (T4Q Revenue per share as of 3/31/2014 was $1126.00).
hc, worth the read, IMO, post # 211669 on the other board.
I share SteveStox's view that WEB has changed. IMO, the old WEB was a friend of the small investor, someone who could be trusted to call it like he saw it, letting the chips fall where they may, someone in the same league as Bogel, Grantham, and Hussman. The new WEB isn't anything like the old WEB.
JMO, but $127 per share seems about right.
Book value per "B" share was $92.28 on 3/31/2014. On average, it grows about 10% per year or about 0.8% per month. So, 4 months later, on 7/31/2014, my guess is it is probably now about $95, 1.008^4*$92.28..
Just about everyone who follows this stock knows that the BOD is authorized to buy back shares if the price falls below 1.2X book value per share and that WEB hinted on 10/04/2011 (buy $1 for 90¢) that he won't pay full price, that he buys at a discount to intrinsic value. So my guess is a knowledgeable, rational investor will very likely guesstimate that this stock is now worth about $127 per share, 1.2/0.9*$95.
Everything else is, in my opinion, just noise.
« If you owned it back in 2007 before there was a buyback threshold, what did you do then to estimate its value? »
Well, I certainly didn't believe it was worth 194% x Book, or I would not have sold it.
My thoughts on valuation have changed dramatically over the years and what I believe, either now or then, no longer matters.
When WEB first announced the buyback at 110% of Book and followed it up a week later with the "buying a dollar bill for 90 cents" discount remark, I was absolutely furious. It destroyed a short term trade I have going at the time. But once I got over it and began to rationalize his numbers it did make sense. WEB no doubt uses a higher, businessman's discount rate, not the silly, implied rate that retail is willing to accept. He also very likely has a better sense of what future growth rates are likely to be (his interest in population growth rates is a strong clue in that direction) and has the most realistic view of what BRK could actually distribute as a dividend (10% annual growth in book value per share does NOT imply a future dividend/book rate of 10%).
JMO, have a good day.
I have no idea why he pops in here occasionally. He is without a doubt the most obnoxious, mean-spirited, hateful, individual I ever met, save one. I'm pretty sure the majority of folks over on the other board have tired of his nonsense as well. I do believe he has been "P-Boxed", (put in a virtual penalty box) in the past for obnoxious behavior.
Today someone asked for clarification on something WEB was reported to have said in the past (2008 AM) and, of course, he couldn't resist the opportunity to immediately throw out a nasty insult (msg # 212077).
But seriously, don't waste your time with his hateful nonsense, read Jim's intelligent, thoughtful, reply/analysis instead (msg # 212082). Apparently WEB hinted at what he thought BRK might be worth in 2020.
As always, JMO.
IMO, CURRENT interest rates don't matter. It's just a trick propagated by the Fed to push up and then support, equity prices. At least for the time being, don't you feel richer? What will matter, in the not so distant future, is the interest rate YOUR buyer will use to formulate his bid when you decide to sell.
Good morning, hc. I've never been a fan of CAPE. While it adjusts earnings for changes in inflation, it does not compensate for any real growth that occurred over the decade in question, so the denominator is always a bit lower, and the resulting PE ratio higher, than it should be. And, IMO, no amount of normalizing and tweaking the earnings number(s) will ever give them any credibility as a valuation tool (same goes for book value).
FYI, I've pretty much lost interest in equity valuation (no interest at all in BRK and marginal interest in everything else), so if you find that I post less and less, you now know why. IMO, even the recent historical data for dividend paying stocks has been badly damaged by excessive financial engineering, thus making the valuation process for even those stocks much more difficult.
Thanks, hc, that was a good article.
No doubt about it, dividend investing is tricky.
Companies sporting high yields may be cheap for a very good reason. They may have little or no growth left (mature, old elephants) or are assumed to be approaching death (tobacco).
Even companies that have consistently increased their dividend, year over year, may ultimately resort to the same financial engineering tricks (buy backs, cutting expenses via staff reductions, deploying tax gimmicks, etc.) favored by lesser companies (e.g., "HAL") to remain members of their club.
Personally I'm hoping that the equity bulls (Sean? Beach?) pump the market (and my holdings) out to the point where a decade's worth of good news is already priced in. At that point I'll just liquidate my equities, go to cash, and never look back. Even though I don't own the "500", I still follow it, and my guess is it has now priced in about 8 years --- that is, over the next 8 years, the return on the index, pre-tax, is likely to be no better than just holding cash.
Thanks for the heads up, hc. I did get a chuckle out of Charlie's "beer" remark. That's a new one for me. A number of folks immediately came to mind when I read that.
Not sure that it is doable here in the US, but the Canadian tax reform of 1971 allowed firms up there to issue dual-class shares. The two classes are identical except for how they pay the dividend. One class pays a taxable CASH dividend, the other, a tax deferred STOCK dividend. All WEB would have to do is split the old A shares 1/1500 and then have the new A shares pay a stock dividend (that should please the folks who want to continue putting off paying their taxes) and have the B shares pay a cash dividend (which should please the folks who want their share of the profits now). See, you CAN have your cake and eat it too!
Thanks for the heads up, hc.
That was pretty good, but the kicker was the last line: "Same as it ever was". It sent me over to a well known music site (actual name removed to please the censor) to listen and watch David Bryne of the Talking Heads perform "Once In A Lifetime".
According to WAGEMARK:
« Plato recommended that the incomes of the wealthiest Athenian residents never exceed five times those of its poorest residents. Some two millennia later, no less than the great American robber baron J.P. Morgan argued that the limit should be 20:1. »
« Peter Drucker ... suggested that 15:1 would suffice for most small and medium sized businesses and that with few exceptions even the largest multinationals could accommodate themselves to life within a 25:1 maximum wage ratio. »
« Charlie commented that they never have wanted to get Berkshire's stock to trade way over intrinsic value. He added that folks that want the stock to trade over intrinsic value want "egg in their beer." However, he predicted that "Berkshire's stock will trade above intrinsic value over the long term whether we like it or not." »
I wonder if Charlie believes BRK is currently trading above IV?
Curiouser and curiouser!
« Jad is Sad »
NT, is that a title from your reading list [see below] or are you just late to the party? If it is the latter, stick around, we'll being needing folks to fold & stack chairs, take down the decorations, and sweep the floor.
NT's Reading List?
Hop on Pop
Clifford the Big Red Dog
One Fish Two Fish Red Fish Blue Fish
Go, Dog. Go! (my favorite!)
Balt, I too, feel that utilities are now fully valued or even over valued. VPU, Vanguard's Utilities ETF was the only one of my holdings that ended in the green yesterday. Geezers like me sure love our dividends! Unfortunately constantly bidding the price up only destroys the yield. If I add an assumed growth rate of about 3% (2% inflation + 1 % real growth) to the current 3.3% yield, that suggests a total annual return, going forward, of about 6.3%, not bad. But what is particular disturbing, at least to me, is the fact that, at least near term, my guesstimated growth rate may be too high. VPU's year-over-year growth rate has now fallen to only 0.32% (T4Q D/s: $3.098 as of 6/27/2014, vs $3.088 as of 6/28/2013). The same appears to be true for both the DJ Utility Avg (52 week change: 0.56%) and that aging fleet of aircraft carriers know as the DJIA, which is now negative! (52 week change: -0.03%), by the way, my calculations for the last two are based on the BARRON'S weekly data table: "Major Index Price-Earnings Ratios and Yields". That's become a weekly ritual for me. The S&P 500, on the other hand, is still merrily racing along at 11.0%. My guess is, when that one hits the wall, it's over. If someone asked me what a reasonable expectation might be for the annual growth rate of a herd of mature elephants, my answer would be about 4%, 1.8% real + 2.2% inflation. To my mind, anything much higher than that is highly suspect.
Bloomberg article dated: April 22, 2014 ... "IBM End to Buyback Splurge Pressures CEO to Boost Revenue"
« IBM is reducing stock buybacks after an $8.2 billion first-quarter splurge, putting more pressure on Chief Executive Officer Ginni Rometty to reignite sales growth or cut costs to hit her profit targets. IBM said last week it won’t sustain its rate of share repurchases in the first quarter, when buybacks more than tripled from a year earlier to the most since 2007. The company plans to spend less than $5.8 billion total in the final nine months of this year. »
« He paid about 3.5 times revenue. »
Time to check your numbers!
The current (6Jun2014) Value Line report for XOM is available free on their website (it is one of the 30 DOW stocks).
XOM's 2013 Price per share ranged from $84.8 to $101.7.
XOM's yearend 2013 Sales per share was $90.02.
Which puts XOM's 2013 Price/Revenue ratio between: 0.94 and 1.13.
And, while XOM's DIVIDEND/REVENUE RATIO of ~2.7% is in the same "ballpark" as the S&P 500's, it's Revenue PER SHARE growth rate is expect to be better due to higher than average share reductions via buybacks.