« Why shouldn't it have a 5XBV valuation? »
Wow! And to think that less than brilliant remark is emanating from someone who claims to be a retired registered investment advisor and who also claims to have taught, many years ago, Economics in college.
Option premiums can be priced using the Black-Scholes equation. Volatility is one of the six inputs. All other things being equal, the higher the volatility, the higher the premium price.
Utility funds have really been on a tear this year.
Year to date total returns: VPU (ETF), 21.78%; XLU (ETF), 22.87%, and UTG (a leveraged CEF), 28.54%.
I guess it's pretty obvious by now that geezers (like me) love those ever-growing, sweet juicy dividends.
Year to date total returns: BRK-B, 18.22%; VOO (S&P 500 ETF), 10.90%; VTI (total US stock market ETF), 9.88%; and VXUS (just about everybody else - "Ex-US", ETF), -0.45%.
Laugh if you want, but VXUS (the ETF version of VGTSX) might actually be the best buy in the bunch. It looks to me like VGTSX is trading at a P/D of about 30, and dividends have grown by about 5% per year in the past.
Yo, spirach2, I know from what I've read over on the other board, that you're nothing more than a "me too" Buffett copycat "investor", care to share YOUR cost basis on IBM?
By the way, the day I sold BRK-B I put every penny of that sale into VPU. Now it hasn't beat BRK-B over that time frame, but it has beat it YTD, and I sleep much better at night knowing that 20+% of it's market price isn't going to "vaporize" the week Buffy "buys the farm".
YTD as of 11/6/2014:
22.2% VPU - own it.
30.3% UTG - too risky for me, leveraged CEF
valueinvestor1234, I'm afraid the VL analyst doesn't share your optimistic projection of 12% growth for the next five years. He's "penciling in" 4.0% per year for the operating margin and 3.4% per year for the net profit margin. As far as the discount rate is concerned, you may use whatever ridiculously low interest rate you want for the first five years, but be sure to use something far more credible (CalPERS wants 7.5%, WEB's expected long-term rate of return on his pension plan assets is 6.7%, 2013AR, p.61) for the 295 years that follow it.
LOL, Spirach2. I'll bet you stayed up all night looking for that. And you call me a loser? I'll give you this, it takes one to know one. Unfortunately, what you do is typical of what quite a few other folks who post here do as well. If you have nothing to contribute to the topic under discussion then attack someone who does. Mean, hateful, and spiteful ... that's NJ all the way. IMO, the folks who do that are nothing more than a pathetic, bunch of petty, dimwitted, character assassins. I'll be back, if and when, WEB does a "Mark Twain".
« Twain was born shortly after a visit by Halley's Comet, and he predicted that he would "go out with it", too. He died the day following the comet's subsequent return. »
WEB likes to joke that he was conceived during the 1929 Stock Market Crash.
All joking aside, hc, TF did post an excerpt and a link in msg# 213827 (on the other board) that was worth reading: "Seth Klarman On The Complacency Before Chaos".
Thanks, hc, that was interesting.
I don't screen using EV/EBITDA anymore, but three (CVX, T & VZ) of my current holdings are below 6.5X.
About eight years ago I did successfully trade Accuride, ACW, based indirectly on EV/EBITDA. At the time it was controlled by KKR and my expectation was that while neither the enterprise value, EV, nor the EBITDA would change much during the duration of the trade, the VOC, Value of Equity, would increase as Net Debt decreased (debt was paid down or cash was retained). I got luckly on that one and decided not to repeat that stunt again. I passed when they did Sealy, ZZ, - cute ticker symbol. Much to my chagrin, I mistakenly thought ACW was cheap when I bought it. If I remember correctly, the EV/EBITDA ratio was under 7. I did learn one thing from that trade. A low EV/EBITDA is justifiable IF CapX net of Depreciation is positive AND a large percentage of EBITDA, which is just another way of saying there isn't much Free Cash Flow to Equity hiding within a dollar of EBITDA. That's something to think about when considering any capital intensive business, e.g., automotive.
I thought the first graph, "Obviously Not a Bubble", really didn't support his argument. IMO, a plot of the Price to trailing four quarter Dividend would have been more meaningful. That ratio would at least show how the market had valued a dollar's worth of dividends over time. Date, P/D: 12/31/1994, 34.85; 3/31/2000, 89.41; 9/30/2002, 51.60; 6/30/2007, 57.45; 3/31/2009, 29.28; and 6/30/2014, 52.44.
So what's a dollar's worth of dividends worth?
That depends on both your discount rate and what you believe the sustainable future growth rate will be.
IF you want at least a 7% return on your money AND you believe that dividends per share will grow, on average, nominally, by 4% per year over the next century, THEN you might favor a P/D ratio of about 35.
Take a look at multpl's chart of the S&P 500 Dividend Yield. For 120 years, 1870 to 1990, the D/P ratio was consistently above 3%, (equivalent to a P/D ratio of 33 or less).
Congratulations! Twenty pounds in three months is really impressive. You are doing EXACTLY what my doctor is asking me to do. If I lost half that much weight in twice the time my doctor would be thrilled.
So it looks like WEB is getting 9% on his 3B$ participation on the BKW deal. If nothing else that reconfirms that he is still using a high discount rate and goes a long way, in my opinion, in explaining why his buyback threshold is so low.
If I remember correctly, there was a time (around the Gillette or Duracell deal?) when WEB couldn't stand to be in the same room with the PE guys (Henry & George?) and now he has become best buds with them. Oh well, that's why I try not to have heroes anymore, they all disappoint eventually.
IMO, that's just another ludicrous rationalization to support overvaluation.
Years ago, iluvbabyb wrote that WEB does lower his discount rate as bond yields fall, but that he also has a FLOOR, 9%. His most recent deals and the fact that he has an excess ~$30B in cash on the balance sheet still supports that, IMO. Only retail is willing to bid prices up to the point where they'll make a bond-like return of next to nothing on their investments.
Good morning, hc. I took a quick look at it. Since inception, 4/26/2013, it has paid out $2.25, but lost $3.29 in capital. The fixed monthly distribution seems overly generous. I wonder how much of that is a return of capital. I'll pass.
Thanks for the heads-up, hc. This is the first time I've heard of him. I couldn't find the interview, but on your recommendation, I did read, and enjoy his most recent blog: « Rickards: Stock market reality check ». Based on feed-back from my two sons (both in their twenties, high school graduates, some college, they did opted instead for technical programs: electrician & culinary arts), his comments on jobs is on the mark.
By the way, I'm not on my deathbed yet, although following my doctor's orders: eating a low carb diet and riding an exercise bicycle while reading a large print book, isn't exactly my idea of living either. I am bored to death with the market and equities. I'm in the process of tweaking my portfolio for eventual hand off to my wife (just in case I can't follow the regime), so nothing I'm doing has any value to anyone.
Let's fantasize for a moment that WEB decided to financial engineer BRK. What could he do?
My best guess is that BRK generates about $6.00 per B share in free cash flow to equity. That's ~70% of currently reported TTM diluted earnings per share. I've subtracted ~30% to adjust for the fact, that, on average, capital expenditures exceed depreciation by roughly that amount. Let's assume that WEB distributed half of that, $3.00 per share, as a dividend and used the other half, $3.00 per share, to buy back shares. And finally, let's assume that BRK's "plain vanilla", inherent (organic) sustainable nominal annual growth rate would be about 3% per year if no FCFE was reinvestment or retained and that's also before accounting gimmicks like share repurchases. Now, what would an attractive buy back price be? That, of course, would depend on the return he wanted to make.
ATR = (1+3.00/P)*(1+3%)/(1-3.00/P)-1
The current price per share, ~$140, implies a return of about 7.5%. If he wanted a return north of 9% then he shouldn't pay (buyback shares) at any price north of $106 (111% of book value per share).
As always, just my opinion.
Hopefully, some day soon, we'll all be singing:
Once upon a time there was an engineer
Choo Choo Buffy was his name, we hear.
He had a stock and he sure had fun
He used dividends & buybacks to make his stock run.
Buffy says "Love my Divs & Buybacks!"
Buffy says "They really ring my bell!"
Buffy says "Love my Divs & Buybacks!"
Don't know any other gimmick that I love as well.
"Financial markets are artificially priced."
"While profits in many cases are at record highs, the discounting of future profit streams by an artificially low interest rate results in corresponding high P/E ratios."
" We have had our Biblical seven years of fat. We must look forward, almost by mathematical necessity, to seven figurative years of leaner: Bonds – 3% to 4% at best, stocks – 5% to 6% on the outside. That may not be enough for your retirement or your kid’s college education. It certainly isn’t for many private and public pension funds that still have a fairy tale belief in an average 7% to 8% return for the next 10 to 20 years!"
axp, what else could they do? Look at the current value line report. The VL analyst's expectation for the next five years is 1% per year revenue (organic) growth, from an actual 99,751 M$ for 2013 to a projected 105,000 M$ for 2018. A 2.7% dividend yield with 1% annual growth just isn't going to do it. But, if they buyback 3% of their shares per year they can "financially engineer" a 4% per year, PER SHARE, growth rate, bringing the total return up to about 6.8%, which should mollify the market. In my opinion, raising the dividend yield (by increasing the payout ratio) would be better for the common shareholders, but increasing the price per share is absolutely required by the folks who really count, those who would like to see their exercisable options deeper in the money.
As always, just my opinion.
hc, I'm not aware of the studies that interest you, but I really haven't been paying attention either. I lost interest in "coattailing" BRK after I copycatted PIR (lost money) & KFT (acceptable, but unimpressive XIRR of ~ 7%).
This board has its fair share of "4-watt night lights" too, who enjoy rubbing other folks' noses in trades that have gone sour (like that has NEVER happen to WEB). I won't do to TF what I don't appreciate other folks have done to me. IMO, this board has become almost worthless thanks to that kind of pettiness.
From a recent post on the IBM message board:
« ROE of 93% shows great profitability and capital allocation. 100 earns 93, if you back out the borrowed equity, it will still be around 30-40%, show me a company that has such astonishing ROE with low debt. »
For once, I'm speechless.
You're not there yet, and with any luck at all, you want be there by yearend.
Among other things, poor Spirach2, is also numerically illiterate: i.e., 143 is NOT 2 * 82.
And remember, there are only enough lifeboats for the first 12.5% who will take $115. The rest of you can tread water and hum "Nearer My God to Thee", while you wait for the Carpathia.