Jump to content

They said no compelling bargains in market...


orthopa
 Share

Recommended Posts

With Howard Marks and Buffet coming out on Cnbc and Fox news recently commenting that there is little value in the market currently or Marks puts it, on the high side of fair. Does this bring anyone down to earth or help "reset you" as a value investor? Not that one would act exclusively on passing comments but does anyone take these to heart? I say that because I find myself, in a market like this say "well, this company isn't exactly cheap, but at this market multiple" or "if they can continue the most recent growth this multiple is fair". 5 years ago, some of the multiples of stuff I look at would be considered in no way value.

 

After letting these comment resonate a little I find that I would be making the mistake of letting some sitting cash burn a hole in my pocket as the market continues to grind higher. Its a conundrum as always, let cash build up earning nothing, or invest in a fairly valued to slightly over valued environment to not get left behind so to speak.

 

As a youngish investor (34) Ive never invested in a maturing bull market as I didnt have any real money in 06-07. How do you guys go about this? Are you still willing to buy fairly valued to the high side of fair companies at this time?

 

Thanks.

 

 

 

 

Link to comment
Share on other sites

Sincerely I am not worried about valuation for any investment of mine. I think they are still all undervalued.

 

This being said, in an environment of elevated general stock market prices I look for businesses with lots of cash and a management with the reputation of aggressively deploying cash reserves, when great opportunities come their way.

 

Gio

 

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case. 

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Uccmal,

 

This is an encouraging post, congrats.  There is a lot of disdain on this forum for dividend payers.  Everyone wants buybacks, which in theory are more tax efficient and all that.  But I've noticed a trend.  Successful investors eventually migrate to some form of dividend payers and eventually live off that stream of income. 

 

My hope is one day I'll make the same migration and move from growth to a more income phase.  To me there is a piece of mind with owning a stable and growing company that can continually fund a dividend.

Link to comment
Share on other sites

OT

 

Successful investors eventually migrate to some form of dividend payers and eventually live off that stream of income. 

 

Like Buffett, for example.  ;D

 

I never bought a stock because it paid or did not pay dividends. Not planning to do this in the future either.

Link to comment
Share on other sites

Every market looks different, so this bull market is different from 2006 is different from 1999. What helped me in the 2nd bull versus the first is that I had a rough plan for contingencies. This way you are ready psychologically. I think people panicked in when bull markets crashed because they weren't ready psychologically. I think of my world view in the event that the S&P crashes 20,30 or 40%.

 

The only person who predicted both crashes is Shiller afaik, he even elaborated on them in two books.  So I really pay attention to his thought process, and he says he doesn't see a bubble because he doesn't see the irrational euphoria like before.  So I must be prepared if a perennial bull like Miller is actually right and PE expand to 20, or even 25.

 

But I really don't pay attention to Buffett and hedge fund managers when they say there aren't bargains. They are in a different league, there are bargains all over the world for small player. Something is happening all the time. Right now Europe, Russia, Greece look cheap to me.  If you say, oh but those markets have serious macro issues. Well ya, that's the name of the game. If the S&P 500 PE goes to 10, you'd know there is a crisis in the US!

 

 

Link to comment
Share on other sites

OT

 

Successful investors eventually migrate to some form of dividend payers and eventually live off that stream of income. 

 

Like Buffett, for example.  ;D

 

I never bought a stock because it paid or did not pay dividends. Not planning to do this in the future either.

 

There was a thread about this a while back.  Buffett does not pay dividends but his holdings do, and he seems to insist on it.  Note much of what he's done recently is preferred issues that generate a lot of income.

Link to comment
Share on other sites

OT

 

OT

 

Successful investors eventually migrate to some form of dividend payers and eventually live off that stream of income. 

 

Like Buffett, for example.  ;D

 

I never bought a stock because it paid or did not pay dividends. Not planning to do this in the future either.

 

There was a thread about this a while back.  Buffett does not pay dividends but his holdings do, and he seems to insist on it.  Note much of what he's done recently is preferred issues that generate a lot of income.

 

I don't want to hog the thread. I agree that some prefs and fixed income securities are attractive investments and I do buy them on yield (to maturity usually, though there are exceptions). But I don't buy them for income and I don't buy common stocks for yield.

 

I am also not trying to say that people are wrong if they do. I just don't agree with your generalization. :)

 

Another comment on this:

There is a lot of disdain on this forum for dividend payers.

 

Perhaps. I don't have disdain for them. I just don't care. :)

On other forums though, there is a huge influx of people into divvie payers. So much so that I am afraid of a bubble in divvie stocks. They were great investments in 2009-2010, but I wonder if now they are getting overvalued even more than general market. I did not do a non-anecdotal study though.

 

Best

 

Link to comment
Share on other sites

Median P/E ratio of the S & P 500 is at a all time high so the US market is definitely a harder market to work with.

 

Plenty of compelling bargains around the world in South Korea, Hong Kong and Japan IMHO. Hong Kong has English financial statements and a couple of companies have been discussed here.

 

South Korea has two large cap stocks that look deeply mis-priced, and that you can trade on the London Stock Exchange - Hyundai and Samsung.

 

The world is a much bigger place these days.

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Al,

 

When you said "good to be in Canada in this case", are you referring to the tax-advantaged treatment of dividends from Canadian companies?  I would really love to know some good Canadian dividend payers; I have a pretty bad record investing in Canadian companies in general.

 

 

Link to comment
Share on other sites

OT

 

OT

 

Successful investors eventually migrate to some form of dividend payers and eventually live off that stream of income. 

 

Like Buffett, for example.  ;D

 

I never bought a stock because it paid or did not pay dividends. Not planning to do this in the future either.

 

There was a thread about this a while back.  Buffett does not pay dividends but his holdings do, and he seems to insist on it.  Note much of what he's done recently is preferred issues that generate a lot of income.

 

I don't want to hog the thread. I agree that some prefs and fixed income securities are attractive investments and I do buy them on yield (to maturity usually, though there are exceptions). But I don't buy them for income and I don't buy common stocks for yield.

 

I am also not trying to say that people are wrong if they do. I just don't agree with your generalization. :)

 

Another comment on this:

There is a lot of disdain on this forum for dividend payers.

 

Perhaps. I don't have disdain for them. I just don't care. :)

On other forums though, there is a huge influx of people into divvie payers. So much so that I am afraid of a bubble in divvie stocks. They were great investments in 2009-2010, but I wonder if now they are getting overvalued even more than general market. I did not do a non-anecdotal study though.

 

Best

 

 

I think its a contextual thing.  When you start to live off your investments you want those stable dividends.  You still work for the man, right? 

 

Some of my best common stock investments have been dividend payers.  There not all bad. 

 

I am not yet prepared to go overseas for value in any significant way.  I would need a better brokerage setup.  Something to work on. 

 

 

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Al,

 

When you said "good to be in Canada in this case", are you referring to the tax-advantaged treatment of dividends from Canadian companies?  I would really love to know some good Canadian dividend payers; I have a pretty bad record investing in Canadian companies in general.

 

Yes. 

 

I have held in the past and rebought recently: Russell Metals -'its running back up fast;

Seaspan (US) see thread - its running up again; Mullen Transport - I love this company - got hammered down late in 2014 with oil panic;

 

Newer: First National - my mortgage lender and the biggest in Canada.  My Equifax score is 850 out of 900 to give you an idea of their customers - < 5% subprime.  Closely held.

 

Bird Construction - small position - I am still studying it.

 

Royal Bank - small position - not especially cheap but they have never, ever cut their dividend

 

bought some AT&T today (US obviously) - small - a work in progress. 

 

Sirius XM Canada - xsr - held by Sirius XM.  This one pukes cash.  I am a little hesitant here as I dont completely grasp the business, and the potential competition from streaming. 

 

The biggest positions are SSW, MTL, and FN. 

 

The conversion of US dividends to CDN is working really well in RRSP accounts. 

 

JPM and WFC common - more for cap gains potential than dividends.

 

.thats about it.

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Uccmal, this is nice, and congratulations also.

 

Is the dividend yield on your portfolio comparable to what you could get with a passive approach, say with like VIG, VYM, VTV from Vanguard; or with a near-passive approach like a Dogs of the Dow strategy?  Could you see yourself going this passive route?  I've toyed with this idea myself (but decided not to until I get too bored or demented to pick stocks actively, like maybe when I'm over 90?)

Link to comment
Share on other sites

I am pretty sure that Buffett said rather recently that if he was managing small sums he could get like 50% per year.  However, Berkshire's size would obviously not constitute a small sum.  I do agree though that the market does seem rather high. 

Link to comment
Share on other sites

I think its a contextual thing.  When you start to live off your investments you want those stable dividends.  You still work for the man, right? 

 

Yes, I am still employed.

 

I don't think I will change my investing approach when I retire. I have a chunk of cash that I'd use for "living". If I'd need more cash, I'd sell some stocks.

 

Obviously, people could argue that I might have to sell stocks at bad time. However, if one has a chunk of cash (or liquid fixed income securities), one can adjust the selling somewhat.

 

I also might have some divvy stocks. I am not against them, I am just agnostic.

 

Anyway, a lot of people do what you do. My objection was only to the implication that everyone (or everyone smart/successful/etc. :) ) has to do it.

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Uccmal, this is nice, and congratulations also.

 

Is the dividend yield on your portfolio comparable to what you could get with a passive approach, say with like VIG, VYM, VTV from Vanguard; or with a near-passive approach like a Dogs of the Dow strategy?  Could you see yourself going this passive route?  I've toyed with this idea myself (but decided not to until I get too bored or demented to pick stocks actively, like maybe when I'm over 90?)

 

Way better - 5.0 - 6.0% on cost .  I am already going the passive route in some sense.  I have set up enough dividend payers to cover living expenses.  Any dividend growth or good deals I get from here are gravy.  I have to get my Wife retired now (if thats possible - she loves her job - it's a sickness....)

Link to comment
Share on other sites

I think its a contextual thing.  When you start to live off your investments you want those stable dividends.  You still work for the man, right? 

 

Yes, I am still employed.

 

I don't think I will change my investing approach when I retire. I have a chunk of cash that I'd use for "living". If I'd need more cash, I'd sell some stocks.

 

Obviously, people could argue that I might have to sell stocks at bad time. However, if one has a chunk of cash (or liquid fixed income securities), one can adjust the selling somewhat.

 

I also might have some divvy stocks. I am not against them, I am just agnostic.

 

Anyway, a lot of people do what you do. My objection was only to the implication that everyone (or everyone smart/successful/etc. :) ) has to do it.

 

I was agnostic until a year or so ago on whether companies paid dividends. 

 

In this market at these prices I want to see the cash coming. 

Link to comment
Share on other sites

Reasonable assessment.  There are certainly no easy pickings, if there ever were.  I have been liquidating Leaps in favour of dividend payers.  My major prerequisite is companies that can fund their dividend, even in a downturn, and have raised the dividend sometime within the last year or two.  I am willing to overlook a cut to the divvy in 2008/09 if it has been bought back up.  No dieing businesses in this lot. 

 

I am now able to completely live off the dividends - good to be in Canada in this case.

 

Uccmal, this is nice, and congratulations also.

 

Is the dividend yield on your portfolio comparable to what you could get with a passive approach, say with like VIG, VYM, VTV from Vanguard; or with a near-passive approach like a Dogs of the Dow strategy?  Could you see yourself going this passive route?  I've toyed with this idea myself (but decided not to until I get too bored or demented to pick stocks actively, like maybe when I'm over 90?)

 

Way better - 5.0 - 6.0% on cost .  I am already going the passive route in some sense.  I have set up enough dividend payers to cover living expenses.  Any dividend growth or good deals I get from here are gravy.  I have to get my Wife retired now (if thats possible - she loves her job - it's a sickness....)

 

I'm thinking of retiring in the relatively near future too, so I've been thinking more about getting cash out of my investments. Still not sure if looking for dividend payers is the way that I'll decide to go, but I'm looking at all options including that one.

 

Right now I'm more thinking about keeping a few years of expenses in cash, and periodically replenishing that pile when something is fairly valued or more. If there's a big downturn, I can simply live through it on the cash pile and not have to sell anything at the bottom (and let the businesses that I invest in deploy capital on my behalf).

 

That's a fine theory, but I'll admit that it would probably feel better to have the certainty of a bunch of dividend cheques coming in every 3 months. One the other hand, most of the businesses that I feel most comfortable with don't pay dividends, mostly because they have a good capital allocator at the helm that tends to get good returns on incremental capital invested. Maybe I can take care of this at the portfolio level, and still invest that way with part of the money and put another piece of it in some dividend ETF or whatever (btw uccmal, what do you think of those? any obvious flaw or downside that I should be aware of). Thanks.

Link to comment
Share on other sites

Liberty - curious if you could go into more detail surrounding your decision to retire and the math you are running to support that decision. You dont need to throw out exact numbers but curious how you think about expenses relative to your current net worth, college, healthcare, etc.

 

Im very young and it feels like retirement can be out of reach until I am much older (60+) even if I reach a multimillion $ net worth

Link to comment
Share on other sites

Liberty - curious if you could go into more detail surrounding your decision to retire and the math you are running to support that decision. You dont need to throw out exact numbers but curious how you think about expenses relative to your current net worth, college, healthcare, etc.

 

Im very young and it feels like retirement can be out of reach until I am much older (60+) even if I reach a multimillion $ net worth

 

Jay---I know you addressed your question to Liberty and I'm sure he'll respond.  In terms of retirement relative to net worth, expenses etc.  there's a blog called Mr. Money Mustache that basically gives an estimate of retirement based on savings rate.  The link is below:

 

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

 

However, as an example if you are saving 50% of your net income you should be able to retire in 17 years.  Below are the assumptions made in the calculation:

 

•You can earn 5% investment returns after inflation during your saving years

•You’ll live off of the  “4% safe withdrawal rate” after retirement, with some flexibility in your spending during recessions.

•You want your ‘Stash to last forever, you’ll only be touching the gains, since this income may be sustaining you for seventy years or so. Just think of this assumption as a nice generous Safety Margin.

 

Link to comment
Share on other sites

There is a lot of disdain on this forum for dividend payers.  Everyone wants buybacks, which in theory are more tax efficient and all that.

 

 

Not me.  I'm very much in the capital accumulation phase and yet I very seldom invest in things that don't pay a dividend - and I seldom invest in things that buy back stock unless management are explicit about getting value for the stock they buy.

 

Dividends are key to long term returns, long histories of raising dividends tell you a lot about a company's quality and mindset, and buybacks are inefficient in aggregate because they are badly done and skew management incentives.  But I've ranted about this elsewhere on this board ;)

 

Edit: good article on buybacks and how accounting skews their results here https://www.fundsmith.co.uk/Libraries/Research/share_buybacks.sflb.ashx

Link to comment
Share on other sites

Liberty - curious if you could go into more detail surrounding your decision to retire and the math you are running to support that decision. You dont need to throw out exact numbers but curious how you think about expenses relative to your current net worth, college, healthcare, etc.

 

Im very young and it feels like retirement can be out of reach until I am much older (60+) even if I reach a multimillion $ net worth

 

Hi Jay,

 

My personal details are not very useful to anyone but myself, but Dshachory is right. Go read the MMM blog starting with the #1 post chronologically and make your way to the present. After that, either you'll get it (it's like Buffett's value investing) or you won't. But chances are, you don't need as much as you think, and you're probably spending a lot more than you need to be happy.

 

I'm 32 years old. You probably make more money than I do. You should be able to retire before you're 60.

 

Here you go:

 

http://www.mrmoneymustache.com/2011/04/06/meet-mr-money-mustache/

 

There's a button at the bottom to go to the next post. It takes some posts for him to hit his stride, so make sure you don't give up before you've read 10-15.

 

For older school materials on the same topics, check out:

 

http://www.amazon.ca/Your-Money-Life-Transforming-Relationship/dp/0143115766

 

This is a book that I read in my early 20s and that helped set me on the right path.

 

https://www.createspace.com/3457832

 

There's also this book, which is a bit more philosophical and abstract. I suggest you start out with the MMM blog.

Link to comment
Share on other sites

Thanks guys.

 

I know my statements were probably dramatic but I really do worry about college tuition if I have kids. The exponential growth there has always scared me.  I know I can probably cut back more on expenses (living in NYC pretty much guarantees that I will always be able to cut back) but I think I am comfortable with my current savings.

 

I'll read those links and try to plug any obvious holes/leaks.

Link to comment
Share on other sites

Thanks guys.

 

I know my statements were probably dramatic but I really do worry about college tuition if I have kids. The exponential growth there has always scared me.  I know I can probably cut back more on expenses (living in NYC pretty much guarantees that I will always be able to cut back) but I think I am comfortable with my current savings.

 

I'll read those links and try to plug any obvious holes/leaks.

 

I think you'll find the writings of MMM thought-provoking, if nothing else. He addresses all the usual fears about high-cost-of-living cities and college tuition for kids, etc.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...