Tuesday, July 11, 2017
Money Is Made In The Holding
What a bountiful harvest we are enjoying this year fellow farmers! I wanted to take a moment away from the fields and share with you a favorite quote of mine from my favorite book on investing.
Edwin Lefevre's masterwork "Reminiscences of a Stock Operator" has stood the test of time well and tells the story of Jesse Livermore, dubbed the "Boy Plunger," who turned his smarts, energy, and grubstake into an extremely successful career on Wall Street (up until his untimely death in the coat closet of the Sherry-Netherland.)
The primary take-away is this: "Money is made in the holding." And by that Livermore explains that the largest fortunes he made in his career were the result of buying and HOLDING the position.
Do some positions flop? Yes, many. Do some seeds fail? Yes, many. But the potential for an outsized return via an exponential winner dwarfed them all. The proverbial bumper crop that keeps a harvest going for years, generations in fact. There are many ne'er-do-wells reaping the success from seed planted generations before them. And why? They have held.
This ties in well with the Invest Like A Farmer philosophy of buying monopolistic dividend paying stocks with a steadily increasing left to right chart. Day-to-day a position may lose money. Over months it may as well, but over an increasing time period the confluence of inflation, consumption, and (hopefully) brand management those holding a position can harvest a bountiful crop.
So the is my mid-summer wisdom passed along from Jesse Livermore: "Money is made in the holding."
Tuesday, April 4, 2017
High Returns from Low Risk
Well fellow financial farmers an investor after my own heart has finally codified what we have intrinsically know for years; that it is possible to achieve high returns from low risk. How? Frequent readers of this blog (thanks Mom & Nana!) know that the effects of compounding create a virtuous anomaly in investment returns. This alpha anomaly is the result of exponential returns from consistently adding shares via dividends, buybacks, and other shareholder-friendly actions which are natural occurrences when consistent strong cash flows are administered by prudent corporate management.
Pim Van Vliet goes back many decades and crunches the numbers for us to prove this point in his new book "High Returns from Low Risk." He compares high volatility stocks with low volatility stocks (referred to as "beta" in the Wall Street world.) From this he backtests multiple scenarios which pictorially reveal what happens to "boring" investors over time...although even those dice-throwing, card-counting, wheel-spinning risky investors do well too IF they have the ability to HOLD positions over long periods of time.
What's the take-away? Invest for the REAL long time and don't be afraid to put money in your financial farm in positions which have traditionally been labeled "boring." This book is a great read for those who wish to Invest Like A Farmer.
Monday, February 27, 2017
On the surface it might not seem likely given the significant divergence in their public personas, but Donald Trump might just be Ronald Reagan 2.0
Behind the media's candelabra, there is a distinct similarity for the love of America and laser-focus on defense, infrastructure, and big deals between Donald Trump and Ronald Reagan. Obviously both are Republicans, but both weren't scions of the GOP establishment. Rather, both Presidents started off in that other party...the Democratic one, which left them and millions of other moderate Americans behind.
If history is any indicator, Reagan 2.0 should continue to be a boon for stock market investors as the government will ramp up spending on defense and infrastructure, while reducing regulation, lowering taxes, and putting America First (read as smart trade negotiation.) On the proverbial back of the envelop is the calculation of Dow 25,000 by the end of President Trump's 1st Term; there are estimates of Dow 30,000 too, but those make some really difficult assumptions.
It is going to be nearly impossible for President Trump to accomplish everything he sets out to do in his first term. Nevertheless, if President Trump can navigate the tricky deal of providing health care coverage for millions of Americans while simultaneously lowering taxes, reducing regulation, and securing our borders he'll have succeed in the bulk of his goals. Even on the belief that he will accomplish just some of these monumental tasks, the stock market has risen some 3,000 points in the past 4 months.
Investing in America has never seemed brighter; companies are regularly beating their earnings expectations and a pipeline of new incentives are on the horizon. Corporate tax reduction coupled with the ability to repatriate trillions from overseas is likely to bolster the corporate bottom line immediately, while the effects of ongoing, material reduction in regulations will provide intrinsic value which will materialize over time.
Financial farmers are in essence buying into the American Dream at a ripe time. Further prosperity via innovation and growth in the underlying fields of business should provide a bumper crop for years to come. How do I like them apples? I love 'em!
Saturday, February 25, 2017
Wall Street might just be the most vilified business, right after politics of course. Warren Buffett said as much today in his eagerly awaited annual letter to shareholders, calling members of the financial world "monkeys." Lest we forget dear readers, the 1956 Buffett Partnership Ltd. pioneered one of the highest fee structures in existence; a flat 2% for assets under management PLUS an additional 50% performance fee of any profits above a 4% return.
Warren contributed $100 (one hundred) dollars of his own money from his savings of $174,000 in 1956 to the total partnership capital of $105,100. Over the next 14 years the Buffett Partnership did very well, but Warren Buffett did EXTREMELY well. Although it is impossible to determine exactly what his take-down was, according to multiple sources his personal profit was along the lines of $25,000,000. This grub stake would be leveraged into the on-going fusion of Berkshire Hathaway and GEICO into the modern day holding company. There was just one problem, his partners.
May 29th, 1969...A Day That Will Live In Infamy
In 1969 the partnership was shut down, which coincidently coincided with the the consolidation and formation of the present day holding company of Berkshire Hathaway. Please note fellow financial farmers, at this critical juncture Warren advised his partners that there weren't any viable investment opportunities in the future and disbanded the partnership. His money, however, went into the holding company. This is probably one of the most important facts glossed over by the sycophant business media; Warren Buffett "advised" all of his limited partners to a magnitude almost incalculable, but I'll give you a back of the envelope number: $420 Billion in missed opportunity. It probably ranks as one of the greatest swindles of all time.
Today Warren Buffett is depicted as a grandfatherly investing sage championing index funds, although he has nearly his entire net worth in Berkshire Hathaway stock. Berkshire has the ability and desire to negotiate sweetheart deals (aka shareholder extraction) the likes of which could never be accomplished by ordinary mom and pop investors. 2008 was a seminal extraction year for Berkshire, it was able to succor dozens of deals; Goldman Sachs, General Electric, Dow Chemical, Bank of America, etc. all paid homage (on the backs of their shareholders) to secure funding from Warren.
History, in its purest form a trade blotter, reveals all; Warren Buffett changed career paths in the early 1950s from a stockbroker to partnership not to benefit clients, but rather to harness his "unique" investing ability as the son of a sitting Congressman, which coincidently paid one of the highest fees in the financial industry. At the juncture at which his partnership provided an adequate stepping stone to leapfrog into total control of assets in which he could use the float from GEICO and simultaneously extract value out of those glorious old spinning mills Berkshire and Hathaway he didn't hesitate.
Without a doubt, Warren Buffett is one of the greatest investors of all time; his ruthless pursuit of profits is virtually without equal. Berkshire Hathaway has a market cap of some $420 Billion and generates several Billion a year in profits. It is the the 4th largest company in the world. Warren singlehandedly extracted value from many, many companies via their existing infrastructure, brands, and workers; surely he is the leader of the monkey troop.
The irony in Warren's investing words and actual behavior is summed up simply by the residents of Fall River, Rhode Island and New Bedford, MA...the respective headquarters of Warren's launching pad for holding company Berkshire Hathaway...there are no bronze statues to this man, just crumbling factories and lost American jobs.
Friday, February 17, 2017
Mergers & Acquisitions
Today's proposed merger of KraftHeinz (a product itself of the recent mega-merger of Kraft and Heinz) with Unilever begs the question of truly how many companies really control most of the consumer brands we use? Shockingly few is the answer, and looking like even fewer in the future as jobs and workers are replaced with autonomous factories, warehouses, and shipping.
After squeezing every nickel out of manufacturing efficiencies, the next logical step is to squeeze the workers out of their jobs. This has been the hallmark of 3G Capital and to a greater extent Warren Buffett. Indeed, one could argue Warren Buffett has been in the shuttering business business since his first purchase of the fabled (and now silent) textiles mills Berkshire Hathaway in New Bedford, Massachusetts.
Not surprisngly there aren't any bronze statues of Warren Buffett in New Bedford; all the jobs were vaporized as the mills were drained of every last dime of cash flow. Today those old mills are hulking ghosts of a time forgotten. This team now has their sights on Unilever, a massive European conglomerant that is the owner of many favoroite brands inlcuing the progresive ice cream company Ben & Jerry's. Rocky Road is an aptly named flavor of what existing Unilever employees are about to experience.
I have little doubt that this deal will get done in at least some form; but the impact to jobs aka "cost synergies" will play out like it has for decades. Any overlap will be fired, corporate profits will increase, executive comp will spike, and shareholders should do modertely well too. The blueprint is already in place and the game plan issued. Keep an eye on this one fellow financial farmers as we move from 11 companies controlling almost all the conusmer brands to 10. All those workers are going to have to innovate themselves into a new career in the Gig Economy or become additional wards of the state.
Friday, January 20, 2017
Donald J. Trump Inauguration Speech
January 20th, 2017
We, the citizens of America, are now joined in a great national effort to rebuild our country and restore its promise for all of our people. Together we will determine the course of America and the world for many, many years to come.
We will face challenges. We will confront hardships. But we will get the job done. Every four years, we gather on these steps to carry out the orderly and peaceful transfer of power. And we are grateful to President Obama and first lady Michelle Obama for their gracious aid throughout this transition. They have been magnificent. Thank you.
Today's ceremony, however, has very special meaning. Because today, we are not merely transferring power from one administration to another or from one party to another. But we are transferring power from Washington, D.C., and giving it back to you, the people.
For too long, a small group in our nation's capital has reaped the rewards of government while the people have borne the cost. Washington flourished, but the people did not share in its wealth. Politicians prospered, but the jobs left. And the factories closed. The establishment protected itself but not the citizens of our country. Their victories have not been your victories. Their triumphs have not been your triumphs. And while they celebrated in our nation’s capital, there was little to celebrate for struggling families all across our land.
That all changes starting right here and right now. Because this moment is your moment. It belongs to you. It belongs to everyone gathered here today and everyone watching all across America. This is your day. This is your celebration. And this, the United States of America, is your country.
What truly matters is not which party controls our government but whether our government is controlled by the people. January 20th, 2017 will be remembered as the day the people became the rulers of this nation again.
The forgotten men and women of our country will be forgotten no longer.
Everyone is listening to you now. You came by the tens of millions to become part of a historic movement, the likes of which the world has never seen before. At the center of this movement is a crucial conviction -- that a nation exists to serve its citizens. Americans want great schools for their children, safe neighborhoods for their families and good jobs for themselves.
These are just and reasonable demands of righteous people and a righteous public. But for too many of our citizens, a different reality exists. Mothers and children trapped in poverty in our inner cities, rusted out factories scattered like tombstones across the landscape of our nation, an education system flush with cash but which leaves our young and beautiful students deprived of all knowledge. And the crime, and the gangs, and the drugs that have stolen too many lives and robbed our country of so much unrealized potential. This American carnage stops right here and stops right now.
We are one nation, and their pain is our pain. Their dreams are our dreams, and their success will be our success. We share one heart, one home and one glorious destiny.
The oath of office I take today is an oath of allegiance to all Americans. For many decades, we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military. We defended other nation’s borders while refusing to defend our own. And spent trillions and trillions of dollars overseas while America's infrastructure has fallen into disrepair and decay.
We've made other countries rich while the wealth, strength, and confidence of our country has dissipated over the horizon. One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind. The wealth of our middle class has been ripped from their homes and then redistributed all across the world. But that is the past and now we are looking only to the future.
We assembled here today are issuing a new decree to be heard in every city, in every foreign capital and in every hall of power. From this day forward, a new vision will govern our land. From this day forward, it's going to be only America first -- America first.
Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength. I will fight for you with every breath in my body. And I will never, ever let you down. America will start winning again, winning like never before.
We will bring back our jobs. We will bring back our borders. We will bring back our wealth, and we will bring back our dreams. We will build new roads and highways and bridges and airports and tunnels and railways all across our wonderful nation. We will get our people off of welfare and back to work rebuilding our country with American hands and American labor. We will follow two simple rules -- buy American and hire American.
We will seek friendship and goodwill with the nations of the world. But we do so with the understanding that it is the right of all nations to put their own interests first. We do not seek to impose our way of life on anyone but rather to let it shine as an example. We will shine for everyone to follow.We will reinforce old alliances and form new ones. And unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.
At the bedrock of our politics will be a total allegiance to the United States of America and through our loyalty to our country, we will rediscover our loyalty to each other. When you open your heart to patriotism, there is no room for prejudice.
The Bible tells us how good and pleasant it is when God's people live together in unity. We must speak our minds openly, debate our disagreements honestly but always pursue solidarity. When America is united, America is totally unstoppable.
There should be no fear. We are protected, and we will always be protected. We will be protected by the great men and women of our military and law enforcement. And most importantly, we will be protected by God.
Finally, we must think big and dream even bigger. In America, we understand that a nation is only living as long as it is striving. We will no longer accept politicians who are all talk and no action, constantly complaining but never doing anything about it.
The time for empty talk is over. Now arrives the hour of action. Do not allow anyone to tell you that it cannot be done. No challenge can match the heart and fight and spirit of America. We will not fail. Our country will thrive and prosper again. We stand at the birth of a new millennium, ready to unlock the mysteries of space, to free the earth from the miseries of disease and to harness the energies, industries and technologies of tomorrow.
A new national pride will stir ourselves, lift our sights and heal our divisions. It’s time to remember that old wisdom our soldiers will never forget -- that whether we are black or brown or white, we all bleed the same red blood of patriots.
We all enjoy the same glorious freedoms, and we all salute the same great American flag. And whether a child is born in the urban sprawl of Detroit or the windswept plains of Nebraska, they look up at the same night sky, they fill their heart with the same dreams and they are infused with the breath of life by the same Almighty Creator.
So to all Americans in every city near and far, small and large, from mountain to mountain, from ocean to ocean, hear these words -- you will never be ignored again. Your voice, your hopes and your dreams will define our American destiny. And your courage and goodness and love will forever guide us along the way.
Together, we will make America strong again. We will make America wealthy again. We will make America proud again. We will make America safe again. And yes, together, we will make America great again. Thank you, God bless you, and God bless America. Thank you. God bless America.
Monday, January 2, 2017
2017 Dogs of the Dow*
*Honorable Mention: Altria (MO): 3.61% Yield (But Not A Member of the 30 Stock Dow Jones Industrial Average.) "Dogs of the Dow" is an investment strategy that picks the highest yielding 10 Dow components from the previous year-end to comprise next year's investment portfolio. It is theorized that the Dogs of the Dow, via their high yields, are by definition under-valued as an asset class to their peer group and may offer superior returns over the coming year.
Above is the per share dividend growth for Procter & Gamble over the past 60 years. As financial farmers, it is imperative we consider the impact of dividends on a financial farm; indeed, dividends have historically accounted for 42% of a portfolio's return!
Much of Wall Street is laser-focused on obtaining Alpha (positive returns), yet you rarely hear the "fast money" discussing boring dividends. Or Yield on Cost. Or the Dogs of the Dow. Boring doesn't make for flashy news, but it sure does make for a fat stack of benjis on your farm! Don't underestimate the true goal of investing: cash flow.