Reduced Stock holdings to 25% today from 50%

[audreyh1]

Hey, we bought it at about the same time: I actually bought it for the dividend (and hopefully a growing dividend--which didn't happen). I bought it twice, once with a dividend of 2.5% and then later a 2.7% dividend.

Oh, since we both own this here Apple Corporation, does that mean we're partners? (I think I saw your lips, moving saying "redduck, not a chance in the world we'd ever be partners"). I think I read that correctly. But, I won't take it personally.


Audrey, you need to be kind here--I just noticed this is post 1000 for the redduck.

Congrats!

We have more Apple shares from the late 90s.

 

[redduck]

Congrats!

We have more Apple shares from the late 90s.

"All luck," I say, "all luck!"

 

[Running_Man]

The market is at an interesting juncture here, if correct on CNBC today they stated that this correction from the low has been the fastest sustained move in the Dow Jones Industrial Average ever, it doesn't seem right to me but I would sure like to know if that is true.

 

[audreyh1]

"All luck," I say, "all luck!"

Completely and entirely!

 

[clifp]

I said I get back in if went over 2050. So I guess it is time. Most of the puts I sold back when the market dipped expire 11/22. So I'll start buying again next week.

I went through the dividend investor newsletter and there were only a handful of stock trading below their buy price, and none that I don't own. So I guess I'll buy mostly index funds.

 

[nash031]

Back when AAPL was trading at $550, $500, and $450 (pre-split), I sank some money in. $800 pre-split is happy me. Now my only regret is that when I heard about the first iPod and told my mid-20s friends "invest in AAPL," I lacked the funds to do so. It'd be about a 10-bagger by now... *sigh*

 

[jabbahop]

if only I kept my employee stock purchase from the mid-80's to mid 90's. Invested some in bay area real estate so that wasn't SO bad.


Sent from my iPad using Tapatalk

 

[Running_Man]

I said I get back in if went over 2050. So I guess it is time. Most of the puts I sold back when the market dipped expire 11/22. So I'll start buying again next week.

I went through the dividend investor newsletter and there were only a handful of stock trading below their buy price, and none that I don't own. So I guess I'll buy mostly index funds.

I would hold off here Cliff until it went over 2100, especially based on recent days market action.

This is my original thoughts on this market move:
This is reminds me of the stock market action of the DOW in 1966 when it would get over 1000 intraday but not be able to close over it until 1972, when it peaked at 1051. It was not until after the market fell away in the 1972-1974 bear market that Dow 1000 became considered a barrier, and I am think S&P 2000 may come to be viewed the same way. Perhaps a better level would be to wait until S&P 2100 to be able to avoid a 1972 - 1974 type bear market. But I have the gut feeling if the market is either like 1966 or if it is able to close over 2020, the built in caution we have been seeing for months at S&P 2000 will evaporate and a possible result is an explosive run up due to the unending liquidity available from central banks and I do not plan on missing a rally of that kind of potential power. (I feel that the market pressures are building like the image of Augustus blocking the chocolate pipe in Willie Wonka's factory. Whether that will result in downward 1966 type market behavior or upward pressure is terribly suspenseful for me to see if my thoughts are correct.)

 

[nash031]

I would hold off here Cliff until it went over 2100, especially based on recent days market action.

This is my original thoughts on this market move:
This is reminds me of the stock market action of the DOW in 1966 when it would get over 1000 intraday but not be able to close over it until 1972, when it peaked at 1051. It was not until after the market fell away in the 1972-1974 bear market that Dow 1000 became considered a barrier, and I am think S&P 2000 may come to be viewed the same way. Perhaps a better level would be to wait until S&P 2100 to be able to avoid a 1972 - 1974 type bear market. But I have the gut feeling if the market is either like 1966 or if it is able to close over 2020, the built in caution we have been seeing for months at S&P 2000 will evaporate and a possible result is an explosive run up due to the unending liquidity available from central banks and I do not plan on missing a rally of that kind of potential power. (I feel that the market pressures are building like the image of Augustus blocking the chocolate pipe in Willie Wonka's factory. Whether that will result in downward 1966 type market behavior or upward pressure is terribly suspenseful for me to see if my thoughts are correct.)

I like reading your thoughts - I really do. I try to look for market fundamentals that drive them. Instead I keep coming across history of arbitrary numerical limits that don't really mean anything, IMO. I get that your investing philosophy and mine are different, and I understand that there is psychology at work in the stock market, but I've never read the thoughts of someone who appears to act on that and solely that. It's definitely eye-opening to read how some folks operate. Thanks again for sharing.

 

[Running_Man]

Earlier this week I sold my long term holding in Altria, I thought of holding to the new year to save on taxes but I decided to stick to my credo of never letting taxes affect a decision on stocks and pay just the tax. This is strictly a matter of valuation, Altria pays out 80% of their earnings as a dividend and is in reality an MLP type stock. With only a 4% dividend the stock has Altria earning potential of 5%, for the risk in the stock with 8% annual growth at best I would like to get back in again around 5.5 - 6% yield, which was where my original entry point was, this year's 30%+ gain full realizes the value of Altria at this point.

I have also sold my positions in a couple of OIL MLP's in November - MMP and ETP (short term gain after selling KMP to move into ETP) as a result of these stocks remaining near highs with the devastation in the oil market just starting to be recognized. This has the effect of dropping my net investments in stocks to just about 41 percent but I will invest the 9 percent into individual stocks when I see something I like, however at present levels I am not in a hurry to do so. But I am actively reviewing stocks to see what would make a good investment and at this point plan on returning to 50% invested.

The stock market continues to battle with this level of valuation, struggle is yet to be finalized.

 

[CaliforniaMan]

Virtually everyone in every article I read says this market is "overbought" or "overvalued" which, since markets move against the majority at risk, must mean that this market is really undervalued? Absolutely no one says this market is cheap. This would have to mean there is a lot of sidelined cash sitting around somewhere waiting for the market to become cheap again. (Of course get too cheap and we get scared and sell more). There are seldom times when there is such a consensus as this, reminds me of this time last year when virtually everyone said interest rates were going higher. Probably means nothing, but just seems interesting...

 

[clifp]

Virtually everyone in every article I read says this market is "overbought" or "overvalued" which, since markets move against the majority at risk, must mean that this market is really undervalued? Absolutely no one says this market is cheap. This would have to mean there is a lot of sidelined cash sitting around somewhere waiting for the market to become cheap again. (Of course get too cheap and we get scared and sell more). There are seldom times when there is such a consensus as this, reminds me of this time last year when virtually everyone said interest rates were going higher. Probably means nothing, but just seems interesting...

I guess my brilliant calls that interest rates have to go up ever since 2009/2010 should teach me some humility. However, my motto on most things related to business is "often wrong, never in doubt"

So I can continue to be a permabear on bonds.

In my case, I agree with the consensus that stocks especially US equities are overvalued (although not grossly so.) However, that is on an absolute basis. On a relative basis compared to bonds, most real estate, commodities, and gold, stocks seem fairly value perhaps even slight cheap. Which is why I don't have a strong conviction. The 9% YTD gain for VTI is about as close to average year as you can ever hope for so while I am still looking for stocks to give back some of 2013 gains, I don't think 2014 makes the market any more overvalued.

 

[Texconsin]

I buy too late and sell too early OR I buy too early and sell too late.

Ride, ride, ride, let it ride!

 

[Running_Man]

As the year ends I note that I find remarkably dividend stocks that I would have thought could be held forever as not being worth holding. particularly Coke, Altria, Procter and Gamble, Exxon and Chevron. There are also real questions about whether price wars will make Verizon and AT&T no longer able to raise their dividend but at this point I am not willing to make that call and still nervously own Verizon.

Reasons: Procter & Gamble - Sales are flat from 2008 and dividend payout percentage has increased to 57%, all of the gains pershare are due to buybacks and the sale to BRK of Duracell and 5 Billion in cash for Warren's position is worrying as well. Also for the first time in memory that I have PG has fallen to a "5" in Value Line timeliness. US currency will also result in issues with 65% of sales from international for PG. Reductions in commodity costs you would think would help PG but not to this point.

COKE - Running into Millenial fever and becoming dependent on international growth in a time of soaring US dollar is a negative for Coke. It is also presently a "5" for timeliness in the value line universe. Payout is nearing 60 percent and I think earnings will be declining in 2015 versus 2014.

Exxon Chevron - While I could understand a purchase of either if one were to expect a recovery in oil prices in 2015, the dollar will be hurting these entities as well and the stocks have outperformed expectations with such a drastic fall in oil prices, I am staying away expecting much lower prices on oil than seems to be the consensus of the investment community which seems to be running to the big integrated oils as a value play.

ALTRIA - MO has just advanced too far and again is fighting the Millenial lifestyle. Would buy at the right price but 4% dividend is not a good value here, I will wait for a return to a 6% dividend. Sales have been flat last 4 years even with rising cigarette prices, need better reward for the stock risk.

In the near term I used 3% of my porfolio cash from individual stock portfolio to purchase RVT which is a managed small cap value model closed end fund that was selling at a 11 percent discount to net asset. It pays out 7 percent of it's assets annually and has outperformed the Russell 2000 over the long term even with a high 1% expense ratio. This will throw out good quarterly cash to invest in other stocks when I come upon good ideas, which I really don't have many really good ones at present as dividend stocks seem to be overvalued. Due in great part to the unexpected falling of interest rates in 2014 which corresponded to a great year for dividend stocks, which reflected in my personal stock selections for 2014.

This puts me at 44% invested at year end and now I can wait to see what decisions are made at the start of the year, still nervous about valuation but never know what a trillion here and there from Central banks can do to stock prices.

What to look for in the coming 1st quarter - impacts of currency and poor bets will come home to roost in unexpected places and looking to see if oil recovers which I do not expect, but will watch in any case.

 

[clifp]

I ended up the year more or less being fully invested, with liquid cash (as opposed to CDs) being at 3%.

I had an opportunity to invest more money in my best Angel investment (it pays a steady 4-5% dividend most years with opportunities for the occasional 30-50%! like this year). I had hope to do it within my IRA which had cash, but at the last minute the IRA opportunity fell through so I had to scramble to sale stocks with minimal gains in my taxable account, while buying stuff in my IRA.

I share similar feeling on KO, XOM, CVX, and MO. I currently own AT&T , but wish I owned Verizon instead. I had been looking at Philip Morris but I think strong dollar has got to hurt them. I have bunch of highly appreciated slightly to way overvalued stocks in my portfolio. I'd be happy to sell them and pay the taxes, if I had anything to do with the money other than watch it collect .1% in a Schwab checking account

 

[truenorth418]

I own MO and a few other individual stocks but your "vent" sounds to me like more support for an index fund strategy. Better to be diversified and accept what the market gives you then take individual stock risk.


Sent from my iPhone using Early Retirement Forum

 

[CaliforniaMan]

I own MO and a few other individual stocks but your "vent" sounds to me like more support for an index fund strategy. Better to be diversified and accept what the market gives you then take individual stock risk.


Sent from my iPhone using Early Retirement Forum

+1

 

[clifp]

I may not like KO, CVX, etc at their price, but I am pretty sure all of them will be around in the next 20 years..

I am not at all sure that's true for CarMax, or Chipotle and with a 35 P/E, they have to not only survive but thrive to justify the stock price. Samething is true with Facebook. Not only to they have to hold off twitter, but the 100 other social media companies in startup incubators,and the P/E ratio is really high. Netflix is good service but with a PE of over 40 it is hard to justify it $350 price much less the $500 of earlier this year.

Anyway there are probably a 100 S&P companies that I'm a reluctant owner of at these price levels, and who knows how many VTI stocks.

 

[Mulligan]

I may not like KO, CVX, etc at their price, but I am pretty sure all of them will be around in the next 20 years..

I am not at all sure that's true for CarMax, or Chipotle and with a 35 P/E, they have to not only survive but thrive to justify the stock price. Samething is true with Facebook. Not only to they have to hold off twitter, but the 100 other social media companies in startup incubators,and the P/E ratio is really high. Netflix is good service but with a PE of over 40 it is hard to justify it $350 price much less the $500 of earlier this year.

Anyway there are probably a 100 S&P companies that I'm a reluctant owner of at these price levels, and who knows how many VTI stocks.

I wonder the impact of index fund buyers (such as myself, though my purchases are not moving any needle) have in the escalation of the these big companies PE ratios since most funds are market cap weighted in their purchases?


Sent from my iPad using Tapatalk

 

[nash031]

I sold out of KO and PG a few years ago in favor of index funds. Didn't see any reason to hold those and only added to my portfolio complexity. I still have a small position with AAPL purchased at 400-500 pre-split. Now the only individual stock I own.

 

[NW-Bound]

I wonder the impact of index fund buyers (such as myself, though my purchases are not moving any needle) have in the escalation of the these big companies PE ratios since most funds are market cap weighted in their purchases?

Excellent question! Here's what I found out for myself. One can just pick some Vanguard index funds and compare them.

VFINX, Vanguard Flagship S&P500, has a P/E of 18.

VSMAX, Vanguard Small-Cap Blend, has a P/E of 20.

So, surprisingly small-cap stocks are more expensive. And that explains why they have been underperforming the large caps in 2014.

But, look at foreign markets, who also have been trailing US stocks.

VFWAX, the FTSE All-World ex-US fund, has a P/E of 15.

The market values US stocks more, because it is believed that US economy has better growth prospects.

Now, please place your bets.

 

[audreyh1]

It's not surprising that small cap stocks have a higher P/E. They usually do, because they have a higher expected growth rate. In fact, in your example the spread seems low, but I don't remember what the historical P/Es are,

 

[NW-Bound]

But their E's have not been growing this year, hence their P's. They trailed the S&P badly this year.

 

[aja8888]

But their E's have not been growing this year, hence their P's. They trailed the S&P badly this year.

The Russell 2000 index closed yesterday almost at the high of the year in 2014. I would suspect that the small caps did well overall.

 

[Running_Man]

I own MO and a few other individual stocks but your "vent" sounds to me like more support for an index fund strategy. Better to be diversified and accept what the market gives you then take individual stock risk.


Sent from my iPhone using Early Retirement Forum

This was not a vent, actually I was reading an article by John Maudlin where he compared stock investing to horse race handicapping. As a long time horse race lover his statement was very true which was it is more important what investments you don't make than what you do make. The first and most important starting point in horse race handicapping is to eliminate all the horses that don't have a chance by crossing them out on the program, I always do that and review to see if any of them won and why I eliminated and they still won, but over 95% of the time I can eliminate 10-20% of the horses in a race increasing the chance of actually winning.

Picking stocks is the same process, you need to review to see what you no longer believe to be a good value and thereby increase your chance of winning stock selections. While I believe that investing in index funds is fine, and is a great mechanism for avoiding serious investment mistakes I will continue to invest in individual stocks.

The 100 stocks in the S&P 100 make up 45% of the market capitalization of the total US stock market. I review the companies that make that list for sure all the time, try to avoid the underperformers and the ability to overperform the index is greatly magnified. These are stocks for a long time that I felt I could comfortably invest in the long term if the dividends were decent knowing dividend increases would exceed inflation. Right now some of the biggest names are suspect to me and as such I am avoiding them.

Another stock I have followed for a long time and that has been a very good dividend performer is Sherwin Williams, now they are a fine compnay but for years they traded at a PE between 10 and 14 as the paint business is not all that glamourous. A 2-3 percent dividend growing at 10 percent a year was a solid company. But look at recent performance: Sales from 2007 per share have doubled but the stock price is up 400%. Furthermore actual sales are up only 50% as aggressive debt additions in this ZERP world has led to long term debt increasing to 1.1 billion from 300 million in a share buyback that has done little to improve the company from what it was in 2007 as shares outstanding are down by 25 percent. A Rising US dollar will hurt SHW as 18 percent of their sales are in Latin America alone.

But what is Sherwin Williams going to do at this point? It may seem that borrowing 600 million in the last 2 years in one year debt with 1.6 percent rate would be great as the 9.6 cents per share of interest expense is more than offset by an 22 cent increase in pershare earnings from the 3 percent share reduction and the 3 million dollars you save in dividend payments. But this debt is still owed and must be rolled and to maintain the same level of growth they need to borrow even more for the more expensive shares or risk a slowdown of growth.

A further 25% reduction in shares now would cost 6 billion dollars. With short term debt at 600 million dollars and 1.3 billion total in long term debt coming due in the next 5 years a rising interest rate increases will hit SHW hard, the per share gains from stock buybacks will disappear and you will be back to a 6-9 percent per year growth company, a company with a current dividend of 1 percent and a PE of 25 could fall 50 percent remarkably quick, this fine company is so overvalued it is mind blowing to me and this truly is a well run company that has become overvalued by management seeing how debt could be used in the ZERP enviroment to create the illusion of a growth company, but this company is a steady performing paint company expertly manipulating with financial manuevers and is gravely overvalued. Just my thoughts as I will avoid this stock.

This type of financial engineering is in many companies, SHW is just a master at it, however to value this engineering with a PE of 24 is unrealistic unless you think Zero interest rates are here to stay.