Thursday, February 26, 2009

Maverick on Share Buyback

Talking Stocks « blog maverick
On the flipside, share buybacks are horrid for several reasons


It allows companies to manipulate earnings per share. Buy back enough stock, and you will hit your Wall Street expectations.

Companies will undertake risky cash management strategies to pay for the share buybacks. Since its one time, they can take greater risks

Companies will undertake buybacks with CEO and management incentives and bonuses in mind. Hit those numbers, earn lots of stock and options.

Companies will buyback stock so that they can re-issue it to themselves and employees. In essence they use the market as their personal and corporate piggybanks. They Buyback stock to push up earnings in hopes the stock goes up. Then they issue the stock to themselves. Then if the stock goes up, they sell the stock they awarded themselves to unsuspecting shareholders who have no idea the money they are paying for shares is going to insiders.

Stock buybacks are a very bad idea for investors and a very profitable idea for insiders and traders.

Maverick on Investing

blog maverick
I’m also looking at stocks in industries that I know very well that yield 6pct or more. Dividends that I think are safe in companies that I think are very strong. This wont be a big part of my portfolio. Just a tasting.

Why ? Because there are some good companies, in good businesses where I think the dividend is safe, and 6pct , plust hopefully future dividend increases is a good thing. Notice I didnt say a word about the price going up. It doesnt matter if the price goes up. It matters if the dividend goes up. The best stock to buy is the one you never have to sell. It just pays you forever. The concept that you own your share of the discounted cash flow of a company is the biggest lie ever sold by brokers in the history of financial markets. You dont own shit. The CEOs, you know the ones that pay themselves, but dont manage to pay dividends, they control and effectively own those future cash flows. So dont kid yourself. Buy stocks that pay dividends and get paid. Even then there is the risk they can go to zero. So always be ware.

-> This guy is a rags-to-mega-riches story. He is a billionaire and his thoughts on investing is quite frank.

Monday, February 16, 2009

Portfolio Update February 2009

Return YTD : -12.76%

I will be allocating 20% of the liquidity into equities within the next 2 months and subsequent percentages split over 2-3 tranches over the year.

Sunday, February 15, 2009

A property Revelation

I have had a revelation lately..

I think I've been buying too much bonds...
I should have allocated the bond money to buying property instead.

Bonds = Income Seeking but limited appreciation and total permanent capital impairment is dependent on the company credit rating.

Properties = Income Seeking but is a control investment with better appreciation than Bonds and permanent capital impairment is dependent only on my ability to service the loan (if any).

Sigh.. such late revelation ..but luckily i still can buy a few properties for a 4% yield plus capital appreciation.
Of course, the equity allocation still remains, I am just re-allocating out of the bonds portion into the properties more. So maybe end of day, the portfolio might be 15% bond, 40% equities, 45% properties.

Though I would think for risk-averse investors, equities shouldn't even be part of the portfolio anymore. You get more safety in property investment than equities.. No wonder a recent study mentioned that most HNW have around 50% property allocation in their portfolio and the pte banks was saying it is too high.. Hmm.. is it really? It is probably the safest investment with no chance of going to ZERO as compared to corporate bonds and equities.

What's your view on this ..any other gurus or non-gurus welcome! Smile

Monday, February 9, 2009

My interpretation of personal leverage in appreciating asset

I would look at financing much like how we evaluate companies with sound fiscal health.
One of the things I looked at would be the debt/equity ratio of the company and the interest coverage ratio.

In the case of property financing, I would look at the company using debt/assets but will discount the asset value first (as I think you need to take into account the possibility that when you need to sell your property, it might not be the time and you might not realised 100% of the property value when you bought it).

For myself, I would consider it a good debt only if it does not over-extend my total debt/equity ratio (or
debt/asset) to over 50% (better if it's under 35%). I also need to ensure that my interest coverage is more than 12 months (preferably 24 months) and that can be obtained from my coupons/dividends received from the investment portfolio.

That way, you can be very sure that a failure in the property investment does not mean a total failure of your financial health as you can still service the loan on an on-going concern for a while till the credit market & renters return to service you.

Food for Thought on Buy and Hold Strategy

The New York Times > Business > Image > The Current Market Is the Worst Yet

IN the last 82 years — the history of the Standard &
Poor’s 500 — the stock market has been through one Great Depression and
numerous recessions. It has experienced bubbles and busts, bull markets
and bear markets.

But it has never seen a 10-year stretch as bad as the one that ended last month.

Over the 10 years through January, an investor holding the stocks in
the S.& P.’s 500-stock index, and reinvesting the dividends, would
have lost about 5.1 percent a year after adjusting for inflation, as is
shown in the accompanying chart.

Until now, the worst 10-year period, by that measure, was the period
that ended September 1974, with a compound annual decline of 4.3
percent. . .

For the current period, the total return was negative, at minus 2.6 percent a year, even before factoring in inflation.

As you can see, if you are doing a Dollar Cost Averaging (DCA) into index ETF/fund, it is still important to rebalance and take profit off the table. If not, you might see that your returns have been negative this year if you had invested in the 19090.

For lump sum investors, you will have done worst than those who do not DCA. In this case, it means you should practise more of what I call a tactical allocation. When you know you are in a bear trend, shift as much as possible (or till your intended allocation) into other asset class like Cash or Bonds. For myself, I practise this as it is more fruitful for me. However, you need to exercise your own judgement call on the market and how much you want to allocate.