TomB16 investing blog

I think it's fundamentally unethical for liquidation to pay preferred shares in front of common shares. The controlling group that ran the company into the ground should be the least entitled to pick the carcass of the failed company.

 

We continue to "keep our powder dry" but I have had several open limit orders for a couple of weeks.

As best I can tell, the market has plenty of room to move either up or down, varying on trade war reports.

I'm in no hurry to buy anything so my limit orders are rather aggressive. A couple have come close to hitting, in the last week, but I don't expect to purchase any fresh stock unless something bad happens. One such bad event could be the Trump administration arresting CEOs for not terminating operations in China. That seems pretty far fetched so I am not doing anything to mitigate that risk. Still, these are interesting times so you never know.

During this time, two strong values have appeared on my radar. This is the advantage of being in a position of having researched and valued companies with strike prices pre-determined. I will know when they are at a value that puts me in a buying mood.

My valuations are approximations but I they are the best information I have available so I use them as absolute numbers when placing long term limit orders.


I've been in this mode before. Valuations are high but not extreme. Usually, great deals present themselves before I hit my upper cash limit. I suspect that will happen this time as well but I have some months to go before that limit is reached.

 

A quick note about our bond holdings.

We will soon be living off our portfolio so I've been ramping up our bonds and debentures. All bonds and debentures are corporate. No governments. No ETFs or aggregation mechanisms. It is loosely structured in a 4 year ladder, although we currently have no bonds maturing in 2022. If an opportunity comes up for a 5 year bond or debenture, I will engage. That's as long as I want to hold a bond. All bonds will be allowed to mature.

All bonds are issued by companies I trust and feel are viable, long term companies. I don't look at the credit ratings that closely but I make sure they are long term, stable, companies.

The idea is to have 80% of our annual estimated retirement spend available from bonds. This will insure lifestyle funds are available when the market crashes badly. I do not want to be forced to sell anything in a bad market.

The 80% number was arrived at with the idea we can switch to austerity mode, if absolutely necessary. For that to happen, our distributing stocks would have to also stop distributing. That didn't happen in 2008 so I think it's pretty unlikely but the bonds are a backstop against that.

I don't have a stock/bond ratio. Bonds are intended to provide living money during a financial crisis so they are sized to meet that need. They are not large values. We can live surprisingly cheaply.

 

Over the years, I've known a small group of folks who have done extraordinarily well. All of them were modest people who lived modestly and did not brag. It's wild to have a friend or uncle pass on and find out they had enough money to set up an advanced degree scholarship or have a hospital wing commemorated to them.

I've known some reasonably successful people, also. These were the folks who clearly affluent and made a point of explaining to people how successful they are.

There were no exceptions to these profiles.


The other day, I was helping a senior family member and have come to discover she has done extremely well. The reason this was surprising is this person never had much of an income her whole life. She has made a silk purse out of a sow's ear.

This person is an extremely powerful person with patience and pragmatism. She stuck with a program of saving and investing her whole life. Suffice to say, she isn't cut from the same cloth as Joe Sixpack but she has proven you can live at or below the poverty line and retire with wealth.


The keys are austerity, unrelenting saving, and a long term investment horizon. It works every time, if a person can stick with it.

I don't know a single trader who has retired comfortably. They might be out there but I haven't met them.

 

To be direct, I don't know why we converse, as our life and investing outlooks are so diametrically opposed it is difficult to imagine we could learn from each other. Still, I wish to offer you the respect of answering your question.

If you read this thread, you will see my reaction to the gray cloud on the horizon is to turn off most of our automatic re-investing. I haven't sold a share of stock in years.

The last company I sold was a power company that I felt was doing things I didn't want to be involved with.

Even in this equity market, I see values. I have several, long term, limit orders open right now. The limit orders are a bit lower than normal but not a lot.

I don't see a lot of growth in the equity markets, over the next five years. It wouldn't surprise me if the market grows but I don't see what will drive it. I suspect the market will remain flat or perhaps retract mildly. I don't see crash conditions but that can always happen.

During these times, my preference is to hold distributing companies. REITs, energy companies, natural gas, etc.

To be honest, I always want to hold REITs, energy companies, natural gas, etc.

This doesn't seem like a good time to hold growth stocks. And yet, I have no intention of selling the only growth stock I own: Tesla.

During market plateaus and retractions, distributing companies do very well. Actually, distributing companies always do well. Find a REIT with a 7% trailing yield, EPS under 7, a property portfolio in a stable market, and that's the only investment you need to make.

Our cash buffer from business and distributions is growing. It goes up a small amount each month. As we continue to divest of our R-E, our cash will go up significantly, also. During times like these (Wilshire/GDP = 140+% and political instability), I'm careful about reinvestment and it doesn't bother me to have some cash laying around.

At the moment, we have plenty of cash. We also hold some corporate bonds with a nice coupon rate. We also hold stable companies that have been distributing for many, many years.


Perhaps the essence of how you and I differ is this:

I don't trade between cash/bonds/stocks/commodities based on indicators. The most I do is hold back a little when the market starts to look frothy. Even if there is a global recession, which could easily happen, I won't sell my stocks and I don't buy commodities under any circumstances. Commodities are non-productive assets that don't fit into my portfolio.

 

This is where it ends for us, Onepoint272. We are not able to communicate. I will not explain my position again.

I wish you the best of luck with your investing and I invite you to stop posting in my thread.

Kind regards to you.

 

Today's quote:

"Not one person that tried to get me to join a pyramid scheme years ago is rich now." - Nate Taylor

 

We are currently engaged in the most difficult maneuver in all of investing. That is: doing nothing.

I've been trolling for good values with low limit orders but none have hit in the last couple of months.

Our portfolio is volatile but it is slamming between high and low values in a pretty tight window. We are only varying by a little over 2%. I've come to expect our market cap to vary by significantly more than it has in recent weeks.

This is a good sign for investors. No one is panicking. This is a bad sign for me. No one is panicking.

 

Good morning, my flatulent friend.

Sure, let me take another attempt to explain investing versus trading.

I don’t trade. I invest. I own companies. I view stock ownership as a partnership and that is exactly what it is. We want to own these companies. If I don't want to own a specific company, I do not invest in it, regardless of the value.

My strategy: Buy low. Don’t sell.

I will not sell my portfolio during a crash or when the market becomes volatile. I will sell businesses when I no longer want to own them for business or personal reasons.

I’ve never said I don’t use indicators. I’ve ignored that strawman argument because I have no interest in arguing. Those who have read and understood my post know that I appreciate the opportunity to read other people’s point of view and I have reciprocated by sharing mine. The idea of arguing who is correct doesn’t seem all that intelligent, to be direct.


Let’s think about how to buy low.

There are two factors. First, the company needs to be valued. This is the trick to value investing. If you can’t value companies, you can’t value invest, IMO. That’s all you have to be able to do to value invest but I present the idea it is also helpful to have a broad understanding of the state of the market.

Let’s consider the trajectory of a company. I own a REIT that I purchased in the $7 range in 2013. It was generally trading around $8.50 back in late 2012 and through 2013. The REIT now trades in the $16 range and shows no value so I do not re-invest dividends but I am still a happy owner.

The REIT was showing some value at $8.50 when I started watching it. I could have purchased it at that price and I would be in good shape today. Quick calculations show that by purchasing around $7 during a period of economic uncertainty (government shutdown, debt ceiling crisis, etc.), I have done considerably better than if I had purchased the original tranche at $8.50.

By purchasing at the lower price, I was able to acquire quite a few more shares which have compounded more quickly under a DRIP program. There are sufficient macro events to make it worthwhile to be patient on the buy side. In this case, the REIT was paying 10.8% dividend. Even at that, it was worthwhile to be patient for the better part of a year.

This same scenario has played itself out many times and we currently hold 11 companies. There is generally enough drama in the world to provide additional value for investors on a frequent basis.

It comes down to, “How much value is enough?” If I value the company at $10 per share, I generally wouldn’t pay $10 for a share of the company. I have a discount threshold where I buy a certain amount and another threshold where I buy a lot.

I also use the W-BI to help determine how much cash I should have on hand. I would not want to head into a market crash without cash. This is an important factor for me because we have significant cashflow from operations. This cashflow brings with it a decision point: re-invest or hold cash.

I turn off DRIPs when the W-BI hits a specific threshold. This is not trading. This is not selling. This continues to be investing. The only thing that changes when I turn off DRIPs is that investment stops expanding and our cash starts to grow. I will point out, we still have some DRIPing companies (either they show strong value or they are in small accounts where the cash wouldn't build at a fast enough rate to do anything with).

Is this timing the market? Yes.

Is this trading? No.

Why not sell when I feel the market is high? Because the market doesn’t drive our investing. Companies drive our investing. If I feel a company is significantly over-valued, I might sell it but I certainly will stop expanding our investment in that company.

By having an array of investments, each with it’s own value and market cap, I can monitor the best way to reinvest our resources. I usually buy the stock which shows the most value but not always.

Sometimes, a stock shows lousy value for several quarters because the books are reeling from a major acquisition. This generally puts downward pressure on the market cap. During these times, if I feel the acquisition was wise, I might divert a significant portion of our cash into a company that does not show value. I disregard the financial statements as anomalous and consider what the financial statements might look like when the company stabilizes. This is how I value the company when I feel the books are not telling the whole story.

There are also times when a company shows financial results that are arbitrarily good. I have two such companies, right now. They show massive value but I don’t believe they are particularly better than they were for years when the value was just OK. These companies have really strong market caps, at the moment. If I didn't want to hold these companies for several more years, I might sell them and divert the cash into companies that I feel are better values.

Happy trading.

 

In the last post, I touched on but did not dive into a key component of long term value investing: When to sell.

This is where my point of view softens. I am far less confident in my point of view on the sell side but I will share my current thoughts.

In order to be a long term investor, you have to be OK owning companies when the market cap is equal to the corporate value. Nearly all companies will acclimate to a valuation that is reasonably equitable over time.

To not be OK with this would make it impossible to be a long term investor. You would only be able to hold companies that show extreme value and you would sell them when that value goes away. It would be a form of trading.

The market is often wrong, with regard to corporate valuations, but not always and not forever. Value investing exists because the market can be wrong. The job of a value investor is to find these anomalies on the buy side. I'm spend my time looking for good deals on good companies. What then, of the sell side?

For me, it comes down to a popularity contest. If a stock is sufficiently over valued (and it would have to be a lot), I start to think of selling it. I would sell it if I had two or three stocks that I really like that are showing strong value and only if my interest in the over valued company is waning.

I think the last time I sold one company (over-valued) to buy another (under-valued) was in 2017. I wouldn’t call it a resounding success, either. I sold 30% of my stake in a company that was an epic ride for many years. It worked out fine as the value company has done well but the over-valued stock has grown into it's valuation and continues to pay a decent dividend. I continue to hold this company with no re-investment in it and I continue to think of selling it but it is difficult to sell a good company without a really strong business incentive to do so.

My lack of confidence in my views on selling over valued companies is why I don’t trade. I need a really clear and strong signal to sell a company. I error on the side of holding, long term, and that has served us well.

On the other hand, there are events that make it effortless to sell a company, even one I really like. A change in CEO, for example, triggers a sell for me.


Let me provide a more direct answer to why I don’t trade.

I started trading in the early 1980s. Between then and now, I have engaged in trading, various technical analysis techniques, and other methods. I’ve done, by far, the best with a long term value investing strategy. It seems obvious to me now but it wasn’t when I was young and I respect folks who believe in trading.

 

I started before discount brokerages became a thing.

I cut a deal with a local broker who would make trades for $90 per trade. It was great. I would call up my broker and spend my time talking him into buying stock for me. He crapped on everything I wanted to buy. "You don't want that. Let's get you into a nice mutual fund."

When discount brokerages first came in, it was a breath of fresh air.

 

I want to say a couple of words about my signature quote from WXYZ. This citation is powerful for me because it sounds demeaning but is actually a recipe for life success.

My experience has been that people who criticize what I'm doing and how I am doing it are pretty much universally people who don't do things themselves. People who do stuff tend to not criticize others because they get it.

I believe operational real estate management is nearly impossible to teach someone. There are some techniques which can be passed along but mostly you buy some property and troubleshoot problems for 20 years while it quadruples in value.

Just do it. Stop talking and start doing.

Terrific quote from a wise man.

 

I've noticed that good performing corporate bonds and debentures are snapped up almost immediately on the opening to expressions of interest. I'm speaking of my broker. This may be different at other brokers.

New offerings with instantiation dates 14 days after the cultivation of interest are closed in 6~12 hours and that includes ubiquitous 15% over-allotments. They sell out like concert tickets, these days.

This seems indicative of a lot of people bracing for a recession.​

 

Hallelujah! I'm glad to have met you online and have really enjoyed reading your perspective.

The people in our lives see us doing well and they seem to universally think, "They are doing well. They have obviously had easy lives."

Like everyone, we've been beaten to a pulp. I'm not just talking about financially. We kept working hard, troubleshooting the problems, and did our best to stay motivated.

Life is a fight. We won the fight. Not like Sugar Ray Leonard, knocking someone out without taking any punches. More like Marvin Hagler. We are beaten and bloody but we got a decision and now we can breathe a little bit easier.

I will offer this: I love it. A difficult journey is a rewarding journey.

I toast your wisdom and offer my heart felt gratitude for sharing it with us.

 

In the same vein:

Everyone is talking about recession; so much so that I expect it to happen.

We will probably start drawing on our retirement income in 2021.

It could be a financial blood bath by then. Not being morons, we have some maturing bonds, plenty of distributions, and fixed income that will easily get us through without selling a single share of anything. We'll cut back, if necessary, and do just fine. What's more, I am extremely sceptical a recession would reduce our enjoyment of life one bit.

Or... we could sit around and bitch about how badly the markets have victimized us.