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Value Dividend Investing: Very Tough Right Now
Category: General Investing | November 30, 2011 | Comments Off
Value investing typically refers to investors who are able to successfully buy undervalued stocks and hold them for prolonger periods of time. It often requires being contrarian since an undervalued stock means that the market has either driven its price down via more sellers than buyers or the stock has fallen out of favor of major investors or both. To go against the heard requires a contrarian point of view.
Value dividend investing refers to value investing in the realm of high paying dividend stocks. Value dividend investing is our top goal.
The problem these days it that dividend stocks are getting lots of love. Dividend stocks are very much in favor with the general market, which means it’s very tough to find value or underpriced/undervalued dividend stocks.
Why are dividend stocks in right now? Well, because dividends offer are viewed as a buffer or protection against stock market losses. This is somewhat of a stupid concept because a 3% dividend yield hardly protects you from a 40% market drop but it’s a common view nonetheless. Moreover, dividend stocks are often more stable, less-cyclical stocks which mean they hold up better than high-flying growth stocks in a bear market. These all contribute to dividend stocks being viewed as “in” right now.
So what are we to do?
Well, the main thing to do is be patient. Now more than ever, patience is very necessary in today’s world of uncertainty and volatility.
As we’ve discussed and will continue to discuss at length on this blog, timing is a HUGE factor in your rate of return in the years ahead. If you allocate a large chunk of cash into a dividend stock at an overvalued price, you might have sub-par returns for a decade. On the flip side, if you buy at severely undervalued levels, you might outperform the market for a decade or two simply on that one transaction.
This means that it is worth waiting. It is worth sitting in cash for prolonged periods of time even when it feels like you’re missing out on a short term rally. Waiting in cash when others chase the market higher is a pillar of value investing, and frankly, is one of the main differentiators between successful value investors and the not-so-successful.
In today’s market, I’m waiting. I’m waiting for more volatility and lower levels. The last dividend stock I move into was Walmart when it dropped below $50. It is documented here.
Today’s world changes rapidly. Stock market moods change from day to day. A company that is dominant struggles to exist just a few years later (see RIMM, NFLX, etc.). Your entry point matters. Your entry point will determine if you are truly a value investor or just another investor chasing the latest hot stock. It’s difficult, requires discipline and more patience that you would ever have thought. But, the returns will be worth it.
Dividend Stocks Update
Category: General Investing | November 4, 2011 | Comments Off
Tags: MSFT > PM > WMT
With the market rally off the lows in recent months, stocks are up and that includes several of our dividend stocks such as Microsoft, Philip Morris and Walmart.
Interestingly, Walmart may have hit a turning point as it revealed US same store sales have rebounded and they might report their first quarterly increase in same store sales in a couple years. This is definitely bullish for the stock in the near term. Walmart is a great buy at current levels, but obviously I liked it better around $50 versus $57. Another reason why you have to pounce on Walmart stock when it drops – if you recall, I last bought WMT under $50 in early August. That is GREAT value and is how you have to play this game.
Microsoft recently upped its dividend and has been trading well, although it has mostly been going up and down with the general market which leads me to believe there will be good buying opportunities in the future as the volatility in the market is likely not over.
As I continue to say, wait to buy Philip Morris Int’l (PM) until we get some panic selling based on the news in Europe. No, we haven’t hit it yet despite the constant volatility. There are major challenges in Europe and we haven’t seen it climax until something big happens like Greece bailing on the Euro or even Italy. That is when you want to buy PM. It is coming. Be patient.
Allow Europe To Shake The Markets Out, Then Add To Positions
Category: General Investing | September 9, 2011 | Comments Off
Tags: PM
The European debt crisis isn’t going away. I have a feeling that it is going to come to a head very soon. When it does, it will be massive volatility and that will be the best time to add to positions for the stocks you want to own long term.
Philip Morris Int’l (PM) is one of the stocks that applies especially to this. The reason is that PM is affected big time by Europe. A large percentage of their sales come from Europe. This doesn’t mean the business is at risk, but it will be affected in the near term more by the volatility in the currency markets.
When the Euro drops against the dollar, it is a headwind for PM profitability. This tends to move the stock in tandem with the Euro.
As the European crisis hits a head, the Euro should drop. This is when you want to buy more Philip Morris.
Volatility isn’t going away so be prepared to act when stocks become very cheap.
Volatility Is Running Wild
Category: General Investing | August 10, 2011 | Comments Off
Tough to be a money manager these days with the market moving up and down in 400 and 500 point swings in the Dow. Crazy indeed.
The good news is that our investment strategy is playing out completely as we have been anticipating. Our patience is paying off. While the masses were buying up stocks with the Dow over 12,000 and the S&P over 1300, we’re not looking at stocks approximately 15% lower across the board. Nibbling at strong stocks at current levels isn’t a bad idea.
There’s a legitimate chance that we’re in the early phases of a currency crisis which means this is very different from the 2008 stock market crash. This isn’t a liquidity issue, but more a sovereign solvency issue in places like Europe and Japan (and maybe the U.S. to a lesser degree). Owning gold in this situation is crucial as it represents legitimate insurance against the solvency issues and currency issues that are beginning to unfold.
The dow/gold ratio and the S&P 500/ratio is at record lows, now well below the March 2009 lows we saw which marked the nominal bottom in stocks for the 2008/2009 crash. Yes, we’re beneath those lows if you price the market in gold. This is something we’ve been discussing at length – read more on this here.
If you have a very very large chunk of cash, you may want to start nibbling at dividend stocks. Could we go lower? Yes, but I don’t think we hit lows like we did in 2008/early 2009.
Should you sell gold? I don’t think so. I still think the dow/gold ratio approaches 1 or 2. I think there will be major events on the horizon that will decimate confidence and create much more turmoil in the markets. When gold starts jumping $100 in a single day, we’ll know we’re in the final stages of the run and we’ll be on high alert to possibly exit the position and pile that money into very cheap stocks like Walmart, Microsoft, McDonald’s, etc.
Until then, hang on tight and try to remain calm.
Stocks Take Major Hit, Buying Opportunities Getting Closer
Category: General Investing | August 5, 2011 | Comments Off
Tags: PM > WMT
When you have the investing strategy that we do, you don’t look at 500 point down days in the Dow as a reason to panic, but a reason to celebrate. We’ve been waiting for many months even a couple of years for better buying opportunities in a few select stocks and we are getting closer.
Let’s take a step back and look what is behind the volaility.
First, the US economy is very much struggling. Economic data is weak at best. As such, there are renewed fears that we might move back into a recession. I believe we will re-enter a recession within a year or two – and it might be forced by increased government austerity.
Second, Europe is imploding. The debt and the currency system in Europe is a disaster. Yesterday, it was Greece. Today, Italy is the focus. Tomorrow it might be Spain. The reality is that the continent is imploding and there will likely be a massive devaluation in the Euro.
Staying on the Euro for a moment, if the Euro trades much lower against the dollar moving towards parity with the greenback, it will likely hit multinationals hard. Companies like Philip Morris Int’l (PM) get a great deal of revenue from Europe and their stock will trade down hard on such an event. This is a great buying opportunity for PM. Don’t pull the trigger on PM until we get a spike in European volatility.
Walmart has traded lower near $50 and is a buy at current levels. Below $50 it is a screaming buy.
The haircut that stocks just took is a welcomed price drop in many stocks we’re targeting. Because of the global events, I don’t think we’ve put in the lows so I’m still waiting. With that said, if you’ve been waiting for a prolonged period of time, buying stocks like WMT at current levels certainly aren’t bad ideas.
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