OK Investment Advisor, give me five S&P 500 growth stocks and five S&P 500 value stocks you consider attractively valued.
OK Investment Advisor, give me five S&P 500 growth stocks and five S&P 500 value stocks you consider attractively valued.
You need my help with that? I thought you were in the business.
And you accused me of being a poor investment advisor?
Portia,Here is my take on buy backs. They are not necessarily bad. But generally they correlate to a weak economy. The very fact that a corporation may be right to deploy its cash through share buy backs is almost worst. Basically that corporation is saying there are no good returns to be had by investing in their business so they may as well give it back to shareholders. Moreover, buy backs specifically reward those with stock options. The people who hold those are mainly those in the upper management of the corporation. I think if you were to ask any money manager representing the interests of the Average Joe with a 401K they would say they would rather have a dividend then a buy back. Another annoying thing about major buy back programs is they attract leeches trying to gain in the short term. A corporation publicly has to declare a major buyback because it represents a major block of shares being transitioned among shareholders. So they announce, then buyers rush in to take advantage of it. Its effectively like a free put option financed by the old, loyal shareholders. I see two reasonable situations when a corporation should buy back stock. 1 Sometimes there is a corporation that is deliberately trying to shrink because of a major restructuring. GE is a prime example. They are selling most of its financial businesses that were worth (I believe) a good $100-200 billion so they can focus only on their industrial business. They estimate returning $90 billion to shareholder through buybacks. 2. Basically what Warren Buffet says about buy backs. If a corporation's share price is trading below its intrinsic value and they have cash above and beyond what they need to execute their strategy, then buy backs are okay. Problem is, I think Buffet's advice is being abused right now. I'm not sure it applies to financing buy backs with borrowing at artificially low interest rates. Of course "intrinsic value" and "cash needs of the corporation" can be easily rationalized to say that a corporation meets the qualifications for doing buy backs.
Portia wrote:
Ryan foreman wrote:Portia,
I agree with you in that I don't think the debt is a bubble that is going to pop. But it does go to show that earnings are incredibly underwhelming when you put it into context of the increased debt and the way the Fed has virtually been throwing trillions of dollars out the door by artificially keeping interest rates low. Moreover, so much of that debt has been used to finance stock buybacks even in the midst of a mature bull market instead of investing to grow the company. That is not a good sign for healthy sustained profit growth into the future.
Ryan, thank you for your thoughtful and respectful reply. It's nice to be reminded that people can disagree and still be civil. I understand your position and believe you may be proven right. However, I still maintain that using low interest debt to finance buybacks can be beneficial to the investor. Of course as is often the case, there are multiple variables at work here. Invariably we find that one financial strategy works best for one company while a very different strategy works for another. It's certainly not a case of one size fits all as some here would have us believe.
One other point on buybacks.
I suppose buy backs strictly for the purpose of counteracting the dilution of shares because employees are exercising stock options is fine.
Investment Advisor wrote:
You need my help with that? I thought you were in the business.
And you accused me of being a poor investment advisor?
I knew you couldn't draft a thoughtful response.
Ryan, thanks for another very thoughtful and respectful reply. You make a lot of sense and do a fine job of illustrating the pros and cons. I appreciate the refreshing mature dialog. All the best.
Ghost of Igloi wrote:
I knew you couldn't draft a thoughtful response.
Oh, the irony!
Portia wrote:
Ryan, thanks for another very thoughtful and respectful reply. You make a lot of sense and do a fine job of illustrating the pros and cons. I appreciate the refreshing mature dialog. All the best.
Yes a thoughtful response from Mr. Foreman. Unfortunately he hasn't realized your shallow self could never do the same.
so job growth has been slowing but the unemployment rate keeps falling. 4.3%
That sounds like a labor shortage to me - look for wages to rise, inflation to build and labor intensive industries to take a bit of a hit to margins.
Hit to margins, but higher wages are a good thing overall of course, so not a net negative.
I'm continuing to overweight TIPS compared to straight treasuries - you get similar safety and maybe a little more interest as inflation builds.
agip,
GLD and TLT have done reasonably well over the past couple of weeks. Not a bad hedge to recent market moves.
Igy
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YTD Performance:
GLD +10.136%
TLT +5.214%
I've been buying gold also - just a 2% position, and with little conviction. If it falls I'll sell it pretty quickly. It's such a conceptual investment - no cash flows etc.
But clearly around the world there seems to be a high risk of disorder, and gold could rise in response to that.
I don't see gold as an inflation hedge tho - it's just not that effective in the short term as an inflation hedge in a healthy society. I mean if there were a catastrophic rise in inflation gold would rise, but in a normal 2-4% inflation zone, gold might not hedge that out.
But yeah gold is up 9-10% year to date. Better than stocks.
Earlier in the year I bought both TLT and GLD for some "trader type" clients. I did buy some physical Platinum for a client recently, but that was more of a one off.
Ghost of Igloi wrote:
Earlier in the year I bought both TLT and GLD for some "trader type" clients. I did buy some physical Platinum for a client recently, but that was more of a one off.
In my fun account I bought some ZROZ - zero coupon bonds. It's a crazy etf - very volatile. But it seems to be a solid hedge to fear. I haven't looked into it carefully but it seems to be a better equity hedge than VXX.
It probably acts similar to TLT, with a little more octane. But no coupon.
Not familiar with ZROZ, I'll have to watch it. Good idea.
Ghost of Igloi wrote:
Portia wrote:Ryan, thanks for another very thoughtful and respectful reply. You make a lot of sense and do a fine job of illustrating the pros and cons. I appreciate the refreshing mature dialog. All the best.
Yes a thoughtful response from Mr. Foreman. Unfortunately he hasn't realized your shallow self could never do the same.
What are you talking about?
You only make three sentence troll comments. No meat on the bone. A peanut butter sandwich with no jelly.
Oh, the irony!
Oh, the ironing board!
Interesting analysis from Robert Huebscher following the Schiller-Siegel debate.
Whether stocks are overvalued makes for a great cocktail party discussions, but for many investors it has little significance....
The conventional wisdom favors Shiller. Siegel is among a small minority of scholars and analysts who claim stocks are fairly valued or who predict real returns as high at 5% for the U.S. markets. But the conventional wisdom has been wrong for most of the post-financial crisis period. During that time, once markets recovered from their 2009 lows, Siegel has been nearly alone in forecasting strong performance for U.S. stocks. His forecasts have been consistently more accurate than the conventional wisdom over that time period....
Perhaps the most telling advice was from Shiller, who said that the fact that long rates are so low suggests that there is a consensus for secular stagnation. “This not science and cannot be proven right or wrong,†he said. He said that consensus is popularized through a “narrative†that pervades public opinion.
If that narrative persists, then Siegel will be right for years to come. Low interests will undeniably support higher stock prices.
Investment Advisor.
I'm somewhat familiar with the Shiller/Siegel debate. Generally I favor Shiller's view of using CAPE as a guide. But Siegel does have some points. I think he is saying on a relative basis to bonds stocks are fairly valued. Also, he does point out that the Cape ratio is weighed down by the terrible earnings around 2008 and drove PE ratios sky high, In the next year that will be coming out of the Cape as it reaches the 10 year mark. That should drive it lower somewhat, even if current GAAP earnings stay flat and stock prices continue to rise.
But I am annoyed on the argument that stocks are fairly valued on a relative basis. As if that is a good thing. Its lipstick on a pig. Basically they are saying investors are screwed over getting any return on safe investments, so you might as well grin and bear it by getting into risky stocks. The very fact that this argument may be right makes me even more negative on the economy as a whole.