The Financial Home Of Tim McAleenan Jr. | The Conservative Income Investor





What If You Can Live Off Your Dividends?

I’ve spent part of my day studying General Mills (sexy, I know) because the company sells products like flour and Cheerios that are immediately recognized as indispensable. The stock never seems particularly cheap, and no one ever talks about buying it despite (1) the easy-to-understand business model, (2) an uninterrupted dividend history dating back to the 1890s, and (3) a track record of compounding at 12.5% annually over the past three decades, leaving behind in the dust almost every hedge fund that exists in America net of fees. Someone who has steadily been committing to buying $300 shares of General Mills every month since 1983 would find himself in the interesting position of owning 22,200 shares of the cereal and breakfast product giant (of course, setting $300 in 1983 would be the equivalent of setting aside $700 today, but hopefully someone in real life would be able to increase their […]

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Most Americans Have No Idea How Financially Savvy And Borderline Brilliant Steve Harvey Is

Sometime in the next month, I’m going to get around to completing posts on Charles Barkley and Steve Harvey, with the discussion point being that both men have very shrewd financial lives and breadth of intelligence that is significantly different from the images that they hold out of themselves in the media. You see Charles Barkley making goofy quips on TNT during basketball season, or turn on the television to see Steve Harvey going after the cheap gags and laugh lines on Family Feud, and you could superficially reach the conclusion that these men are not professionally savvy but reached their positions as a result of a quirk of luck. But if you look at how they position some of their assets, diversify their revenue streams, and listen to the general philosophies they live by personally and use to direct their investments, you will be immediately struck at just how […]

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Gilead Sciences: Approaching Buy-And-Hold, Permanent Investment Territory

Every so often, I get an e-mail from a reader curious to know what company will be the next big player to shake up or join an industry. In response, I very rarely have something new to add to that conversation because I think it’s likely that Coca-Cola will be the next Coca-Cola, PepsiCo will be the next PepsiCo, and Dr. Pepper will be the next Dr. Pepper. Translation: The industry leaders in the beverage sector today will likely be there ten, fifteen, twenty years from now. It’s been no secret that I think they possess the brand equity and vast distribution networks to be around for a long, long time, and that is why they get mentioned as long-term investments here at the site so frequently. But occasionally, there is a newcomer that is on the cusp of attaining blue-chip status, and it can be lucrative to recognize that […]

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Investing Advice To Carry You Through The Next Decade

If you get nothing else from reading the articles on this site, you should pay attention to the strategy advocated by business scholar professor Robert Novy-Marx, whose philosophy can be summed up as follows: “Buying high quality assets without paying premium prices is just as much value investing as buying average quality assets at discount prices. Strategies that exploit the quality dimension of value are profitable on their own, and accounting for both dimensions of value by trading on combined quality and price signals yields dramatic performance improvements over traditional value strategies. Accounting for quality also yields significant performance improvements for investors trading momentum as well as value.” You should his essay here, titled “The Quality Dimension Of Value Investing.” It’s a slight modification of growth at a reasonable price investing. The point of Novy-Marx’s research is this: companies that possess the highest quality assets are those that experience the […]

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A Great Moment To Build Wealth: Hold Expenses Steady When Income Rises

A common psychological trait that most people share is a desire to experience forward progress—the harnessing of that trait, after all, is one of the reasons why it is much easier to stick with an income investing strategy over long periods of time. If you own a diversified basket of assets, and contribute to it regularly, and reinvest, it is almost guaranteed that you will increase your income year after year, seeing the wealth-building process unfurl before your eyes. Someone who judges himself according to the amount of income that his household income each year will experience the psychological satisfaction of seeing the amount of income that his household generates go up year after year, whereas it’s hard to craft a strategy that builds wealth over the long haul while also allowing you to see your net worth increase in a year like 2009. For better and often worse, most […]

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Income Investing And The Fixed Cost Of Life

I spent a large portion of today studying businesses that collapsed due to high, fixed costs. I studied why General Motors failed. I looked into the failures at Border’s and Barnes & Noble. The more I try to figure this whole investment thing out in the broader context of life and business, the more I realize: cash flow is the lifeblood of success. It sounds extreme, but it’s the conclusion I’m coming towards: don’t have $200 in monthly cash flow to cover your food costs? Yeah, that’s going to make you miserable, although perhaps leaner. Don’t have $1,300 coming in to cover your rent/mortgage? See how much you like those “it’s the experiences and people that matter, not money” inspirational quotes that show up on Twitter. Don’t have $150 to cover the electric/water utility bill? See how many of those people and experiences you have when you haven’t bathed since […]

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Do Bull Markets And Great Depressions Affect Your Stock Market Psychology?

One of the social theories out there that seems intuitively appealing (at a minimum) is the notion that the market conditions that exist at the time you came of age has an outsized influence on your subsequent behavior. If you find people who have lived through the Great Depression, they have socks hidden throughout their houses with balls of $100 bills in them. The post-death inventorying of the possessions of their estates is a macabre Easter egg hunt where you stumble upon assets in the most unexpected of places. Because of the widespread availability of credit and lack of society-wide severe economic hardship, Americans coming of age during the 1990s aren’t conditioned to make savvy street-smart economic preparations like that. If this kind of thing does affect your psychology, it could be useful to try and step back from yourself to see whether you’re being unnecessarily conservative or aggressive with […]

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Men Like Buffett and Munger Impress No One But Themselves In Their Early Years

When you study the personal lives of most great value investors, be it Charlie Munger, Warren Buffett, John Neff, Richard Cunniff, Bill Ruane, or Donald Yacktman, you will find that among the many things that they share in common, one of them is this: they have all been internally motivated. When you get your hands on biographies of their lives, you get the impression that even from an early age, they didn’t really care a whole lot what other people thought of them. They weren’t needlessly combative or anti-social, but they weren’t afraid to fade away and do their own thing. This passage about Warren Buffett, written by Alice Schroeder in Snowball, is probably the most concise explanation of what I’m talking about: “Warren also spent a lot of his spare time as a child hanging around at his father’s stockbrokerage house reading everything he could get his hands on. […]

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The Bill Gates Approach To Microsoft Stock

One of the ridiculous components of the annual “Forbes 100 List” that outlines the richest people in the world is that it is written with the frame of reference that every member of that list is actively trying to get richer over time. In the case of Carlos Slim, that is undoubtedly true. In the case of Bill Gates, that is undoubtedly false. When Microsoft went public in 1986, Bill Gates owned 46.7% of the stock. Microsoft is now a company in the $350 billion range. Had Gates decided to let his ownership stake silently compound without any interference from him, he would be sitting on a $163 billion fortune (and that is before taking into account Microsoft’s dividends), permitting him to likely live out his days as the richest person in the world. Instead, Gates has chosen to get serious about charity, selling off his ownership stake to save […]

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