With the price of oil now at $78, something I consider unusually low because Saudi Arabia rarely maintains its production amidst declining prices (usually, the Saudis run their oil spigots in a self-correcting manner, decreasing production during hints of substantial price declines and calibrating production increases as necessary during price hikes to keep energy prices in a desired zone), I have made no secret of the fact that I’ve recently been turning my attention towards oil stock investments. I think the prices for many have become attractive in their own right, and especially attractive on a relative basis compared to much of the rest of the blue-chip universe (though with Nestle now in the $72 range, it’s not like there aren’t any growth-at-a-reasonable-price blue chip investments out there).
One of the reasons why I like studying companies that have been growing their dividend by a rate of 7% or more annually for the past ten years is that, not only am I finding businesses that are returning more and more cash to their owners over time, but I am also getting a firsthand glimpse into what the leaders of the company are projecting about the future cash flows for the business. It cuts through all the BS you see on the first few pages of a company’s annual report and tells you what those with the innermost knowledge of a company really think—after all, if you’re running a company that is anticipating trouble growing profits in the next couple of years, are you going to give shareholders a 10% raise in the payout? Probably not, because it’s a lot easier to deal with a few years of 1% or 2% increases than a year of a 10% increase followed by a cut.
When John Bogle ran his regular “Ask Jack” column, he addressed a reader question about portfolio rebalancing and mentioned that he didn’t engage in the practice himself, and offered this data to readers:
Hi, Mr. M,
Sorry it’s taken me so long to respond to your thoughtful note. Busy!
We’ve just done a study for the NYTimes on rebalancing, so the subject is fresh in my mind. Fact: a 48%S&P 500, 16% small cap, 16% international, and 20% bond index, over the past 20 years, earned a 9.49% annual return without rebalancing and a 9.71% return if rebalanced annually. That’s worth describing as “noise,” and suggests that formulaic rebalancing with precision is not necessary.