Predicting A Bad Investment

You have probably heard ad nauseam about how the low interest rates of the past nine years have caused many investments roughly classified as dividend growth stocks to become overvalued because they have served as substitute investments in place of bonds. My corollary is that the balance sheets of most large businesses are under-scrutinized right now. Cash-rich balance sheets aren’t leading to premium valuations, and excessive debt doesn’t seem to impose a penalty right now.

I had this in mind when I studied the balance sheet of Post Holdings (POST), an acquisition-hungry St. Louis company that owns some familiar brands, including: Power Bar, Shredded Wheat, Fruity Pebbles, Raisin Bran, Grape Nuts, and Honey Bunches of Oats. These brands aren’t strong enough to demonstrate industry-leading pricing power, but they are strong enough to raise prices by a bit more than inflation costs each year. If Post Holdings had a strong balance sheet and traded around 15x earnings, I’d cover it regularly on the site as a “Top 50” investment.

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Dodging Mediocre Retirement Investing

Some general market analysis from Research Affiliates that I completely agree with:

“It doesn’t seem like much to ask for–a 5 percent return. But the odds of making even that on traditional investments in the next 10 years are slim. Research Affiliates looked at the default settings of 11 retirement calculators, robo-advisors, and surveys of institutional investors. Their average annualized long-term expected return? It was 6.2 percent…One message that John West, head of client strategies at Research Affiliates and a co-author of the report, hopes that people will take away is that the high returns of the past came with a price: lower returns in the future.”

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