Looking Ahead A Few Years Can Deter The Temptation To Do Something Stupid

If you do enough financial reading, you will eventually encounter finance writers that encourage you to buy companies yielding 7%, 8%, 9% as a suitable investment for retirees seeking income. With the exception of some energy MLPs (which can make sustainable high-yield distributions because they return all of their profits to shareholders and part of the payout is a return of your own investment capital), I find it unfortunate that certain companies are being touted as long-term investments when they don’t even have a five-year track record of making consistent payouts. Something yielding 10% now, but didn’t exist as a business in 2005 and cut its dividend in 2008 and 2010 doesn’t strike … Read the rest of this article!

In 2021, Warren Buffett Will Be Praised

When Warren Buffett wrote a check for $5 billion from the treasury of Berkshire Hathaway and sent it to Charlotte so that Bank of America could beef up the amount of capital on its balance sheet, he negotiated the right to create a special warrant class so that he could purchase 700,000,000 shares of Bank of America at a price of $7.14 at any time he desires before September 2021. Obviously, it is an intelligent practice to wait until the last moment to purchase the shares—why assume the risk of a devastating financial crisis in August 2021 if you can avoid it?—so the degree of success for Buffett will be measured based on … Read the rest of this article!

Wells Fargo Stock Investors: Betting Big On The Bank

There are some big value investment entities that have allocated a substantial percentage of their investable assets to investment in Wells Fargo (WFC) stock. Most notably, Warren Buffett has allocated 8.89% of Berkshire Hathaway’s stock investment portfolio to the mega-sized California bank. Elsewhere, New England Asset Management has allocated 21.16% of its portfolio to Wells Fargo, and other investment houses have done the following: Edgepoint Investment Group (8.26%), Theleme Partners (36.70%), Rothschild Wealth Management UK (10.53%), Magnolia Group (37.88%), Joseph Weiss LLC (23.67%), American Assets (23.14%), PM Capital (8.92%), DPM Capital (11.12%), Harbor Island Capital (11.31%), FSI Group (11.10%), and so on. In addition, Seth Klarman’s Baupost Group has devoted 6% of its … Read the rest of this article!

Owning Total SA Stock In A Retirement Account

Last time I wrote about Nestle, many readers reached out to me asking about the consequences of owning the Switzerland-based stock in an IRA. The straightforward answer: You have to pay taxes to the Swiss government which cannot be avoided by investing in a retirement. The rules of tax treaties only offer protection to those invested in taxable accounts—your taxable rate gets lowered from the foreign country’s sticker rate to your domestic rate.

To use as an example the company on my mind today, French oil giant Total SA, the tax implications work like this: The French government has a sticker tax of 25% on dividends to American investors. If you are an … Read the rest of this article!

How To Read Annual Reports

When I read an annual report, I search for anything that may compromise (or, if I get lucky, enhance) the value of a company’s common stock that would otherwise not be known by merely looking at a balance sheet. 

Since it is better to be more specific than to generalize, I’ll give an example. I recently noticed that XPO Logistics (XPO) has received heavy investments from its management and staff (who own 18.7% of the stock), Orbis Investment Management (that owns 22.3% of the stock), Jacobs Private Equity (17.3% of the common stock), and Spruce House Investment (13.9% of the common stock). 

In the case of Spruce House Investment, a New York hedge … Read the rest of this article!