Dividend Investing: A Survivor’s Guide For Life

general electric

Over the course of the 20th century, the valuation for a “typical” S&P 500 stock shifted upward from a P/E ratio of about 10 to a P/E ratio of about 17. Unless you happen to have a nice taste and appreciation for history, this might fall into the category of things that you do not think about a whole lot. But still, it can be a question worth examining: Why are investors, on average, willing to pay $17 for each dollar of a company’s profits when a century ago they were only willing to pay $10 for each dollar of profits. Is this an example of permanent irrationality in the marketplace?

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Originally posted 2013-06-22 03:45:27.

A Stock Does Not Know You Own It

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One of the oldest Wall Street aphorisms is this: “A stock does not know you own it.” Usually, this quote crops up during a conversation between someone who got burned by an investment in a particular company and another person that is looking to initiate a position in that company.

I’ve always shied away from using the phrase “A stock does not know you own it” because, in my experience, its connotation has always been negative, involving some investor lecturing someone else for making a bad investment.

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Originally posted 2013-06-21 20:50:39.

K-1 Fears For MLP Taxes Are Overblown

If some people choose not to invest in a particular master limited partnership because the underlying energy holding contains too much debt, I don’t blame them. That is sound investment analysis! If others don’t invest in an MLP because they invest through IRA accounts and they do not want to deal with the specialty rules that exist for IRAs that generate more than $1,000 in unrelated business tax income (UBTI), I understand and agree. And if some people just plain don’t understand this class of investments, that’s a fantastic reason to avoid MLP investments (sticking to your circle of competence and not straying is a properly well-regarded Warren Buffett quip, so long as it isn’t a crutch to stop learning).

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Standard Oil: The Different Fates Of The Three Rockefeller Brothers

standardoilsWhen I read the biographies of America’s most famous self-made men and titans of industry, there is one character trait that seems to always be a common denominator that they all share: an unrelenting focus to make something great, and from there, an ability to monetize that passion into obscene wealth. John Rockefeller was no exception. When asked by a journalist to articulate the purpose of his life, Rockefeller answered, “God put me here to make money.”

When he created the Standard Oil trust at just thirty-one years of age, he had one mission regarding the fragmented oil industry in the United States: combine everything under the Standard Oil umbrella. To accomplish this goal, Rockefeller did one of two things: he either gobbled up his competitors in exchange for some freshly issued Standard Oil stock, or he would be willing to sustain a temporary loss to himself to drive his competitors out of business. What Rockefeller would do is this: he would set up a profit sharing arrangement that would allow him to ship his oil for only a dime, and he would give the families of the freight operators 100 lot blocks of Standard Oil stocks. The other competitors would have to pay $0.35-$0.50 to ship their freight, and with ease, Rockefeller was able to use this cost differential to drive his competitors to the brink of bankruptcy (although they would usually sell out to Rockefeller before reaching that point).

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Originally posted 2013-06-19 16:55:24.

Warren Buffett Tip: Pretend The Stock Market Shut Down For Ten Years

exchangeQuick. Take a look at your portfolio. Pretend that someone just told you that the stock market was going to close until January 1st, 2023. If you knew that you could not sell any of your current holdings for the next ten years, how many of them would you keep?

I was recently reading an old Wall Street Journal article that examined the fact that the fluctuations in net worth among the most affluent 1% of Americans has increased substantially over the past generation. The conventional wisdom on the matter is that we have experienced an unprecedented era of rapid technological innovation, and these changes in technology have threatened the stability of most business sources. That’s part of the story.

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Originally posted 2013-06-18 01:33:00.