When someone says that the stock market looks expensive, often what he is saying is this: the current earnings yield that you are receiving is quite low. Of course, the total returns that you receive from an investment consist of two dominating variables: the earnings yield that you receive today, and the future growth rate that the company offers you thereafter.
The general concern right now is that companies that typically give you an initial earnings yield of 5-7% are currently giving you an earnings yield of 3-4% instead. Take something like Hershey chocolate. An absolutely excellent company, the kind of stock that once you buy, you never sell—letting the growing dividends that you receive every three months do the talking. Since becoming a large-cap chocolate manufacturer, Hershey’s fair stock valuation is usually when its stock trades at $20 for every dollar in profit that it makes, for a P/E … Read the rest of this article!
On Twitter right now, the hashtag “BitcoinIsBack” is trending as the price of the cryptocurrency has now exceeded $11,000 per Bitcoin. When the price fell from $19,000 to the $3,000 range between December 2017 and December 2018, I was hopeful that this speculative folly would be tossed into the heap for good. Now, we have to deal with the whole group of Twitter users that bought at $3,000-$5,000 in the past year and quickly doubled their money in under a year’s time.
But you know who is not getting in America’s bitcoin craze? America’s rich. Among households with over $1,000,000 in investable assets, only 3% of them own any cryptocurrencies. A little over half their wealth is in stocks, bonds, and operating businesses, a little over a quarter of it is in real estate, about five to ten percent of it is in alternative investments, and the remainder is in … Read the rest of this article!
A lot of mom and pop investors have been encouraged to purchase shares in Welltower stock (WELL) over the past few years on the basis that it is “safe” real estate investment and source of regular income. If you have never encountered Welltower, it’s basically a giant collection of properties that are rented out by senior centers, assisted living facilities, and a broad array of geriatric healthcare providers.
The investment thesis for a company like Welltower tends to go like this: “This company didn’t cut its dividend during the financial crisis, the stock has increased from $6 per share in the 1970s to the $80s today, and America has an aging population so it owns the type of real estate that will benefit from an uptrend over time.”
While those appeals sound superficially enticing, there are some real issues with paying mid-$80s per share for Welltower stock today.
… Read the rest of this article!