The Blight Upon Vanguard

Just as it is easy for me to talk about dividend investing because real-life companies like Coca-Cola and Colgate-Palmolive exist, it is easy to advocate index fund investing because Vanguard exists. You can write a check or establish an electronic debit for $3,000 of VFINX, and instantly own shares in the 502 different companies that currently represent the S&P 500. And you only have to pay 0.17% in annual fees. Between 2015 and 2025, you will only pay an estimated $119 in total fees in exchange for using Vanguard’s consolidated purchasing power to buy ownership stakes in a wild diversity of companies.

Vanguard’s low fees enable people to get near market returns over the long run for just a $3,000 initial investment, and it is a great tribute to John Bogle’s legacy that he has been able to assist Americans of ordinary income in their quest to build a retirement … Read the rest of this article!

An Introduction to REIT Investing

One of the regular search terms that brings people to this site is: “Should I buy REITs” followed closely by “Are REITs conservative investments.” Sometimes, people think about REIT investments as identical blocks of real estate that have few differences between them. That, of course, is not the right perception. Just as there is a difference between buying and holding Coca-Cola and ExxonMobil for thirty years compared to holdings salesforce.com and Iron Mountain instead, there is a wild divergence in the quality of REIT investments that a person can make. Let’s walk through a couple examples.

The most conservative way to find an investment in real estate is to find one of the rare companies with an excellent balance sheet and a business model that retains customers during economic recessions without having to make many price concessions to them.

An example of a company that fits this conservative profile is … Read the rest of this article!

A 1990s Bubble Stock Today

Marcus Lemonis, the host of CNBC’s popular show “The Profit”, recently lambasted a struggling business owner by saying, “You can’t spend the revenues, dummy.” Hey, we have to take our truths wherever we can find them. And almost eighty years ago, Benjamin Graham added some elegance to that notion when he stated that intelligent men often mistake a company’s rapid overall growth for the amount of profits that would actually be someday attributable to the shareholder.

Charlie Munger called high revenue/low profit businesses “good until reached for” because the money you saw reported on paper looked nice until you actually tried to convert it into cash that shows up in your bank account. Buffett, too, addressed this concept tangentially when he stated that his favorite businesses are the ones that permits the owners to extract ever-growing sums of cash each year without threatening the company’s competitive position or ability to … Read the rest of this article!

Charlie Munger Is Not Buying During The Coronavirus Pandemic Yet

Obviously, everyone pays attention to Berkshire Hathaway’s quarterly filings to see what Warren Buffett is buying, in general and especially in response to the coronavirus pandemic. When Warren Buffett buys stock, he has to deal with the immediate media scrutiny (and often obtains a special SEC exemption to refrain from disclosing the purchase of certain stocks in his quarterly filings to discourage copycats while he is still accumulating various positions). 

What is interesting is that the media pays far less attention to Charlie Munger’s investment moves, which are disclosed when he deploys the cash available in the publicly traded Daily Journal Corporation (DJCO) as well as the Alfred Munger Foundation (named after his father), where he allocates the capital. 

Many of you saw the news over the weekend where Charlie Munger provided an interview with the Wall Street Journal where he said “The Phone Is Not Ringing Off The Read the rest of this article!

John Bogle’s Stock Market Prediction

John Bogle recently got asked by Benzinga what kind of returns investors should expect over the coming decade. He assumed that investors owned a portfolio of 50% large stocks (index-fund based) and 50% bonds (U.S. government issued). He argued that he expects 5% earnings per share growth, 2% dividends, and -3% returns due to valuation compression from the S&P 500 as a whole. He expects the P/E ratio to switch from nearly 20x earnings to 15x earnings. This amounts to a 4% return from the stock portion of a portfolio.

With bonds, Bogle is predicting 3% annual returns over the next couple years. The implication is clear: Someone owning a portfolio equally stuffed with typical S&P 500 stocks and U.S. government bonds should expect 3.5% annual returns over the next ten years, and that may very well amount to 0% purchasing power gains when you include the effects of inflation, … Read the rest of this article!