It was not fun writing with the gloves of an autopsist when giving my opinion that shareholders of Plum Creek will be in for a disappointing future if they hold onto their stock after it is tucked into the tree-farming operations of Weyerhaeuser. With Thanksgiving fast approaching, I’ll share a more cheery forecast: I think the shareholders of Starwood Hotels will do quite well over the coming decades as part of their stock will soon be converted into a mega-hotelier with Marriott.
The specific terms of the deal: Each share of Starwood Hotels will turn into 0.92 shares of Marriott Class A stock and there will be $2 in cash received for each share. The combined company will have 1,000,000 rooms across almost six thousand hotels. This strikes me as a win-win deal for both. Marriott gets some high-quality franchises at a fair price–no small feat six years into an … Read the rest of this article!
In 2007, families with over $500,000 in investable were asked the question “Would you give a positive recommendation of your advisor to others?” Only 31% of families answered yes. When the question became, “Are you satisfied with your advisor?”, then the affirmative yes only trickled up to 39% (the speculated reason for the eight point difference is that some families don’t want to share their advisor with others out of fear that the advisor would reveal personal details or additional clients would monopolize his time and diminish the quality of service.)
The obvious follow-up question is this: Why, before the financial crisis, did a near supermajority of clients feel uncomfortable with the type of financial representation that they were receiving? Was it unrealistic expectations? Grass is greener syndrome? Terrible advisor selection deserving of rebuke?
Nope. It’s all about a failure to meet expectations. Among people dissatisfied with their investment management, … Read the rest of this article!
Because I have previously argued that Hershey is one of the best stocks to buy at today’s valuation, I want to discuss the psychological side of what owning this company for the long-term looks like. Ten years is the shortest period of time that I would regard as a qualifier for a long-term investment, so let’s put ourselves in the shoes of someone that bought Hershey stock back in 2005.
Back in 2005, shares of Hershey were available for $52.50 per share. It was earning $2.28, and someone that bought the stock would have locked in an earnings yield of 4.34% as the P/E ratio was 23. The valuation was little bit high–the kind of thing that might knock a point or two off your returns in the medium term but would eventually be burned off as confectionery brands got acquired, existing chocolate production facilities got expanded, stock got repurchased, … Read the rest of this article!
I was reading a popular investment forum that was discussing the best types of assets to put in a tax shelter like a Roth IRA, and the recommendation that received universal praise was real estate. This is the conventional wisdom, and for good reason. In taxable accounts, real estate investment trust income is taxed at the full ordinary income tax rate.
In other words, a BP dividend in a taxable account will only require the payment of 15% in tax if you file single and make between $37,450 and $413,200 or file jointly and make between $74,900 and $464,850. But if you own something like Realty Income in a taxable account, the dividend tax would be anywhere from 25% to 35%. When you put a REIT in an IRA, you get to avoid those extra points of taxation and receive the full compounding of the asset while it remains in … Read the rest of this article!
Fascinating mail-bag question I wanted to answer: Tim, which area of traditional blue-chip investing currently concerns you the most and why? -Alex.
Right now, my biggest concern is the blue-chip stocks related to the production of food. A lot of people blame 3G Capital for production deterioration, but it really got started with Breyers Ice Cream which has been owned by Unilever since 1993. In the late 1990s, Unilever tried raising the price of ice cream as cream, sugar, and milk shot up in price. But passing the costs onto consumers didn’t work–the sales went down a bit, and Breyers found itself not gaining much (if anything) from raising the price.
Then, it tried shrinking the size of the containers. That works, up until a point. Then, it consolidated operations and cut costs by moving all the Breyers ice cream production to Green Bay, Wisconsin and Englewood Cliffs, New Jersey. … Read the rest of this article!