Investing The Cash Portion Of An Investment Portfolio

Since about November, I have received a significant amount of e-mail correspondence from readers asking how to approach oil stock investment against the overall desire to maintain adequate cash reserves that act as “dry powder” for attractive opportunities. I haven’t responded to any of those e-mails, but I want to address the question in its broadest form right now: How should the zeal of picking up attractively priced assets be balanced against the desire to maintain proper cash balances for the next opportunity?

First, I think people should avoid fear-of-missing-out syndrome. Benjamin Graham wrote in The Intelligent Investor that “there is always something intelligent to do.” Sure, some environments are easier for finding stocks that will produce outsized future wealth than others, but even the most bubbly of stock markets contain opportunities that deliver attractive returns.

Take the summer of 1999, for example. The P/E ratios of most stocks at … Read the rest of this article!

Wal-Mart Investing Lessons From McDonald’s Stock

A quick word on Wal-Mart stock. Did you see the recent news that Wal-Mart plans to close down 269 stores? It is a mostly a non-event that affects about 0.5% of Wal-Mart’s revenues, as 256 of the 269 underperforming stores being closed are those that are located within 10.5 miles of another Wal-Mart. Given that earnings at Wal-Mart in 2016 and possibly 2017 are expected to be lower than Wal-Mart’s 2014 reported earnings estimates, you may fairly wonder: Why do I consider Wal-Mart a good purchase in the low $60s, rather than advocate waiting until the earnings show signs of a turnaround?

Isn’t there an opportunity cost associated with holding a company whose earnings aren’t growing? Yes, there is an opportunity cost of waiting for ideas to come to fruition, but what must be remembered is this: The opportunity cost of waiting for earnings to improve, however, is not the … Read the rest of this article!

The Vanguard Wellington Fund: The Best Mutual Fund Of All-Time

Out of all the nearly one million publicly traded mutual funds that have existed in the history of the United States, there are maybe ten of them that are worthy of historical reverence. People often ask: “What is something that would be a suitable building block for a portfolio, a true core holding whose compounding you can count on?” In terms of longevity, there is nothing out there like The Vanguard Wellington Fund, which was launched in July of 1929. It has delivered 8.18% annual returns since its launch date, which is remarkable for two reasons: (1) The fund was launched immediately on the eve of the Great Depression, and (2) the fund is classified as “balanced” meaning it keeps the bond portion of the portfolio between 30% and 40%.

For most of its history, Vanguard Wellington has been a mixture of the bluest of blue chip stock and medium-term … Read the rest of this article!

LinkedIn Stock Gets What It Deserves

On October 30th, I discussed my analysis of The Global X Social Media ETF (SOCL), comparing it to a modern-day incarnation of the tech stock excess during the late 1990s. Even though the historical data shows that seemingly underwhelming things like GlaxoSmithKline at $40 and Conoco at $33 will go on to outperform the collection of stocks that make up the Global X Social Media ETF because the valuation differentials are now extreme, it can be difficult to be persuasive in real time when the value stocks keep going down and the trendy social media/tech stocks keep going up.

The thing about investing is that, at some point, the valuations always come down to bear a relationship to the cash flows generated from the business. I don’t have the capability of predicting specifically when this will happen, but I can identify stocks where the valuation has become so extreme that … Read the rest of this article!

What False Impression Do The Rich Create For The Aspiring Rich?

In his book “Coming Apart”, sociologist Charles Murray interviewed and collected data from America’s economic upper class, and noticed a strong discrepancy between what the modern rich practice and what they preach.

The latest fashion among the ultra wealthy involves practicing what Murray calls ecumenical non-judgmentalism, or a complete posture of not judging the life decisions of others out of a social fear of being called biased or some type of -ist.

Murray summarized his findings with this passage: “Non-judgmentalism is one of the more baffling features of the new upper-class culture. The members of the new upper class are industrious to the point of obsession, but there are no derogatory labels for adults who are not industrious. The young women of the new upper class hardly ever have babies out of wedlock, but it is impermissible to use a derogatory label for non-marital births. You will probably raise a … Read the rest of this article!