Chowder

Estrategia Referentes
24

No dirt, I don’t even look at a balance sheet or an income statement. I’m not in the business of analyzing company financials. That’s the job of the rating firms I use. I let them do their job and they let me do mine. I get my analysis through subscriptions: M*, S&P Capital IQ, ValuEngine and Valuentum all use discounted cash flow models.

My job is in determining what a company does for a living, learning how they operate in good times and bad, and then deciding if that’s a company I want to do business with. If I do, I look to the rating firms for financial strength ratings and valuations. I look to the firms to determine the safety of the dividend.

I don’t know the intricacies of oil pressure valves or what causes specific readings. I don’t need to know. All I need to know is that when the needle is within a certain range it indicates to me to do something or do nothing.

My job was to determine I needed oil and a gauge. The engineers job was to tell me what criteria to look at to determine what I need to do.
That’s how I look at valuations. The rating firms are my engineers and they tell me where the needle should be when I want to buy a position.

Yeah, it’s that simple! … The hard part is convincing yourself that it is. I did that long ago.
And you know what? This comment was probably the best comment I’ve made in years and most won’t get it. … Ha!

25

I’m still convinced the best approach for young people is to be 100% invested, reinvest all dividends as long as you are still contributing to the account on a regular basis, and allow the concept of compounding work in your favor. The longer compounding has, the more powerful it becomes.

Since none of us … NOBODY … can predict in advance how our best ideas will play out, I say stay invested and let the market do what it needs to do.
Again, I’m talking to the young folks here who have a couple of decades or more before hitting the distribution phase.

Build that income stream as quickly as you can, and your monthly dividend income will grow to a point where you can turn the reinvestment feature off and have cash to invest every month for opportunities if you feel the need to do so.

My son’s Roth is on dividend reinvestment because cash is being deposited in the account every month for buying opportunities. He isn’t contributing more than $500 per year to his taxable account, and the taxable account is twice as large as his Roth, so I collect the dividends in cash for buying opportunities, but staying 100% invested helped build that income flow up quicker.

Older folks, I get it, cash on the sidelines provides peace of mind at a time when you don’t have the time the young folks do for the market to correct your mistakes. I was 100% invested for years but now keep a small amount of cash on hand.

On another subject …
You folks using short term trader price entry points are focused on the wrong thing in my very humble opinion. There are going to be many entry points over time and this one isn’t any more important than any other UNLESS you are going in LARGE. If you’re picking up a few shares here and a few shares there, it isn’t going to make enough of an impact to really matter whether you pay $50 for something or $52. The price point doesn’t have the same impact on SMALL as it does on LARGE.

I was a trader, I understand price entries. Every trade I made was a full position right off the bat. You don’t ease in when trading and most people you read or listen to on the boob box is providing trading tactics which are ineffective for long term investors.

It’s those short term price entry tactics that kept you from buying LMT at $90 and finally paying $170, it’s what still has people identifying good investments like MO, JNJ, COST and others and missing out on them because you got cute on entry. You still don’t own as much of any of these as you wanted, if you own them at all.

I get making a choice between one company and another and picking a better valued company, I don’t get, price is reasonable but I want better, and then you go in small. If you are going to get your hero price, go in LARGE.

You have to learn how to leverage your correct decisions. Hero price is usually a correct decision that took time to develop. If you get it, take advantage of it, easing in will only keep your position small because you will be reluctant to add at higher prices and if you were correct, price isn’t coming back down to hero price.

Long term investors do not need to get cute on price entry. If you don’t believe me, start keeping a diary of your decisions. We traders had to! Mark down that magical price, whether you bought or not, and then look at it 3 or 4 years later and realize how naive you were at the time when you see how few accurate calls you made at the time. All of that stress over a single price entry point will seem insignificant if you are a long term investor.

I kept those diaries, I tracked those decisions, and nobody is going to convince me otherwise with their hindsight analysis. I lived it, I know the realities of it, I’ve invested in equities over 3 decades and many market corrections, try to learn from it, work with me here.

2 Me gusta
26

The dividend growth strategy has a tougher time beating the S&P 500 during bull markets because the S&P 500 has quite a few momentum companies within the index, and it’s the momentum companies that provide most of its return.

Most people won’t buy momentum companies due to valuations, and if one considers themselves a value investor, they have to be patient until the market realizes those company’s value.

Therefore, dividend growth investing, if applied properly, will catch and pass the S&P 500 in trending and declining markets.
The critics of this strategy don’t have the experience to know what does and doesn’t work. They only spew what they read in books or are taught in the classroom. Reality is often much more different than theory because reality includes emotions, it includes the psychology of the market. Anyone doubting this, try paper trading vs having real money on the line.

If the market declines from here, so what. My income flow won’t, and it’s my income that I live off of.

I don’t have to worry if a position is down 20%, 30% or 40%, I don’t need to sell anything to generate cash to live off of. My dividends cover our needs and my dividends remain the same even when the share price drops 40%. How much more peace of mind can one expect than that in the face of negativity? … Ha!

27

@Mikee … >>> VFC? … Seems an odd choice over MCD, MSFT, WEC, WBA, LMT, SBUX, KHC, even HRL. <<<

I’m glad you mentioned that, I was expecting someone would, just didn’t know who.

KHC is one of our Core positions. Any of the others could be, it just depends.

Now, what makes a Core position? … The answer to that will vary from person to person. And this is important, just because I don’t consider MCD or SBUX or WBA a Core position, it doesn’t mean I can’t have a large position.

For me, a Core position would be as close to a “picks and shovels” company as you can get. I hope folks know the gold mining story where it was the people who sold the picks and shovels to the prospectors that made the money.

A Core company for me is the “supplier” of goods and services. If I own WBA, I only have access to the consumer dollars spent at WBA. But if I own JNJ, I have access to all consumer dollars, in all establishments that sell JNJ products. I own the supplier. The supplier is my Core!

When I look at the product line of VFC, and the number of ways they can market their product line, it provides what I think is the best access to the consumer discretionary dollar. VFC is the supplier.

MCD is not a supplier. SBUX is not a supplier. SYY is and SYY could qualify for Core with me, but I wanted to limit the number of Core positions.
Everything I focus on with the Core centers around maximum exposure to the consumer dollar, not business dollar (for the most part), not government dollar, the consumer dollar.

If someone wishes to have HRL as Core, or MCD as Core over VFC, I’m not going to suggest they’re wrong for doing so. It depends on their expectations. … What … do … you … want?

But, here’s the other aspect of what I consider Core, the most important part. Once the portfolio is established with the companies I wish to own, and every portfolio I manage is at that point now, I do not use Core positions as a source of generating cash. Trimming a Core is the most egregious of errors, so select wisely.

I don’t care how over-sized a Core gets, it won’t get trimmed. I don’t care how over-sized a Core gets, I will continue to add more.

If I have a need to generate cash for any reason, I’ll trim LMT, MCD, MSFT, SBUX, etc. but I won’t trim MO or KO.

A Core for me, is a company I wouldn’t think twice about adding to if it drops 40% in value and wouldn’t think twice about adding to it if it’s 20% overvalued. It makes no difference because Core shares are not for sale which is why the number is small in comparison to the portfolio, so choose wisely.

If my son had cash to invest today, it’s going somewhere. If I can’t find a decent value in a non-core company, it will be invested in MO or KO for example regardless of valuation.

All Core positions are set up on dividend reinvestment in portfolios where dividends are collected in cash and reinvested selectively. I am “force feeding” myself to build the Core the same way we “force fed” our funds within our 401K’s.

It doesn’t matter what your choices are as long as you understand what it is you wish to accomplish with a Core position, and you stick with the process in good times and bad.

There are a lot of good companies that can qualify as Core, and managed the way I am managing ours, but you don’t want to have too many of them. Shoot, 20 might even be too many for all I know, but when I decided to use this concept, I took the idea from Focus Funds. Most Focus Funds limit their holdings to around 20 Core companies. Buffett has a fewer number, but I’m no Buffett, so 20 seemed reasonable to me.

I wanted my Core positions to be “picks and shovels” companies (the suppliers) and have access to the consumer dollar.

30

Este también es muy, muy bueno:

Here I am, looking out over the ocean, nobody around, no distractions, watching the light of the new day appearing before me and it hit me. The problem we have in most of these comment streams is about picking the right companies when picking the right companies is irrelevant. It don’t mean nuthin’ because all of the right companies go through periods of adversity, and when they do, all of a sudden a high conviction, right company, no longer seems right.
No people, we are going about this wrong. What we need to be focusing on is how do we manage what we have?
When I was learning how to trade, we were given 1 company, that’s it, it was a full position right off the bat and everyone had the same company, now manage it.
Boy, was that a lesson I’ll never forget. Some simply held. Some went to cash, some trimmed and held cash in order to buy back lower, Some took options, others went short, what we couldn’t do is take money and invest it elsewhere. You had to manage your position to maximize return or to minimize loss.
If you take notice, you don’t see me writing much about a specific company’s fundamentals. I leave that to you. I’m not going to write articles on why I bought or sold something, most of those articles are a grab to get page views and generate income.
I’m interested in the managing of a portfolio. When you look at what you own, I try to share my experiences on how I manage those positions, both the winners and the losers.

It’s not company selection we really need help with, it’s how we manage those positions, how we learn from our successes and compound those, how we learn from our mistakes to minimize losses going forward, that’s what I am trying to bring to the table. Anyone can pick a handful of companies, what truly counts is how those positions are managed.

He leído unos cuantos libros de inversión. El que ha escrito Chowder a lo largo de sus mensajes me parece de los mejores, sin duda.

32

El tipo del avatar del Arsenal reflexionando sobre la próxima gran corrección del mercado americano…

“People can talk all they want about waiting for a 30% decline and they will act. Most of the time they won’t because they start thinking something might be wrong. But even if they do buy after a 30% market correction, if that day ever shows up anytime soon, I can still, and will, buy more.
Not only that, but if that correction doesn’t come soon, that 30% correction may take price down to where it’s still above today’s prices.
All you have to do is look at how Buy&Hold2012 has modeled his portfolio. He’s been waiting on a 20% market correction since March of 2012. How good will that correction look now? How many more shares will that 60% higher price buy if that correction comes now will he get over what I overpaid for companies 5 years ago?
And what do people who wait on hero price, and get it, invest? They go in small. … Are you kidding me? Small? Just a slice to get started?
If I’m going to wait on hero price and finally get it, I’m backing up the truck and starting out with a full position right off the bat and I’m going to average up until I have a double sized position. That’s how you hero invest.
These buys I am making are not new positions. Anyone who has been at this for any length of time has gains in place already. It doesn’t matter (currently at a 15% premium) if I overpay for a 1/4 sized position on KMB, the new cost basis will still be well below today’s fair value price. … Boom!
I’ve got a 300% gain in MO and if I add another 50 or 100 shares, does it really matter to the overall position what the valuation is? I think not! It’s so far below today’s fair value price that any crash we get won’t take it down below my cost basis.
However, those who continue to trim or sell are always establishing a new cost basis, a new anxiety that will have the potential to show red in the portfolio. Short term thinkers never think about that.
Ask geekette how worried she is that anything even has a remote chance of turning red. You can’t get to that level if you keep trimming away.
Shoot, most people who have owned LMT for about 5 years or more could double down on their position and the new cost basis would still show a 100% return.
The only way to get there is to learn how to hold for the long term”

35

Se ha hablado en otro hilo, sobre el CAPE y la valoración del mercado. Más food for thought:

I read an article today on some obscure site, don’t have the link, where it talked about a Twice-In-History valuation that saw a huge correction from that level. The article was about the CAPE ratio which is attributed to Robert Shiller.

This ratio gauges market valuations, not company specific, market specific. This ratio indicated the market finally became overvalued in 2012 where some people stopped buying and decided to wait on the correction which hasn’t RSVP’d yet… Quite a few hedge funds, following the CAPE ratio started shorting the market in 2012 and those funds have had their lunch handed to them over and over since then.

As a former trader who understands and used technical analysis exclusively during that time, I understand the value of historical performance, but I also learned the hard way to ignore all historical information in a raging bull market that creates those Stage 2 price movements we discussed in another comment stream.
The two times the CAPE ratio reached these levels was prior to the Great Depression and prior to the Tech Crash of 2000-2001. The first time the CAPE ratio was this high was prior to the Great Recession and it was 2 months after that point that the crash came.

The second time the CAPE ratio was this high was prior to the tech crash but the interesting thing was, the market rose another 85% before that crash hit. Now think about that! 85% is one heck of a safety cushion to go into a crash with.

Now I don’t have a clue when the next significant market correction will come. It may start next week, next month, next year or 5 years from now. I have no way of knowing, but what I do know is that I can look to historical information to determine the condition of the market at the time and see whether those valuations were justified or not. I’m not questioning the high valuations, only whether they were justified or not.

Some of you will recall that prior to the tech crash we had brand new companies coming out with no earnings and hardly any revenues rising to stratospheric highs. Forget about PE ratios, they didn’t have any because they had no earnings and companies would go public at $40 and be at $200 in a year or less.
What’s different this time with the market being overvalued as most think it is, is that earnings and revenue growth are confirming the valuations are justified. I know it can’t go on forever, but I have no clue when it will stop either, and since these types of bull moves only come once about every two decades, I’m taking full advantage of it by buying more of the high quality companies we own that are doing better than expected.

Once this bull corrects, don’t be surprised to see the market do nothing over the next decade, just as it did following the Great Depression and the tech crash. Knowing this in advance, I want my safety cushion in terms of owning that secure income stream, that is our primary objective. As long as the income needs are exceeded, I won’t have to worry about selling shares into a crashing market. I have no desire to compound losers, I only want to compound winners.
Think about it!

36

Mistakes is where I’m better than Buffett, I got him beat on those numbers.

The worst mistakes I’ve made was first, not staying focused on high quality companies, and by high quality, I mean companies that are financially strong, have BBB+ or better ratings with S&P or B+ or better financial strength with VL.

The second most egregious mistake I’ve made over the years was buying into the concept of overvaluations. Those valuations are important for traders, important for people who hold a low number of companies, important for those that charge for a service or product.

For the long term investor, high valuations means your company is performing better than expected, and we want to sell that? Are we nuts?

We’re not supposed to carry short term trading tactics and apply them to a long term strategy. The goal is to build positions of size in high conviction companies over the investing lifetime of the share owner. We can’t do that if we keep trimming or selling winners, and although we will always get the “yeah but” folks with their exceptions, anyone who has been at this for a while will tell you some of their biggest mistakes were in selling companies they thought were overvalued.

As you know, I announced in advance what my buys were going to be this week.

I added to ITW … MMM … MCD … SYK … O … PEP … CINF … UTX … UNP … APD … PH.

What they all have in common is that every one of them beat on earnings and revenue. All of them are doing better than expected.
And the valuations, aren’t they high?

Those valuations we all look to are wrong! And when people that figure out they will have to adjust.

Valuations are supposed to predict future cash flows for the company and whether it’s a good investment or not. Valuations are in essence trying to tell you what a company is worth going forward, based on the facts they have now.

Well, all of those companies did better than expected and any fair value others think these companies were worth is going to rise, the companies are more valuable because they are outperforming.

I want more of the companies that are outperforming, not less. Avoiding companies performing better than expected makes no sense to me.

People need to look at what some of their biggest mistakes have been. I’m willing to give odds that anyone who has been investing for any length of time will tell you their biggest mistakes had to do with the way they managed valuations. Companies were sold that shouldn’t have been, companies were avoided that should have been bought.

When people come to the realization that long term investing works better when we avoid using short term tactics, the more their portfolios will grow.

Your own DG50 portfolio is a terrific example of how people mismanage valuations. Everyone of us who contributed to that project said there were many companies we wouldn’t buy at the time due to valuations. A couple of years later, what did you find? You found that the best performers were the companies that were overvalued and others said to ignore. You found out first hand that what I’ve been saying for years is true. The strong often get stronger.

When I look at the condition of the market and see we are in a raging bull environment, I buy strength. … Hooyah!

37

Price is temporary if you are dealing with quality, and knowing it’s temporary, why the great concern? I don’t get it.

How many times does someone who knows what they are doing (Buffett and others) have to say only buy the companies you are comfortable holding and adding to in the event of a 40% correction?

The long game requires that you make that mental adjustment or you’re going to have a lot of sleepless nights.

So again, why should I care if price drops 40%? Does it mean I have to un-retire? Does it mean my income stream gets cut off?

Again, a million dollar portfolio can drop to $600k and it still generates the income of a million dollar portfolio. That’s the essence of dividend growth investing, not price volatility.

If the portfolio value drops from a million dollars to $600K, is it your suggestion that prices won’t rebound? If they are going to rebound, why the concern. And while prices are down, since the dividends are generating more than I’m drawing monthly, I can buy more shares at lower prices and increase that income flow even more.

I’m looking forward to the next significant correction, I’m waiting to see how people react and then see what kind of lessons are born as a result of that experience. Having been through many corrections myself, and still being here breathing, buying and collecting dividends, all price volatility is to me is noise. Some noises are louder than others but that’s when put my headphones on to block it.

Price volatility is not to be feared, it’s to be embraced! It’s an opportunity to determine your management skills. What is to be feared is a company’s quality, it’s financial strength. Without that they may truly die like SDRL and LNCO did.

38

Cómo plantear una cartera para gente joven. Para leer y releer.

I get asked all the time by young folks on how to set up a portfolio. In the last 2 weeks I have been approached by 5 different people. Rather than continuing to type out a long response which requires time, I’ll post it here and refer to it going forward.

I suppose the best way to explain how a young person should invest, in my opinion, would be to answer the question my son asked me when I first got him started in investing, something I wish I was smart enough to know in my 20’s. He asked me, how will I know when I can retire?

I told him when his investments pay him more to sit at home than his paycheck pays for him to go to work. That was something he could relate to. I later came up with the concept of an “escape velocity” portfolio.

Escape velocity is the speed that an object needs to be traveling to break free of a planet or moon’s gravity well and leave it without further propulsion.
I decided I would build a portfolio that generated enough income to break him from the forces of employment and have him in a position where he could retire prior to normal retirement age if he so desired.

Therefore, his portfolio is all about building an income stream that is reliable, predictable and increasing. The whole purpose of this portfolio is to earn enough income from the underlying assets, to replace the income currently being earned while employed.

The companies that are purchased for this portfolio, and those that remain in this portfolio, must all support the overall objective; they must contribute to that income stream we are trying to build.

We are not concerned with what the market is doing or will do; an income must be earned in all market conditions. Therefore, our focus remains on identifying companies that have a high probability of continuing to pay that dividend regardless of market or economic conditions.

Young folks buy into the idea that because they are young, they should go after growth. Growth companies carry more risk and the belief is that if they make mistakes, they have time to overcome them.

I can assure you, those mistakes will be made! You have people without any experience taking on risks, in an effort to chase growth, and when that growth doesn’t appear because the mistakes will have them fighting for the same ground over and over, they will lose valuable years of compounding.

One can always chase growth after establishing a certain income level from their assets, but one can never capture the compounding years they let slip by.

Any respectable financial adviser will say not to put money at risk that you can not afford to lose, yet chasing those growth companies does just that. They don’t have an income base established with other assets so they are putting money at risk they really can’t afford to lose.

I told my son to build the foundation first, and once the foundation was in place, if he still wanted to reach out and get some growth, he’d be in a position where he could afford to. His foundation is still taking advantage of compounding.

One can’t learn to run until they learn to walk. One can’t become a physician unless they go through a process. One can not fly a plane until they go through a process. One can not have a financially secure future without going through a process. That process is to buy and build assets that generate income.

Google doesn’t generate income. Facebook doesn’t generate income. Amazon doesn’t generate income. General Mills does, Con Edison does, Home Depot does. And what people who lack experience don’t realize, the more income an asset generates, the more valuable it becomes over time, and the more valuable it becomes, the more people will want to own it. The more people want to own it, the higher the share price goes, thus creating growth while at the same time generating income. More young folks truly need to learn and understand this process.

I have no idea how much portfolio value I need to provide for us in retirement because share prices rise and fall every day the market is open. I do know how much income it takes to provide for us in retirement and thus I know how to build a portfolio that generates an income stream that is reliable, predictable, and increasing. And, it takes years to get there. The sooner one starts, the sooner compounding will help them get there.

Escape velocity, the point where your assets are generating enough income to propel you from the forces of employment and you never have to look back, or worry about whether the market is going to correct or not.

1 me gusta
39

Being a former trader, I know that strength is the way to go.

How many times have we heard, don’t fight the trend, and the trend has been up for 8 years now and earnings are showing us that the current valuations, although are high, are also justified. It’s hard for people to wrap their heads around that.

Professional traders and investors aren’t trolling the 52 week lows, they are looking at the 52 week highs for opportunities, another concept people can’t wrap their heads around because they don’t know how to assimilate the current conditions of the market.

Amateur investors troll 52 week lows because they think it won’t fall much further if the market corrects, and although everyone has a success story or two, try doing that on a consistent basis, try doing that with a 40 position portfolio. … Rookies!

People don’t understand that although strength will correct along with everyone else, they will be the first to rebound when the flight to safety takes over.

If people want to become successful long term equity investors, they are going to have to get used to the idea that prices rise and fall, but over the long run they generally head higher. I don’t see anything changing that going forward.

Buy strength, hold strength, build strength.

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One of the most important lessons I have learned from Valuentum is the process of valuations. The man who started Valuentum used to work at Morningstar and he trained a lot of the senior analysts there. So I assume he knows a little more about valuing a company than I do, and here is the valuable lesson I learned.

One of the most important concepts of the Valuentum methodology (and valuation in general) is the understanding that the value of a company is a range of probable valuation outcomes, not a single point estimate. Even well-seasoned stock analysts are guilty of saying that a company’s shares are worth exactly $25 or a firm’s stock is worth exactly $100. The reality is that, in the first case, the company’s shares are probably worth somewhere between $20 and $30, and in the latter case, the stock is worth somewhere between $75 and $125.

Why? Because all of the value of a company is generated in the future (future earnings and free cash flow), and the future is inherently unpredictable (unknowable). If the future could be predicted with absolute certainly (knowable), then a stock analyst could say a company’s shares are worth precisely this, or that a firm’s stock is worth precisely that. Not because he or she would know where the stock would be trading at, but because he or she would know precisely what future free cash flows would be (and all other modeling facts-not assumptions in this case) and arrive at the exact and non-debatable value of the firm.
But the truth of the matter is that nobody knows the future, and analysts can only estimate what a company’s future free cash flow stream will look like. Certain unexpected factors will hurt that free cash flow stream relative to forecasts, while other unexpected factors will boost performance. That’s how a downside fair value estimate and an upside fair value estimate is generated, or in the words of Warren Buffett and Benjamin Graham how a “margin of safety” is generated. Only the most likely scenario represents the point fair value estimate. Any stock analyst that says a company is worth a precise figure – whether it’s $1 or $100 - -falls short of understanding one of the most important factors behind valuation.

But why the large range in many cases?
Well, there are many firms in our coverage universe that have a very large range of outcomes in their future free cash flow growth. And because discounting free cash flows is an integral part of calculating the fair value estimate of a company, the range of fair values will also be large.

When you take the time to get your head wrapped around this concept of valuations, you will begin to see why I have been saying that people are wrong to think of valuation as a price point and it’s why share prices fluctuate so widely on days when companies announce earnings. And when you understand the concept of a fair value range, you’ll realize how silly your actions were when you identified great investments and let them get away because they missed your price target by 25 cents, a dollar or even a few dollars.

Your fear over falling prices is what prevents you from having the portfolio you’d like to have. You want a hero price not for the extra 3 or 4 shares it picks up, that’s the excuse, the justification for your fear of falling prices. You think the hero price will protect you to the downside where your position won’t drop as much. What difference does it make if it drops 20% or 30%? Unless you need to sell shares to generate cash, it doesn’t matter, and if it did matter, you shouldn’t be investing in equities.

Some of you folks have a lot of thinking to do about the way you identify buy targets. You will never hear me say, I wish I owned more, when a company takes off and is outperforming. I will pick up shares within those fair value ranges and the more shares we own, the higher the income flow. It’s all about income.

41

Más sobre valoraciones y cuándo aportar a posiciones core (KMB lo es para él):

When I go down my list to determine who to buy, I look at how our positions are sized and then look to the ones that I need to build up. In most of the portfolios I manage, KMB is a full position, so unless KMB comes out and beats on both earnings and revenue, I don’t add to the position. It’s already a full position and it isn’t selling at a steep discount to fair value either, or what I refer to as the lower end of the fair value range, so I let it be.

However, I do have 1 portfolio where KMB is only a 1/2 sized position and I want it to be a full position in time, but since they just announced, and didn’t beat on both earnings and revenue, I am looking for an opportunity to add another 1/4 sized purchase to bring KMB up to a 3/4 sized position.

When I look to various sources for valuation numbers, here’s what I see.
Morningstar says fair value is $117.
S&P says it’s $116.
ValuEngine says it’s $116.
Valuentum says it’s $116.

So it appears that these firms all agree on the value of KMB, but as we learned from the Valuentum analysis above, fair value isn’t a price point, it’s a price range and that $112 number is in the middle of that range (shown below).

KMB says they expect to earn between $6.20 - $6.35 per share. Where that final earnings number shows up determines whether price hits the lower or higher end of the fair value range. Hit the lower end or below and you’ll see a price drop. Hit the higher end of the earnings or exceed it, and you’ll see price gap up. This is why you see such wild price jumps to both the upside and downside on the days these companies announce.

When I look at a fair value range, Valuentum says it is $90 to $134. That’s your fair value. It depends on where the final earnings number and amount of cash flows the company generates as to where that price goes.

Some people want a margin of safety, a fear number and will wait until KMB can get close to $90 before buying. Following this concept is why so many people don’t own a sizable position. Most people don’t take the condition of the market into consideration when making their buying decisions. They are too busy looking at a price chart, as though that can tell you anything. All that does is show where price has been, not what a company is doing.

So when I consider the condition of the market, if we were in a correction, I would wait until price hit the lower side of the fair value range, but since we are in a bull market, where earnings are justifying the higher earnings, I have no problem adding with price in the upper part of the fair value range.

Therefore, we have KMB at $128.33 right now as I type and the fair value range is $90 - $134, so I will add another 1/4 sized position this coming week.

KMB is a Core holding, it is not for sale, non-core holdings are at some point, but not Core, so I have no fear in adding to KMB in this fair value range. That $128 price tag (current price) is just a 7% premium to the average fair value price, so it’s not out of reach to say it’s reasonably valued. In a bull market you have to pay a premium for quality and a single digit premium is nothing.

I will be buying more KMB this week.

42

Sobre su objetivo principal. Al final añadiré un comentario sobre algo que leí el otro día en Rankia y me recordó este escrito:

Okay, I am applying another concept here that will probably have some of you shaking your heads, but I understand my mission. I know what what job is. There is no ambiguity involved.

My job is to build an income stream that is reliable, predictable and increasing.

If I add growth to the equation, if I add capital preservation to the equation, if I add beating benchmarks to the equation, it distracts me from my main mission because you are not going to accomplish all of those goals at the same time. Those of you who think you can are amateurs and I would challenge you to show me you could.

And if you are so great that you can do all 3 while meeting our main objective of building an income stream that is reliable, predictable and increasing, I know I’m not good enough to accomplish all 4 goals. I know enough about goal setting to focus on the primary objective and anything above that is gravy, and I also know that when you achieve the primary objective, there may be casualties.

In order to continue growing an income stream, I have to put up with potential unrealized losses. That’s in the game. … In order to continue growing the income stream, I may not be able to preserve capital. That’s in the game. … If I am to continue growing the income stream, I may be forced to under-perform an index or benchmark in certain time frames. That’s in the game as well.

What is not in the game for someone in retirement is seeing a declining income stream, and once you are in retirement, the objective for us is to be free of financial stress. We don’t want to have to worry whether the bills can get paid, whether we can afford to travel or not, whether we have to worry about market conditions or not. I am going to leave all of that stress and pressure to those of you who still worry over declining prices or where price sits on a price chart. I don’t feel sorry for you, you get what you deserve. You want stress? Embrace it, I don’t care. … Ha!

–

El comentario al que hacía referencia lo leí en un hilo sobre una cartera de 1000€ mensuales. Observad lo que una mala elección de empresas y pesos puede hacer a la fuente de ingresos de la que queremos depender.

–

Sigue Chowder:

>>> All Four Goals? These goals have, IMO, fairly strong positive correlations. <<<

Over long periods, 20 years or more, yes absolutely. Most people can’t see that far in advance though. Look at how many comments where people gave up after 2 or 3 years because something didn’t go anywhere.

Good thing they weren’t invested during the Lost Decade where price went nowhere for 10 years.

All 4 goals can not be accomplished in all market conditions and it’s all market conditions that I am concerned with.

Those in retirement must depend on income flow in all market conditions and that’s the one thing I have control over and am not a slave to the market.

I know that as long as I continue to focus on high quality companies, and by high quality, I mean financially strong companies, that they will provide good long term capital gains, it’s just that those returns at times are going to decline and when they do, I can’t afford to see the income follow along. It doesn’t! I’ve been through the recessions where the equities dropped 30% or more in value yet the income stream continued to grow.

I thought it was more important to see the income grow than to worry about a temporary drop in prices. A lot of people who thought they were going to retire in 2008 and 2009 agreed with that concept here on SA at the time. A lot of people getting ready to retire have more peace of mind heading into the next correction knowing their income needs will be met regardless.

Investing simplified, but others insist on complicating it. They can go for it, but I am not going to buy into it. … Ha!

43

Muy buenos, me ha gustado mucho, gracias.

No pensais que esta filosofia podria sonar parecida a comprar el VIG?

Saludos.

44

No porque comprando el VIG no tienes control sobre qué y cuándo se compra, que es una de las bases de esta filosofía.

Uno de los pilares es tener empresas core a las que añades primero y en cualquier momento siempre que no estén demasiado caras (según los rangos de precio objetivo de los analistas). Y comprando el VIG esto no se puede hacer. Y se trata de no venderlas nunca.

47

Aun asi las Core las compra al principio a cualquier precio no? Si consideras las que componen el VIG core podrias comprarlo y luego ya solo comprar cuando no esten demasiado caras. Aunque es verdad que del VIG salen si no disminuye el dividendo.

Me parece muy interesante la filosofia Chowder, y me estoy planteando comprar las que yo considere Core aunque no las vea muy muy en precio en lugar de TROW por ejemplo que me planteaba ahora pero no la considero core.

Por ejemplo Jnj, Diageo y Nestle. Aunque la verdad que muy muy cerca del fair value solo esta Nestle y es la que mas cara me parece. Estan a 12.7, 6.3 y -4% lejos del fair value y 30, 34 y 16 del consider buying respectivamente…

48

Las compra a cualquier precio dentro de un orden. Depende también de la situación de a quién le hace la cartera. De los años que le quedan hasta la jubilación, de la cantidad disponible en el momento, la que tendrá periódicamente…

Uno de los problemas del VIG es que lleva muchas empresas que Chowder no considera como core, y añaden a las que ellos les parece, así que no es posible seguir su estrategia con él.

Puedes seguir los comentarios de Chowder y ver lo que va comprando y por qué. Verás que está comprando unas cuantas empresas ahora para varias carteras.

49

Que buenas aportaciones!!

Como novato en dividendos, quiero comentar que la Filosofía Chowder me atrae mucho, yo solo le pondría dos peros, uno es que está centrado en acciones USA, por lo que tenemos que buscarnos la vida con acciones Europeas, y lo segundo es que la moneda es el Dolar.
Y claro, ¿Cómo gestionamos el cambio de moneda en este caso?

Así que solo nos queda pues ir creando nuestra propia filosofía.

50

Yo el cambio de moneda lo gestiono sin complicaciones. Cobro, hago traspaso a IB, cambio a $ y compro acciones. Cuando viva del dividendo (si llega) iré convirtiendo lo que necesite de vuelta (o en bloques más grandes). Entiendo que a la larga el efecto moneda no tendrá demasiada influencia, y aunque lo tuviera, no es algo que pueda controlar ni anticipar en exceso.

En cuanto a las acciones europeas, la filosofía es la misma. Elegir empresas core e ir comprando. Sí que es más complicado porque se siguen bastante menos, pero la estrategia no cambia.