For my second purchase today I bought shares of General Dynamics (GD), a company that is the fifth largest defense contractor in the world. GD has four main business groups: Aerospace (e.g., Gulfstream business jets), Combat Systems (e.g., Abrams tanks), Marine Systems (e.g., submarines), and Information Systems and Technology (e.g., thermal cameras and satellite components). Although defense stocks in general have been beaten down due to concerns about U.S. government spending cuts, I think GD is sufficiently diversified to cope with some reduced spending.
GD is a good dividend-growth stock. The company has increased its dividend for 20 consecutive years, which I think is the longest streak among companies in the defense industry. The 5-year average annual dividend growth rate is 15.5% and the most recent increase was 11.9% in April 2011. With a payout ratio of only 26% and relatively low debt, the dividend appears to be sustainable even in the event of short-term earnings fluctuations.
In terms of valuation, GD has a P/E (ttm) of 9.73, P/S (ttm) of 0.78, P/B of 1.84, and PEG of 1.24. These numbers suggest that the stock is undervalued, so I decided to start a position.
I bought 20 shares of GD at the price of $69.60 per share, giving me a 2.70% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.40, which would add a total of $37.60 to my annual dividend income.
To demonstrate the foibles of trying to time the market, I was watching GD back in mid-December when it was trading at around $63. However, instead of buying it at that time, I kept waiting to see whether it would go down more so I could get a better entry price. It did not dawn on me until later that $63 was already a great price and I was being too greedy. Of course, over the next month and a half the price went up to over $72 and I was kicking myself. I am slowly realizing that when a stock I want is trading at a price that I deem to be "good enough" I just need to pull the trigger instead of waiting to see whether it goes down further -- because it might not go down in the near future. Thus, when GD dipped back below $70 today, I decided to buy it. It may go down further -- maybe even to $63 -- and if it does, then I will simply buy more shares and average down. I consider this experience to be another part of the learning process in becoming a better investor.
Monday, January 30, 2012
Stock Bought: NSC
For my first purchase today I bought shares of Norfolk Southern (NSC), a company that operates a major North American railroad network with over 21500 route miles of track predominantly in the eastern United States. This purchase adds to my existing position in NSC and comes on the heels of my recent purchase of Canadian National Railway (CNI).
NSC is a good dividend-growth stock. The company has paid uninterrupted dividends since going public in 1982 and increased its dividend for 11 consecutive years. As I noted in a recent post, NSC increased its dividend by 9.3% earlier this month. Since mid-2010 the company has been increasing its dividend every two quarters, so there might be another increase in August, which could result in an overall increase for 2012 that is near the 5-year average annual dividend growth rate of 19.5%.
I bought 15 shares of NSC at the price of $72.53 per share, which is less than the price of my existing position, so I was able to average down. I now have a total of 35 shares at an average price of $73.82 per share, giving me a 2.55% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $16.45, which is quite a bit more than the $8.60 I was getting before the recent dividend increase and this additional purchase. Moreover, given that the stock goes ex-dividend in just two days, my next dividend payment will reflect the higher amount. NSC will now contribute a total of $65.80 to my annual dividend income.
I am satisfied with my current railroad holdings and I do not plan to make any further additions soon. At some point in the future (maybe in the second half of 2012) I would like to start a position in Union Pacific (UNP) to complete my geographic diversification. However, in the meantime I will work on strengthening and diversifying other aspects of my portfolio.
NSC is a good dividend-growth stock. The company has paid uninterrupted dividends since going public in 1982 and increased its dividend for 11 consecutive years. As I noted in a recent post, NSC increased its dividend by 9.3% earlier this month. Since mid-2010 the company has been increasing its dividend every two quarters, so there might be another increase in August, which could result in an overall increase for 2012 that is near the 5-year average annual dividend growth rate of 19.5%.
I bought 15 shares of NSC at the price of $72.53 per share, which is less than the price of my existing position, so I was able to average down. I now have a total of 35 shares at an average price of $73.82 per share, giving me a 2.55% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $16.45, which is quite a bit more than the $8.60 I was getting before the recent dividend increase and this additional purchase. Moreover, given that the stock goes ex-dividend in just two days, my next dividend payment will reflect the higher amount. NSC will now contribute a total of $65.80 to my annual dividend income.
I am satisfied with my current railroad holdings and I do not plan to make any further additions soon. At some point in the future (maybe in the second half of 2012) I would like to start a position in Union Pacific (UNP) to complete my geographic diversification. However, in the meantime I will work on strengthening and diversifying other aspects of my portfolio.
Tuesday, January 24, 2012
Stock Bought: CNI
Today I bought shares of Canadian National Railway (CNI), a company that operates a major North American railroad network with over 20600 route miles of track for transporting petroleum, coal, chemicals, metals, minerals, grain, fertilizer, forestry products, and automotive products.
I consider CNI to be a good long-term investment because I think railroads will continue to play an important role in fulfilling large-scale, cross-country transportation needs in the U.S. and Canada. Apparently, Bill Gates thinks the same way: He is the largest shareholder of CNI, owning just over 10% of the company (over 46 million shares). No doubt his investment in CNI was influenced by his friend Warren Buffett, whose holding company Berkshire Hathaway bought BNSF Railway for $44 billion in 2010. Interestingly, Buffett previously held sizable positions in two other major railroads, Union Pacific (UNP) and Norfolk Southern (NSC), which he sold to avoid any conflict of interest when BNSF was bought. I currently have a position in NSC (which increased its dividend today) and I think my investment in CNI provides some nice geographic diversification.
CNI is also a good dividend-growth stock. The company has paid uninterrupted dividends since going public and increased its dividend for 16 consecutive years. The 5-year average annual dividend growth rate is 18.0% and today the dividend was increased by 15.4%. With a payout ratio of only 26%, good cash flows, and manageable debt, the dividend appears to be very sustainable.
The stock dipped almost 5% today despite the company reporting great numbers (e.g., record revenues). In terms of valuation, it has a P/E (ttm) of 14.71, P/S (ttm) of 4.06, P/B of 3.05, and PEG of 1.17. In my opinion, these numbers suggest that the stock is fairly valued. The combination of the drop in price and the dividend increase suggested it was a good time to buy.
I bought 20 shares of CNI at the price of $75.00 per share, giving me a 2.00% yield on cost. Although this is the lowest yield of any stock I own, I think it will pay off in the long run due to dividend growth and capital appreciation. At the current dividend rate, I can expect to receive quarterly dividends of $7.50, which would add a total of $30.00 to my annual dividend income. (Note that the exact dividend amount I receive will depend on the Canada-U.S. currency exchange rate at the time of the payment. Moreover, the dividends will be subject to 15% foreign tax withholding, but I can claim that when I file my taxes.)
I consider CNI to be a good long-term investment because I think railroads will continue to play an important role in fulfilling large-scale, cross-country transportation needs in the U.S. and Canada. Apparently, Bill Gates thinks the same way: He is the largest shareholder of CNI, owning just over 10% of the company (over 46 million shares). No doubt his investment in CNI was influenced by his friend Warren Buffett, whose holding company Berkshire Hathaway bought BNSF Railway for $44 billion in 2010. Interestingly, Buffett previously held sizable positions in two other major railroads, Union Pacific (UNP) and Norfolk Southern (NSC), which he sold to avoid any conflict of interest when BNSF was bought. I currently have a position in NSC (which increased its dividend today) and I think my investment in CNI provides some nice geographic diversification.
CNI is also a good dividend-growth stock. The company has paid uninterrupted dividends since going public and increased its dividend for 16 consecutive years. The 5-year average annual dividend growth rate is 18.0% and today the dividend was increased by 15.4%. With a payout ratio of only 26%, good cash flows, and manageable debt, the dividend appears to be very sustainable.
The stock dipped almost 5% today despite the company reporting great numbers (e.g., record revenues). In terms of valuation, it has a P/E (ttm) of 14.71, P/S (ttm) of 4.06, P/B of 3.05, and PEG of 1.17. In my opinion, these numbers suggest that the stock is fairly valued. The combination of the drop in price and the dividend increase suggested it was a good time to buy.
I bought 20 shares of CNI at the price of $75.00 per share, giving me a 2.00% yield on cost. Although this is the lowest yield of any stock I own, I think it will pay off in the long run due to dividend growth and capital appreciation. At the current dividend rate, I can expect to receive quarterly dividends of $7.50, which would add a total of $30.00 to my annual dividend income. (Note that the exact dividend amount I receive will depend on the Canada-U.S. currency exchange rate at the time of the payment. Moreover, the dividends will be subject to 15% foreign tax withholding, but I can claim that when I file my taxes.)
Dividend Increase: NSC
One of my dividend-growth stocks, Norfolk Southern (NSC), increased its quarterly dividend by 9.3% today, raising the payment from $0.43 to $0.47 per share. This is the fourth dividend increase from NSC since mid-2010 and puts the company on track for its 11th consecutive year of dividend growth. Given that I own 20 shares of NSC, my quarterly dividend increases from $8.60 to $9.40, which will add an extra $3.20 to my annual dividend income.
Tuesday, January 17, 2012
Stock Bought: ADM
Today I bought shares of Archer Daniels Midland (ADM), a company that buys, transports, stores, processes, and sells various agricultural commodities and products around the world. I consider ADM to be a good long-term investment because the company is well-positioned to play a major role in addressing the greater food needs of an ever-increasing world population.
ADM is also a good dividend-growth stock. The company has paid uninterrupted dividends for 80 consecutive years and increased its dividend for 36 consecutive years. The 5-year average annual dividend growth rate is 10.4% and last quarter the dividend was increased by 9.4%, which was the second increase in 2011. Here is an excerpt from the press release on November 3, 2011, about the dividend increase:
The stock has been beaten down lately and is trading 24% below its 52-week high. In terms of valuation, it has a P/E (ttm) of 8.57, P/S (ttm) of 0.23, P/B of 1.06, and PEG of 1.17. These numbers suggest that the stock is considerably undervalued, so I figured it was a good time to buy.
I bought 60 shares of ADM at the price of $28.93 per share, giving me a 2.42% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.50, which would add a total of $42.00 to my annual dividend income.
ADM is also a good dividend-growth stock. The company has paid uninterrupted dividends for 80 consecutive years and increased its dividend for 36 consecutive years. The 5-year average annual dividend growth rate is 10.4% and last quarter the dividend was increased by 9.4%, which was the second increase in 2011. Here is an excerpt from the press release on November 3, 2011, about the dividend increase:
"We are increasing our dividend to reflect the earnings growth we have experienced during the past fiscal year and our commitment to deliver returns to our shareholders for both the near term and the long term," said Chairman, CEO and President Patricia A. Woertz. "We have a strong balance sheet to support this increase and we are confident we have a solid foundation to drive long-term earnings growth for our company."This statement is encouraging and suggests that ADM is able to cope with challenging business conditions (e.g., rising raw commodity costs). Moreover, with a payout ratio of only 21%, the dividend appears to be very sustainable.
The stock has been beaten down lately and is trading 24% below its 52-week high. In terms of valuation, it has a P/E (ttm) of 8.57, P/S (ttm) of 0.23, P/B of 1.06, and PEG of 1.17. These numbers suggest that the stock is considerably undervalued, so I figured it was a good time to buy.
I bought 60 shares of ADM at the price of $28.93 per share, giving me a 2.42% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $10.50, which would add a total of $42.00 to my annual dividend income.
Sunday, January 15, 2012
Book Review: Buffett Beyond Value
Buffett Beyond Value (2010) by Prem C. Jain
The main argument in this book is that Warren Buffett is more than just a value investor -- he also looks for strong growth prospects and excellent management. In the first half of the book, the argument is adequately supported by insightful analyses of some of Buffett's most important investments. However, the second half of the book is a hodgepodge of short chapters dealing with risk, diversification, market efficiency, arbitrage, accounting, psychology, and corporate governance. Although the author makes some useful points, the connections to Buffett tend to be weaker, there seems to be more of the author's personal views than those of Buffett, and the book begins to lack coherence. In the section on corporate governance, there is a chapter about dividends that is just plain bad -- the author is clearly anti-dividend but his arguments against dividends are shallow. Overall, I agree with the author's view of Buffett as a "renaissance investor" rather than as a pure value investor, but the book is weakened by digressions from the main thesis.
Note: I read this book in January 2012.
The main argument in this book is that Warren Buffett is more than just a value investor -- he also looks for strong growth prospects and excellent management. In the first half of the book, the argument is adequately supported by insightful analyses of some of Buffett's most important investments. However, the second half of the book is a hodgepodge of short chapters dealing with risk, diversification, market efficiency, arbitrage, accounting, psychology, and corporate governance. Although the author makes some useful points, the connections to Buffett tend to be weaker, there seems to be more of the author's personal views than those of Buffett, and the book begins to lack coherence. In the section on corporate governance, there is a chapter about dividends that is just plain bad -- the author is clearly anti-dividend but his arguments against dividends are shallow. Overall, I agree with the author's view of Buffett as a "renaissance investor" rather than as a pure value investor, but the book is weakened by digressions from the main thesis.
Note: I read this book in January 2012.
Wednesday, January 11, 2012
Goals for 2012
As I start my first full year of investing, I thought it would be a good idea to set some goals. These goals will provide me with a way of monitoring my progress during the year and assessing the final results at the end of the year. I am setting fairly conservative goals that I expect to meet if I can continue to invest and save as I have done in the recent past. My investing goals for 2012 are:
Goal 1: Dividend income of $1300: This goal is based primarily on the assumptions underlying the projection of annual dividend income on my Strategy page. My dividend income based on 2011 rates will be insufficient to achieve this goal, so I will need to get there by a combination of dividend growth, dividend reinvestment, and investment of new funds.
Goal 2: Savings of $12000: This goal is based on a rough estimate of my savings rate over the past few years. This will be the first year that I keep track of exactly how much I save each month. My goal works out to saving an average of $1000 per month. These savings will be considered new funds for investment because I already have enough money reserved for emergencies.
I am reasonably confident that I can achieve these goals. I am not setting a goal for my portfolio's total return because the market is too unpredictable. Indeed, market unpredictability is one of the reasons why I am a dividend-growth investor: I will receive a steady and rising stream of dividends regardless of whether the market goes up or down. However, I will still monitor my portfolio's value and see how it compares with benchmark indices such as the S&P 500.
I look forward to reporting the progress I make toward my goals throughout the year. I hope everyone has a great investing experience in 2012.
Goal 1: Dividend income of $1300: This goal is based primarily on the assumptions underlying the projection of annual dividend income on my Strategy page. My dividend income based on 2011 rates will be insufficient to achieve this goal, so I will need to get there by a combination of dividend growth, dividend reinvestment, and investment of new funds.
Goal 2: Savings of $12000: This goal is based on a rough estimate of my savings rate over the past few years. This will be the first year that I keep track of exactly how much I save each month. My goal works out to saving an average of $1000 per month. These savings will be considered new funds for investment because I already have enough money reserved for emergencies.
I am reasonably confident that I can achieve these goals. I am not setting a goal for my portfolio's total return because the market is too unpredictable. Indeed, market unpredictability is one of the reasons why I am a dividend-growth investor: I will receive a steady and rising stream of dividends regardless of whether the market goes up or down. However, I will still monitor my portfolio's value and see how it compares with benchmark indices such as the S&P 500.
I look forward to reporting the progress I make toward my goals throughout the year. I hope everyone has a great investing experience in 2012.
Saturday, January 7, 2012
Stock Thoughts: HAS
I have been watching Hasbro (HAS) lately and I wanted to share my thoughts about it. Hasbro is involved in designing, manufacturing, and marketing toys and games. Some of its well-known brands include Playskool, Sesame Street, Dora the Explorer (my 2-year-old cousin is a big fan), and G. I. Joe in the toy category, and Monopoly, Cranium, Scrabble, and Trivial Pursuit in the game category. There is a good chance you have played with toys and games made by Hasbro during your lifetime -- I know I have.
HAS closed at $31.90 on January 6, almost at its 52-week low ($31.36) and 34% below its 52-week high ($48.43). This raises the question: Is HAS an undervalued, high-quality stock that has been unfairly beaten down lately or are there fundamental problems that make it a value trap?
In an attempt to answer this question, I tried to find a reason for the almost year-long price decline. For the first 3 quarters of 2011, Hasbro reported earnings that were below the consensus estimates of analysts, so that was likely a contributing factor. EPS was down in Q1 2011 relative to Q1 2010, but up in Q2 and Q3 2011 relative to Q2 and Q3 2010. This suggests some earnings growth, but I think it is partly an illusion caused by share buybacks. In May 2011, Hasbro authorized up to $500 million in share buybacks and in the first 3 quarters of 2011 they bought back 9.4 million shares at a cost of $386.7 million, which by my calculation works out to about a 6.9% reduction in total number of shares outstanding. I don't think share buybacks can completely explain the EPS growth in Q2 and Q3 2011, but they do diminish it. However, at least the company is buying back shares at the right time, when the stock price is depressed.
Revenues have been a bit of a mixed bag in 2011, with an increase in the Boys product category, no change in the Preschool category, and decreases in the Girls and Games/Puzzles categories. Revenue has decreased in the U.S. and Canada but increased internationally, although much of the increase appears to be due to the Boys category. Entertainment and licensing revenues increased, in large part due to Transformers movie tie-ins.
Looking back a few years provides some informative data. Cash flow has increased consistently over the past several years, although revenue was relatively flat from 2008 to 2010. A troublesome sign is that long-term debt doubled from $710 million in 2008 to $1.4 billion in 2010. Such a rapid increase in debt is concerning.
HAS currently has a P/E (ttm) of 11.5 and P/S of 1.0. Its dividend yield is 3.76% with a payout ratio of 43%. Its dividend has been increased for 8 consecutive years and the most recent increase was a substantial 20%, announced in February 2011.
The large dividend increase in early 2011 and the use of a large amount of money for share buybacks throughout last year suggest to me that management thinks business is doing okay (if not, then one would think that they would be using their money differently; e.g., paying down debt). However, the mixed revenue growth and the rapid increase in debt seem problematic. Given the ongoing uncertainty about overall economic growth, I also have to wonder how well a toy-and-game company, which is considered consumer discretionary, can do in the near future.
Based on everything above, I am on the fence, seeing a mix of positives and negatives. If you have any thoughts about HAS I am interested to read them.
HAS closed at $31.90 on January 6, almost at its 52-week low ($31.36) and 34% below its 52-week high ($48.43). This raises the question: Is HAS an undervalued, high-quality stock that has been unfairly beaten down lately or are there fundamental problems that make it a value trap?
In an attempt to answer this question, I tried to find a reason for the almost year-long price decline. For the first 3 quarters of 2011, Hasbro reported earnings that were below the consensus estimates of analysts, so that was likely a contributing factor. EPS was down in Q1 2011 relative to Q1 2010, but up in Q2 and Q3 2011 relative to Q2 and Q3 2010. This suggests some earnings growth, but I think it is partly an illusion caused by share buybacks. In May 2011, Hasbro authorized up to $500 million in share buybacks and in the first 3 quarters of 2011 they bought back 9.4 million shares at a cost of $386.7 million, which by my calculation works out to about a 6.9% reduction in total number of shares outstanding. I don't think share buybacks can completely explain the EPS growth in Q2 and Q3 2011, but they do diminish it. However, at least the company is buying back shares at the right time, when the stock price is depressed.
Revenues have been a bit of a mixed bag in 2011, with an increase in the Boys product category, no change in the Preschool category, and decreases in the Girls and Games/Puzzles categories. Revenue has decreased in the U.S. and Canada but increased internationally, although much of the increase appears to be due to the Boys category. Entertainment and licensing revenues increased, in large part due to Transformers movie tie-ins.
Looking back a few years provides some informative data. Cash flow has increased consistently over the past several years, although revenue was relatively flat from 2008 to 2010. A troublesome sign is that long-term debt doubled from $710 million in 2008 to $1.4 billion in 2010. Such a rapid increase in debt is concerning.
HAS currently has a P/E (ttm) of 11.5 and P/S of 1.0. Its dividend yield is 3.76% with a payout ratio of 43%. Its dividend has been increased for 8 consecutive years and the most recent increase was a substantial 20%, announced in February 2011.
The large dividend increase in early 2011 and the use of a large amount of money for share buybacks throughout last year suggest to me that management thinks business is doing okay (if not, then one would think that they would be using their money differently; e.g., paying down debt). However, the mixed revenue growth and the rapid increase in debt seem problematic. Given the ongoing uncertainty about overall economic growth, I also have to wonder how well a toy-and-game company, which is considered consumer discretionary, can do in the near future.
Based on everything above, I am on the fence, seeing a mix of positives and negatives. If you have any thoughts about HAS I am interested to read them.
Friday, January 6, 2012
Introduction
Welcome to my dividend-growth investing blog. The purpose of this blog is to share my experiences and thoughts as I work toward my goal of creating a sustainable, rising stream of dividend income that will eventually exceed the income from my job and allow me to be financially secure in retirement. The blog is currently organized into the following pages:
- Home: The place for posts about investing ideas, portfolio changes (stocks bought and sold), monthly reviews (of dividends and savings), and anything else that seems relevant.
- Strategy: A general overview of my dividend-growth investing strategy.
- Portfolio: My dividend-growth portfolio (updated monthly).
- Dividends: A summary of dividends received (updated monthly).
- Savings: A summary of savings from my job income (updated monthly).
- Book Reviews: Short reviews of books I have read about the stock market and investing.
Wednesday, January 4, 2012
Book Review: Buffett: The Making of an American Capitalist
Buffett: The Making of an American Capitalist (1995) by Roger Lowenstein
This biography provides an intriguing and thorough look into the personal and business life of famed investor Warren Buffett. It reveals aspects of his personality and childhood that laid the foundation for his investing career and details the major events and decisions that led to his successes. The book is well-written and very readable, with good transitions between various facets of Buffett's life and seamless integration of historical facts, behind-the-scenes stories, and quotes into a coherent narrative.
Note: I read this book in December 2011.
This biography provides an intriguing and thorough look into the personal and business life of famed investor Warren Buffett. It reveals aspects of his personality and childhood that laid the foundation for his investing career and details the major events and decisions that led to his successes. The book is well-written and very readable, with good transitions between various facets of Buffett's life and seamless integration of historical facts, behind-the-scenes stories, and quotes into a coherent narrative.
Note: I read this book in December 2011.
Book Review: The Little Book of Value Investing
The Little Book of Value Investing (2007) by Christopher H. Browne
This book provides a thorough but concise overview of value investing, which is the approach of buying undervalued stocks of good companies. The author provides many useful and sensible pieces of advice for identifying candidates for investment and avoiding bad companies that are trading cheaply. He also presents evidence from recent studies that supports his claims about the long-run success of value investing. The book is written for the layperson, making it a quick and easy read. Although I have incorporated some elements of value investing into my existing investment strategy, there were certain points made in this book that helped to inform and strengthen my strategy.
Note: I read this book in November 2011.
This book provides a thorough but concise overview of value investing, which is the approach of buying undervalued stocks of good companies. The author provides many useful and sensible pieces of advice for identifying candidates for investment and avoiding bad companies that are trading cheaply. He also presents evidence from recent studies that supports his claims about the long-run success of value investing. The book is written for the layperson, making it a quick and easy read. Although I have incorporated some elements of value investing into my existing investment strategy, there were certain points made in this book that helped to inform and strengthen my strategy.
Note: I read this book in November 2011.
Book Review: Irrational Exuberance
Irrational Exuberance (2000) by Robert J. Shiller
This rather prescient book came out at the height of the dot-com boom, right before the tech bubble collapsed. It focuses on the factors that contribute to speculative bubbles in the stock market. Although some of the discussion was interesting, I found the text to be somewhat dry and verbose at times. I did not like the fact that some of the author's conclusions were based on his own small questionnaire surveys rather than on studies involving more rigorous methodology. His argument against the Efficient Market Hypothesis was interesting and I agree with him that psychological factors play a major role in investor behavior. However, the book ends with a very gloomy outlook – the author more or less indicates that he does not think the stock market will be a good place for future investments – but this conclusion was likely influenced by the prospect of an imminent bubble collapse at the time the book was written.
Note: I read this book in November 2011.
This rather prescient book came out at the height of the dot-com boom, right before the tech bubble collapsed. It focuses on the factors that contribute to speculative bubbles in the stock market. Although some of the discussion was interesting, I found the text to be somewhat dry and verbose at times. I did not like the fact that some of the author's conclusions were based on his own small questionnaire surveys rather than on studies involving more rigorous methodology. His argument against the Efficient Market Hypothesis was interesting and I agree with him that psychological factors play a major role in investor behavior. However, the book ends with a very gloomy outlook – the author more or less indicates that he does not think the stock market will be a good place for future investments – but this conclusion was likely influenced by the prospect of an imminent bubble collapse at the time the book was written.
Note: I read this book in November 2011.
Book Review: The Only Investment Guide You'll Ever Need
The Only Investment Guide You'll Ever Need (2005) by Andrew Tobias
This book is divided into three parts. Part 1 presents ways of minimizing risk in your finances, cutting expenses, and improving savings. Part 2 has some basic guidelines for stock market investing that mainly cover what not to do; as for what to do, the author makes the generic recommendation of putting money into no-load mutual funds or index funds. Part 3 deals with some aspects of financial planning for the family. Most of the author's advice is common sense and I've read similar things elsewhere; thus, I didn't find much in the way of new value in this book.
Note: I read this book in November 2011.
This book is divided into three parts. Part 1 presents ways of minimizing risk in your finances, cutting expenses, and improving savings. Part 2 has some basic guidelines for stock market investing that mainly cover what not to do; as for what to do, the author makes the generic recommendation of putting money into no-load mutual funds or index funds. Part 3 deals with some aspects of financial planning for the family. Most of the author's advice is common sense and I've read similar things elsewhere; thus, I didn't find much in the way of new value in this book.
Note: I read this book in November 2011.
Book Review: A Random Walk Down Wall Street
A Random Walk Down Wall Street (2003, 8th ed.) by Burton G. Malkiel
This book is considered a classic in the investing world. It is divided into four parts. Part 1 provides a general introduction to two views of investing (the "firm-foundation" and "castle-in-the-air" theories) and a fascinating historical account of major bubbles in stock market history, including the dot-com bubble (and its pop) back in 2000-2002. Part 2 provides an interesting – and occasionally funny – critique of fundamental analysis (choosing stocks based on valuation measures) and technical analysis (choosing stocks based on chart patterns), pointing out that the former is problematic because it is difficult to get accurate quantitative information and the latter is just BS (I tend to agree). Part 3 introduces Modern Portfolio Theory, which is all about measuring risk, and it addresses criticisms of the Efficient Market Hypothesis, which is the idea that stock prices quickly come to reflect whatever is known about a stock, so it is pointless to try to "beat the market." The discussion of risk was insightful, but I found some of the counterarguments to criticisms of the EMH to be rather weak and based on tenuous "what if" scenarios. Part 4 provides a how-to guide for investing, covering different types of investments (which was very boring), presenting a life-cycle approach to investing (which I think is too conservative, especially for young investors), and advocating the buying of index funds (the rationale being that if you cannot beat the market, then you might as well just match it). I disagree with much of this part of the book – based on what I've read elsewhere, I think one can construct a much better investment portfolio.
Note: I read this book in November 2011.
This book is considered a classic in the investing world. It is divided into four parts. Part 1 provides a general introduction to two views of investing (the "firm-foundation" and "castle-in-the-air" theories) and a fascinating historical account of major bubbles in stock market history, including the dot-com bubble (and its pop) back in 2000-2002. Part 2 provides an interesting – and occasionally funny – critique of fundamental analysis (choosing stocks based on valuation measures) and technical analysis (choosing stocks based on chart patterns), pointing out that the former is problematic because it is difficult to get accurate quantitative information and the latter is just BS (I tend to agree). Part 3 introduces Modern Portfolio Theory, which is all about measuring risk, and it addresses criticisms of the Efficient Market Hypothesis, which is the idea that stock prices quickly come to reflect whatever is known about a stock, so it is pointless to try to "beat the market." The discussion of risk was insightful, but I found some of the counterarguments to criticisms of the EMH to be rather weak and based on tenuous "what if" scenarios. Part 4 provides a how-to guide for investing, covering different types of investments (which was very boring), presenting a life-cycle approach to investing (which I think is too conservative, especially for young investors), and advocating the buying of index funds (the rationale being that if you cannot beat the market, then you might as well just match it). I disagree with much of this part of the book – based on what I've read elsewhere, I think one can construct a much better investment portfolio.
Note: I read this book in November 2011.
Book Review: A Mathematician Plays the Stock Market
A Mathematician Plays the Stock Market (2003) by John Allen Paulos
This book is a mix of personal anecdotes, psychological tidbits, and mathematical musings about the stock market. The author makes some good points about irrationality in the stock market and why certain pieces of information and strategies are silly or misguided. However, I also think he is wrong on some points, such as the extent to which market movements are random. The book has a somewhat loose organization and meanders from one topic to another, throwing in dull and partly incomprehensible mathematical analyses from time to time.
Note: I read this book in October 2011.
This book is a mix of personal anecdotes, psychological tidbits, and mathematical musings about the stock market. The author makes some good points about irrationality in the stock market and why certain pieces of information and strategies are silly or misguided. However, I also think he is wrong on some points, such as the extent to which market movements are random. The book has a somewhat loose organization and meanders from one topic to another, throwing in dull and partly incomprehensible mathematical analyses from time to time.
Note: I read this book in October 2011.
Book Review: 24 Essential Lessons for Investment Success
24 Essential Lessons for Investment Success (2000) by William J. O'Neil
This book is organized into 24 "lessons" that consist of interview-style questions followed by the author's responses. A few of the lessons were interesting, but I did not care for the majority of them, such as the lessons on technical analysis (chart reading) and three lessons that are little more than advertisements for his paid-subscription publication. The lessons are purportedly based on a comprehensive study of 45 years of stock market history, yet very little data are ever presented and the few examples of actual stocks seem to be cherry picked.
Note: I read this book in October 2011.
This book is organized into 24 "lessons" that consist of interview-style questions followed by the author's responses. A few of the lessons were interesting, but I did not care for the majority of them, such as the lessons on technical analysis (chart reading) and three lessons that are little more than advertisements for his paid-subscription publication. The lessons are purportedly based on a comprehensive study of 45 years of stock market history, yet very little data are ever presented and the few examples of actual stocks seem to be cherry picked.
Note: I read this book in October 2011.
Book Review: The Dividend Rich Investor
The Dividend Rich Investor (1997) by Joseph Tigue and Joseph Lisanti
This book provides a very basic introduction to dividend investing, highlighting the benefits of dividend reinvestment and compounding, and giving a few tips for what to look for in a good dividend stock. However, it has little in the way of in-depth analysis and says nothing about valuation. Moreover, it is woefully outdated, making it practically useless for constructing a dividend stock portfolio nowadays. For example, many of the stock picks at the end of the book are companies that have since merged, been acquired, split-up, or had major screw-ups (e.g., banks and other financials). There is also too much emphasis given to utilities. If you're a retiree who wants a very low-risk, stable income stream for the next few years, then utilities are fine, but for everyone else there are better choices, especially for dividend growth. There was nothing particularly informative in this book that I hadn't already read elsewhere.
Note: I read this book in October 2011.
This book provides a very basic introduction to dividend investing, highlighting the benefits of dividend reinvestment and compounding, and giving a few tips for what to look for in a good dividend stock. However, it has little in the way of in-depth analysis and says nothing about valuation. Moreover, it is woefully outdated, making it practically useless for constructing a dividend stock portfolio nowadays. For example, many of the stock picks at the end of the book are companies that have since merged, been acquired, split-up, or had major screw-ups (e.g., banks and other financials). There is also too much emphasis given to utilities. If you're a retiree who wants a very low-risk, stable income stream for the next few years, then utilities are fine, but for everyone else there are better choices, especially for dividend growth. There was nothing particularly informative in this book that I hadn't already read elsewhere.
Note: I read this book in October 2011.
Book Review: Income Investing Secrets
Income Investing Secrets (2010) by Richard Stooker
This e-book provides information on a wide variety of investments for generating income in retirement. Its breadth is its strength – it covers several lesser-known types of income-related investments, outlining the advantages and disadvantages of each one. There is also helpful discussion of the tax implications of various investments. However, the book has some major weaknesses. It is poorly written in the sense that the text consists almost exclusively of bullet points and one- or two-sentence paragraphs. It reads more like a detailed outline than a fleshed-out discourse. Even though it covers a variety of investments, most of them are discussed only briefly in about 2 to 5 pages (the exception being a long and dull 41-page discussion of variable annuities), resulting in a 300-page book with 58 chapters. The writing itself also verges on being unprofessional at times, with the author showing a lot of attitude. He offers 7 principles for income investing, none of which are really "secrets" or particularly profound. Although I agree with his suggested approach at an abstract level, I don't care much for his specific investment recommendations.
Note: I read this book in October 2011.
This e-book provides information on a wide variety of investments for generating income in retirement. Its breadth is its strength – it covers several lesser-known types of income-related investments, outlining the advantages and disadvantages of each one. There is also helpful discussion of the tax implications of various investments. However, the book has some major weaknesses. It is poorly written in the sense that the text consists almost exclusively of bullet points and one- or two-sentence paragraphs. It reads more like a detailed outline than a fleshed-out discourse. Even though it covers a variety of investments, most of them are discussed only briefly in about 2 to 5 pages (the exception being a long and dull 41-page discussion of variable annuities), resulting in a 300-page book with 58 chapters. The writing itself also verges on being unprofessional at times, with the author showing a lot of attitude. He offers 7 principles for income investing, none of which are really "secrets" or particularly profound. Although I agree with his suggested approach at an abstract level, I don't care much for his specific investment recommendations.
Note: I read this book in October 2011.
Book Review: One Up on Wall Street
One Up on Wall Street (1989) by Peter Lynch
The author of this book is best known as the manager of Fidelity's Magellan mutual fund from 1977 to 1990, during which time he achieved an excellent return for investors. In this book he recounts many of his experiences during that time, making it part-biography and part-investment book. The biographical parts were interesting and even amusing at times – there is a vein of humor that runs throughout the book, making it an enjoyable read. The investment parts were less interesting for me because his approach differs substantially from mine. He is all about "stalking the tenbagger" – finding a little-known company with great potential, investing in it, and then reaping the profits when the company experiences rapid growth and its stock price increases tenfold or more. This is fine for someone with the resources and connections to do the necessary in-depth research and analysis of a small, relatively unknown company, but it's very speculative and not too useful for your average individual investor. He does offer some basic, common-sense advice about investing that is good, but the book is not really a how-to guide for investing.
Note: I read this book in September 2011.
The author of this book is best known as the manager of Fidelity's Magellan mutual fund from 1977 to 1990, during which time he achieved an excellent return for investors. In this book he recounts many of his experiences during that time, making it part-biography and part-investment book. The biographical parts were interesting and even amusing at times – there is a vein of humor that runs throughout the book, making it an enjoyable read. The investment parts were less interesting for me because his approach differs substantially from mine. He is all about "stalking the tenbagger" – finding a little-known company with great potential, investing in it, and then reaping the profits when the company experiences rapid growth and its stock price increases tenfold or more. This is fine for someone with the resources and connections to do the necessary in-depth research and analysis of a small, relatively unknown company, but it's very speculative and not too useful for your average individual investor. He does offer some basic, common-sense advice about investing that is good, but the book is not really a how-to guide for investing.
Note: I read this book in September 2011.
Book Review: Stay Mad for Life
Stay Mad for Life (2007) by Jim Cramer
The author of this book is a well-known TV personality who hosts the stock market show Mad Money, which I sometimes enjoy watching mainly for its entertainment value. This book is all about retirement planning and was written for the layperson, which might explain the long-winded and redundant writing. However, it does offer decent advice about basic money management and retirement planning. The author provides good introductory-level explanations of U.S. retirement plans (401k and IRA) and investment choices such as mutual funds (highlighting their advantages and disadvantages) and bonds (including the various types of bonds). I found that information to be particularly useful. He then presents 20 rules for investing and discusses 10 things the pros do right but amateurs get wrong – these are all okay but they are helpful mainly for complete beginners. Near the end of the book is a discussion of 5 markets that he expects will perform well in the future (aerospace and defense; agriculture; oil and oil service; minerals and mining; infrastructure) and his list of 20 stock picks for long-term investments, only 6 of which I would ever consider investing in. Thus, as with the stock picks on his TV show, it's probably best to ignore the majority of them.
Note: I read this book in September 2011.
The author of this book is a well-known TV personality who hosts the stock market show Mad Money, which I sometimes enjoy watching mainly for its entertainment value. This book is all about retirement planning and was written for the layperson, which might explain the long-winded and redundant writing. However, it does offer decent advice about basic money management and retirement planning. The author provides good introductory-level explanations of U.S. retirement plans (401k and IRA) and investment choices such as mutual funds (highlighting their advantages and disadvantages) and bonds (including the various types of bonds). I found that information to be particularly useful. He then presents 20 rules for investing and discusses 10 things the pros do right but amateurs get wrong – these are all okay but they are helpful mainly for complete beginners. Near the end of the book is a discussion of 5 markets that he expects will perform well in the future (aerospace and defense; agriculture; oil and oil service; minerals and mining; infrastructure) and his list of 20 stock picks for long-term investments, only 6 of which I would ever consider investing in. Thus, as with the stock picks on his TV show, it's probably best to ignore the majority of them.
Note: I read this book in September 2011.
Book Review: The Future for Investors
The Future for Investors (2005) by Jeremy Siegel
The first half of this book presents some interesting historical analyses of stock market returns for all the companies in the S&P 500 index since its inception. There are a few surprising and perhaps counterintuitive results. For example, if you invested in a new rapidly-growing company and in a mature slow-growing company, which one would give you the greater long-term return? You might think that the rapidly-growing company would be the better investment, but you might be wrong. The reason is that rapidly-growing companies tend to be overvalued (e.g., have high P/E ratios), which means you are paying a premium for that growth, which reduces the magnitude of your return compared with a slow-growing but undervalued company. This is especially the case for IPOs, with historical data showing that the majority of IPOs perform worse than the rest of the market, in part because they quickly become overvalued. This part of the book also addresses the tech bubble from a decade ago and discusses how dividend stocks can protect you in a down market. The second half of the book looks to the future and the looming issues associated with baby boomers retiring. I found this part of the book less interesting and more speculative. In a nutshell, the author thinks that problems arising from the North American "age wave" will be offset by the economic rise of younger developing countries in Asia and South America.
Note: I read this book in September 2011.
The first half of this book presents some interesting historical analyses of stock market returns for all the companies in the S&P 500 index since its inception. There are a few surprising and perhaps counterintuitive results. For example, if you invested in a new rapidly-growing company and in a mature slow-growing company, which one would give you the greater long-term return? You might think that the rapidly-growing company would be the better investment, but you might be wrong. The reason is that rapidly-growing companies tend to be overvalued (e.g., have high P/E ratios), which means you are paying a premium for that growth, which reduces the magnitude of your return compared with a slow-growing but undervalued company. This is especially the case for IPOs, with historical data showing that the majority of IPOs perform worse than the rest of the market, in part because they quickly become overvalued. This part of the book also addresses the tech bubble from a decade ago and discusses how dividend stocks can protect you in a down market. The second half of the book looks to the future and the looming issues associated with baby boomers retiring. I found this part of the book less interesting and more speculative. In a nutshell, the author thinks that problems arising from the North American "age wave" will be offset by the economic rise of younger developing countries in Asia and South America.
Note: I read this book in September 2011.
Book Review: Dividends Still Don't Lie
Dividends Still Don't Lie (2010) by Kelley Wright
This book presents an interesting approach to dividend investing. In a nutshell, you buy a stock when its dividend yield reaches historically high levels and you sell it when its yield reaches historically low levels. However, there were some things about the strategy that struck me as odd or weak. First, nothing is said about dividend reinvestment, which is surprising. Second, the strategy does not really take advantage of the compounding power of long-term dividend growth; instead, dividend growth is used primarily as a screening criterion for stock selection, not as a means for producing a rising income stream. Third, it seems as though a strong adherence to the strategy could put you out of the market (i.e., in cash) for several years at a time. Although you could realize substantial capital gains at the sell-off, in subsequent years your cash would lose purchasing power due to inflation and you would have a very weak or non-existent income stream from dividends. Fourth, the author acknowledges that the strategy has not really fit with the market as a whole since 1995. However, instead of treating this as a weakness of the strategy, he tries to explain it away by arguing that a "perfect storm" of conditions created a situation that was incompatible with the strategy. Thus, I cannot say that I was enamored by the strategy, but I do see the merit in using dividend yield as a tool for managing a dividend portfolio. The book itself also has some weaknesses. First, the author presents no detailed analysis of the strategy in practice to show its actual rate of long-term success; this is a glaring omission. Second, the writing is very long-winded and redundant, and there are several large, multi-page tables that are useless. Even though the book is only 200 pages, it could easily be cut down to about 130 pages without loss of meaningful content. Third, the author frequently plugs his paid-subscription newsletter that is all about the strategy and stock picks based on it, and I don't care for that kind of advertisement.
Note: I read this book in September 2011.
This book presents an interesting approach to dividend investing. In a nutshell, you buy a stock when its dividend yield reaches historically high levels and you sell it when its yield reaches historically low levels. However, there were some things about the strategy that struck me as odd or weak. First, nothing is said about dividend reinvestment, which is surprising. Second, the strategy does not really take advantage of the compounding power of long-term dividend growth; instead, dividend growth is used primarily as a screening criterion for stock selection, not as a means for producing a rising income stream. Third, it seems as though a strong adherence to the strategy could put you out of the market (i.e., in cash) for several years at a time. Although you could realize substantial capital gains at the sell-off, in subsequent years your cash would lose purchasing power due to inflation and you would have a very weak or non-existent income stream from dividends. Fourth, the author acknowledges that the strategy has not really fit with the market as a whole since 1995. However, instead of treating this as a weakness of the strategy, he tries to explain it away by arguing that a "perfect storm" of conditions created a situation that was incompatible with the strategy. Thus, I cannot say that I was enamored by the strategy, but I do see the merit in using dividend yield as a tool for managing a dividend portfolio. The book itself also has some weaknesses. First, the author presents no detailed analysis of the strategy in practice to show its actual rate of long-term success; this is a glaring omission. Second, the writing is very long-winded and redundant, and there are several large, multi-page tables that are useless. Even though the book is only 200 pages, it could easily be cut down to about 130 pages without loss of meaningful content. Third, the author frequently plugs his paid-subscription newsletter that is all about the strategy and stock picks based on it, and I don't care for that kind of advertisement.
Note: I read this book in September 2011.
Book Review: Stocks for the Long Run
Stocks for the Long Run (2006, 4th ed.) by Jeremy Siegel
This book offers a detailed historical look at the stock market, providing numerous analyses showing that stocks are better long-term investments compared with other opportunities (e.g., fixed-income investments like bonds). Although it's somewhat dry reading, I did find some interesting tidbits concerning topics such as inflation, gold, stock index composition, market fluctuations, calendar anomalies, and a few other things. It is less of a how-to book and more of a reference for understanding the stock market from a historical, data-driven perspective.
Note: I read this book in August 2011.
This book offers a detailed historical look at the stock market, providing numerous analyses showing that stocks are better long-term investments compared with other opportunities (e.g., fixed-income investments like bonds). Although it's somewhat dry reading, I did find some interesting tidbits concerning topics such as inflation, gold, stock index composition, market fluctuations, calendar anomalies, and a few other things. It is less of a how-to book and more of a reference for understanding the stock market from a historical, data-driven perspective.
Note: I read this book in August 2011.
Book Review: The Forever Portfolio
The Forever Portfolio: How to Pick Stocks That You Can Hold for the Long Run (2008) by James Altucher
The author presents an interesting (though far from novel) thesis: Invest in things for which there may be a strong need in the future. For example, he recommends investing in biotech companies that develop vaccines because certain diseases may become more prominent as the world's population grows; invest in companies that purify and distribute water because clean water may end up in short supply; invest in internet companies associated with potential growth trends; and so forth. The big problem with this book is that it is a haphazard mix of the author’s opinions, backed by little research, and it amounts to speculation (and his internet ideas are terrible). While there is some potential for big gains if you hit upon the right future need, the approach is far too risky and you could easily end up losing a lot of money.
Note: I read this book in August 2011.
The author presents an interesting (though far from novel) thesis: Invest in things for which there may be a strong need in the future. For example, he recommends investing in biotech companies that develop vaccines because certain diseases may become more prominent as the world's population grows; invest in companies that purify and distribute water because clean water may end up in short supply; invest in internet companies associated with potential growth trends; and so forth. The big problem with this book is that it is a haphazard mix of the author’s opinions, backed by little research, and it amounts to speculation (and his internet ideas are terrible). While there is some potential for big gains if you hit upon the right future need, the approach is far too risky and you could easily end up losing a lot of money.
Note: I read this book in August 2011.
Book Review: The Strategic Dividend Investor
The Strategic Dividend Investor (2011) by Daniel Peris
This book provides a decent introduction to dividend-growth investing. The author presents the argument that long-term investment in the stocks of companies that pay increasing dividends can provide strong returns. He offers a few guidelines for implementing the strategy, but I found this part of the book to be lacking -- I came away with very little practical information that I had not already seen elsewhere. Perhaps part of the reason for this is that he recommends that individuals get a broker to do their investing, but I disagree with this recommendation because I think many people are capable of building and managing dividend-growth portfolios on their own. Besides the discussion of dividend-growth investing, the author has a substantial digression on the day/swing trading mentality that is prevalent nowadays, but I didn't care much for it.
Note: I read this book in July 2011.
This book provides a decent introduction to dividend-growth investing. The author presents the argument that long-term investment in the stocks of companies that pay increasing dividends can provide strong returns. He offers a few guidelines for implementing the strategy, but I found this part of the book to be lacking -- I came away with very little practical information that I had not already seen elsewhere. Perhaps part of the reason for this is that he recommends that individuals get a broker to do their investing, but I disagree with this recommendation because I think many people are capable of building and managing dividend-growth portfolios on their own. Besides the discussion of dividend-growth investing, the author has a substantial digression on the day/swing trading mentality that is prevalent nowadays, but I didn't care much for it.
Note: I read this book in July 2011.
Book Review: The Single Best Investment
The Single Best Investment: Creating Wealth with Dividend Growth (2006) by Lowell Miller
This book helped convince me that dividend-growth investing is a good long-term investing strategy. The author provides an excellent overview of dividend-growth investing, explaining how it works and how to do it. The idea of creating your own "private compounding machine" through a combination of dividend growth and reinvestment is one of the most sensible investment ideas I have ever read. There is a decent discussion of how to go about building and managing a dividend-growth portfolio, although I found the chapters on fundamental analysis (valuation) to be more useful than the chapter on technical analysis (chart reading). There are two informative appendices: the first reviews some academic studies and performance results that are relevant to the strategy and the second describes different categories of dividend-paying stocks that might be included in a dividend-growth portfolio.
Note: I read this book in July 2011.
This book helped convince me that dividend-growth investing is a good long-term investing strategy. The author provides an excellent overview of dividend-growth investing, explaining how it works and how to do it. The idea of creating your own "private compounding machine" through a combination of dividend growth and reinvestment is one of the most sensible investment ideas I have ever read. There is a decent discussion of how to go about building and managing a dividend-growth portfolio, although I found the chapters on fundamental analysis (valuation) to be more useful than the chapter on technical analysis (chart reading). There are two informative appendices: the first reviews some academic studies and performance results that are relevant to the strategy and the second describes different categories of dividend-paying stocks that might be included in a dividend-growth portfolio.
Note: I read this book in July 2011.
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