New Threads Only:  Add to Google Reader or Homepage
New Threads & Replies:  Add to Google Reader or Homepage
Forums are for serious investors only. GuruFocus Forum Rules.

Forum List » Guru News and Commentaries
Guru News, Stock picks and commentaries
New Topic Search
Goto Thread: PreviousNext
Goto: Forum ListMessage ListNew TopicSearchLog In
Goto Page:  Previous123Next
Current Page:2 of 3
Re: A Lesson Learned on Dollar Cost Averaging
Posted by: Dr. Paul Price (IP Logged)
Date: August 29, 2012 11:18PM

Science of hitting,

Not much conviction on your part with SPLS.

This year's earnings are on track to be the Staple's second best ever. That's hardly a reason to give up on their long term business model. Amazon's need to start paying state-level sales taxes will make SPLS even more competetive than previously.

I think your mind has been polluted by the stock price action. You are doubting what you saw (and wrote about) only because the market does not seem to agree.



Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re: A Lesson Learned on Dollar Cost Averaging
Posted by: sapporosteve (IP Logged)
Date: August 29, 2012 11:20PM

Thanks for the excellent article.

Firstly, the first step is that you are learning how to be a better investor and since there is plenty of investment time left, then the importance of constantly assessing your philosophy is a major plus.

I too am wrestling with the same problem and your conclusions are absolutely correct in my opinion.

It is the same position that I have been coming too over the recent past (nice bit of confirmation bias for me). I have some stocks which I want to buy more of but they are also at my full allocation. But they go down further and as you say, I am salivating but keeping my meager amount of spare cash in the kitty.

As I result of buying "too much too soon", my dividend yield is lower and I am sitting at losses on some of my purchases.

I held JCP (partly thanks to your excellent assessment) but it was not a bigger enough position so I sold out with a small gain and put it into others that I think will yield more in the shorter term.

I think JCP is a good long term play but I want to be able to buy a decent portion. Given that the market seems negative, I expect to buy it later at a better price.

In these volatile times, I constantly need to remind myself that it is a business I am investing in and not a stock price. That way I can stay anchored to assessing the business and ignore (partially) the day to day movements of the stock price.

Regards
Steve



Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: sdnarra (IP Logged)
Date: August 30, 2012 01:08AM

Science of hitting,

I agree with stocksocx99. I think your analysis was spot on. Of course in hindsight you went in too early, but hindsight is 20/20. I am not sure how deep you are and what your comfort level with risk is, but mr. market sure looks like it is being a manic depressive here. The revenue decline ex international sales was not that bad. Part of the international weakness(about half) was currency related also.
I read your article, both new and old last night and was impressed with the clarity of thought. I then read through the most recent 10q and 10k and looked at the 10 yr trends a couple of different ways. Then I looked at the balance sheet which is quite healthy. The near 7-8% management returned to shareholders via dividends and share buybacks last year, and the now comfortably above 14% FCF yield. Then I looked to see who was buying recently and came up on the name of Yacktman who initiated a position recently and quite likely is adding on weakness.
This company had brand equity, is entrenched in its niche, and lots of scope to restructure and consolidate and cut costs if that becomes necessary to maintain FCF yield, it is selling at book value and there is a significant margin of safety here. It did not even hit these prices during the depths of the great recession I think the lowest it went was $14 or so, at that time its peers ODP broke a buck and OMX went to about $2.
I feel Mr Market is offering up a great opportunity here and initiated a 2% of my portfolio sized position today, although I am bearish on the overall market and recently went to 40% cash I felt this current price compelling enough.
I hope your risk tolerance and portfolio size allow you room for a little more entry. Even otherwise, You will likely make a decent return just waiting it all out.


Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: The Science of Hitting (IP Logged)
Date: August 30, 2012 08:25AM

Thanks for the great comments; always better when we get a lively discussion going.

Let me be clear about something that it appears I left some uncertainty about: I feel just as comfortable with this company as a I did when I wrote my original analysis - and once you consider the big decline in the share price, I think it is an even better investment.

My purpose for writing this article was to highlight my overly-aggressive accumulation strategy; going in, I knew I would never be as comfortable with this holding as I am with a PepsiCo or a Berkshire - while I think Staples holds a sustainable advantage in the delivery business and will be the main benefactor of the tailwind from ODP/OMX closures and downsizings, I'm less confident about what that means a decade from now than what PepsiCo will be doing in 2022.

In terms of Amazon, sales tax will be here soon - in California, for example (one of SPLS largest markets), AMZN will start collecting sales tax in September unless Congress takes federal action before (unlikely).

Again, to avoid any misunderstanding (and as I note in the last line of the article) - I stick by the analysis presented; I just don't have the conviction (nor did I ever have the conviction) to make SPLS 20% of my portfolio (BRK.B is my only 20%+ holding at this time).



Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: Dr. Paul Price (IP Logged)
Date: August 30, 2012 09:08AM

I don't know how long you've had BRK but the 'b' share equivilents traded as high as $101.20 in late 2007 versus $84.20 this morning for an almost 5-year loss of more than 16.5%. and no dividends along the way.

Even BRK needs to be traded occasionally to have a good chance at making decent profits. Being 'comfortable' with it wouldn't have saved you from a negative 4 2/3 -year total return.



Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 1.0/5 (1 vote)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: swnyc2 (IP Logged)
Date: August 30, 2012 09:20AM

Science,

[size=13px; " style="font-family: Arial]I understand your concern about increasing your stake in SPLS. However, I don't think you should have a hard limit. It's all about risk reward. If SPLS were to trade at $7 per share today without good reason (in your opinion), perhaps you'd be willing to raise your stake? All I'm saying is that if it continues to fall, don't be afraid to increase your stake.

On another note, someone pointed out to me that SPLS has an intangible assets ratio of 33%.
That seems kind of high. I was wondering if you had any thoughts on that?
Did they make some bad acquisitions in the past?
What are the chances of a substantial write down in the future?

Regards,[/size]


Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: The Science of Hitting (IP Logged)
Date: August 30, 2012 10:24AM


Stockdocx99,

My cost basis is $71 on BRKB; I started buying in mid-2011 and loaded up when it temporarily fell in the mid-60's. I won't comment on where it was in 2007, but I'm still salivating at the current valuation...

In terms of trading BRK.B to have a good chance at making decent profits, I think Warren's financial position and investment strategy suggests otherwise.

Swnyc2,

Sorry I missed your earlier comment; on Herb's commentary, I'm not quite sure what he's looking at - he's talking about the company barely being cash flow positive, when in reality FCF will exceed $1 billion this year. I honestly believe that these guys have not looked at the industry as a whole and have no idea about upcoming lease expiration and the store closure/downsizings on the horizon.

As I noted above, sales tax changes will happen on the state level if no federal action is taken (with California, home to 14% of SPLS domestic stores, coming on line next month); we'll see what happens with that legislation in the coming months, but I expect a federal change relatively soon (with WMT, TG, etc making sure that brick-and-mortar retailers don't get the short end of the stick).

On a continued fall in the share price (and no fundamental change in the business), I would be a buyer - and that's the point: I should have been a bit more selective with my purchases to leave myself room to keep buying while still staying comfortable with the positions size compared to my overall portfolio (at some point, I will not be a buyer - I don't want SPLS to be 40% of my portfolio).

In terms of intangible assets, $3.55B came from the Corporate Express acquistiion in 2008; in 2009, the acquisition added $2.3B in revenue to NAD (established Canadian Contract business for SPLS) and $1.9B to International Operations (Europe & Australia). Quantifying the potential for a write-down is difficult because the business isn't broken down to that level of visibility (tough to tell what changes in NAD are directly applicable to the Corporate Express assets).


Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: sjzhao2003 (IP Logged)
Date: August 30, 2012 07:53PM

Science,

Thanks for sharing your experience. I'm sure a lot of us have had similar experience. I often use the following simple steps to deal with it:

1) Rank order all my current holdings and potential candidates in terms of my expectation for their future return for the next five years (if I don't have a strong conviction about a stock or if its expected return is below BRK, it won't be considered at all).

2) I'll be interested in buying a stock only if it ranks near the top and clears my hurdle rate by a comfortable margin. If i have a large cash position, use cash; if not, sell those current positions that promise much lower returns.

My own experience is that whether the price has dropped or jumped since initial purchase made no difference whatsoever. I've done both averaging down and averaging up, though more often averaging down. The only question is, does it promise a high return that i can be sure of?

Although I don't have a preset position size, I've tended to regret not being aggressive enough in purchases, after the stomach churning from watching your stock going down. In a way, without preset sizing rules allows the best "athletes" to win.

Good luck!


Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: Dr. Paul Price (IP Logged)
Date: August 31, 2012 08:11AM



Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Re A Lesson Learned on Dollar Cost Averaging
Posted by: waup7707 (IP Logged)
Date: August 31, 2012 09:38AM

The value of a business is all about the sum of discounted future cash flow. If revenue and profit margin is perceived to be trending down, the value of the business will be greatly discounted. On the TTM P/E basis, the good examples are BBY (4.5), Dell (6.3), RIMM (1.8).

What is the probability that SPLS sales/profit will be lower 5-10 years from now? 45% of SPLS revenue (business machines 30%, computers and accessories 15%) are similar to BBY. Even it's North America Delivery business (40% sales) needs to fight with fierce competitors. I can think of two big threats, 1. Xerox (TTM PE 7.8): in print, paper, office supply delivery. 48% of Xerox's 22.6 Billion annual sales is in business services. 2. Costco: I worked for two Fortune 1000 companies and both used Costco to fill their break room and office supply needs. Every other week, the admins go to Costco to pick up supplies. Small and medium size companies are even more likely to use Costco to cut supply cost.

I don't feel comfortable about SPLS even at current "low" price (TTM PE 8.0).


Stocks Discussed: SPLS, PEP,
Rate this post:

Rating: 0.0/5 (0 votes)



Goto Page:  Previous123Next
Current Page:2 of 3


Sorry, only registered users may post in this forum.

Please Login if you have an account or Create a Free Account if you don't
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Hide