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Heads I win tails I break even

September 25, 2007
William Spetrino Jr

William Spetrino Jr

0 followers
All of us here enjoy allocating capital. We choose to "speculate" different though. We are different in the fact that I move "away" from things instead as "moving towards" them as most people do. Part of my distrust is based on the fact that my wife is a CPA and I am an accountant and I have "witnessed" many LEGAL but doctored "Enron like" financial statements. This may SHOCK people but I do NOT READ Financial statements in great detail like 99% of you (especially in companies with market caps under 1 billion)

FACT is that one "incompetent", dishonest or rogue employee can wipe out a company’s assets and make a good business bad. Large Caps have simply become LARGE caps because in MANY cases DEVELOPED VALUABLE BRAND names. The" Salad Oil" incident in 1960s (look it up if you don’t know about it) which WEB put 40% into American Express (AXP) influenced WEB's thinking that even if American Express (AXP) lost all its assets, the BRAND NAME had a "HUGE INTRINSIC VALUE" which can not be "quantified on a balance sheet". WEB "repeated" this type of investment with GEICO whose real assets were reduced to almost zero but the "GEICO FRANCHISE" had a large INTRINSIC VALUE. WEB has been "hammering" BNI and I can assure you that he sees some kind of "INTANGIBLE (land drilling rights, mineral rights easements) that us DONT SEE. Think you are going to be able see things undiscovered assets like WEB does? Lots of luck.

The difference we have in my opinion is that in the past 17 years I have ALWAYS adopted a "heads I win Tails I Break EVEN" when I have allocated capital. While you have taken a more "enlightened" aggressive way of allocating capital with a higher upside but also a higher downside as well. Both of our methods are satisfactory but mine is "less risk" oriented being that my "earnings" were my major source of "survival" and one magic formula "EGY” type of stock can cause my family to "eat less".

One guru favorite is Home Depot (HD) which is in my opinion "UNDERVALUED". I feel HD is a typical "value investing play” and I personally think that over a 10 year span it will turn out great. I do not own any HD, NOT because I don’t think it’s cheap but because 98% of my portfolio is in CONSUMER Goods, Pharmaceuticals or Berkshire Hathaway (BRK-A) (whose portfolio is loaded with consumer companies and High ROE large moat companies like Nebraska Furniture Mart, Dairy Queen). Home Depot's earnings are "influenced" by hurricane season and the overall strength in the housing market. The FACT is that NO RETAILER (including Wal-Mart) has the same DOMINANCE than a "brand name" like Marlboro, OREO JELLO, Kool Aid, BUD LIGHT, LISTERINE, DAIRY QUEEN, Gillette, CREST etc which is evidenced by the fact that 18 of 20 of the top S&P companies from 1957-2004 were either Pharma or Consumer Goods companies and the bet on BRK is a bet on the "jockey" as well as the horse (which owns MANY large moat brand names)

I only bought Altria for 9 years and it was 100% of my stock portfolio until 2 years ago. Now it and KFT is 70% of my portfolio and BRK JNJ and BUD are another 28% WMT is 2 %. (although I like WMT and how cheap it is). Readers please do not tell me how "risky" having 50-100% of my portfolio in one stock IS or WAS. (Altria had 60+ brand names with $100 million in sales when I bought them and my basis in KFT on some purchases is now under $5) All my companies are large multinationals which were purchased with a low PE and have high ROE/ROC and bought near their 52 week lows.

Most importantly NONE of my portfolio EARNINGS are "materially" affected by a 9/11 type event or a slowing worldwide economy. True, beer and tobacco are not necessarily growth stocks in the US but the high steady cash flow will help aid "buybacks" and the INTERNATIONAL GROWTH which is a "hedge" against America losing its economic dominance which will raise EPS without increasing sales.

Conversely "smaller cap" stocks will take "longer" to reach its intrinsic value if times get bad, especially if those companies are dependent on "discretionary" income. The combination of lower earnings and less "liquidity" in the market will cause stocks to take "longer" to reach intrinsic value and prolonged "bad times" will almost certainly reduce intrinsic values.

My portfolio while "defensive" in nature is recession proof and the large institutions which "mirror" the S&P will "invariably" have to purchase my stocks while the small cap stock holder does not have that luxury. I understand that some use options in case of a calamity, I wish I was knowledgeable enough to comment on this but I am not.

What I find amusing is that many investors "believe" they are value investors and model Warren Buffett but forget Rule 1) DONT LOSE MONEY and 2) DONT FORGET RULE 1.

I have 50 capital allocation decisions in stocks. Among the 50 buys over 17 years in stocks EVERY investment over 2 years old is up "double digit annually" and my "worst investment" so far was a purchase of JNJ at $64 in February which is less than 1/100% of my total portfolio. With "averaging down" my basis in JNJ is now $61.03.

Those of you who own companies with less than "35 year moat" or Stocks with a market cap under $1 billion or companies which are dependent on "discretionary" income should consider "options" as a way to "hedge" against a calamity. Over 80% of my portfolio SURVIVED the great depression where unemployment was over 20% and legendary value investor Ben Graham went broke. Business is a game of SURVIVAL of the "fittest". No one can predict the FUTURE, me included. Will JNJ's 120 year moat somehow "disappear"? Perhaps. But I will take my chances

Finally I leave you on a positive note. Buying LOW PE ( 16 or lower), GOOD dividend HIGH ROE HIGH ROC, 35 years or MORE LARGE CONSUMER GOODS MULTINATIONAL companies with LARGE MOATS and HOLDING THEM UNTIL the PE is 25 or MORE or the ROC ROE falls under 20% is your BEST PROTECTION against having 50% or more of your net worth wiped out.

About the author:

William Spetrino Jr
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 3.0/5 (34 votes)

Comments

ccyork
Ccyork - 6 years ago
billytickets Wrote:

-------------------------------------------------------

> Part of my distrust is based on the fact that my wife

> is a CPA and I am an accountant and I have

> "witnessed" many LEGAL but doctored "Enron like"

> financial statements.

on the New York Times Weekend Business podcast this past weekend, Mark Hulbert described a study of the period from 1962 to 2004

"no more than 46 companies during that 42-year period should have had earnings-per-share growth for 20 consecutive quarters. But 587 companies actually reported such strings of growth"

http://www.nytimes.com/2007/09/23/business/yourmoney/23stra.html

expectingrain
Expectingrain - 6 years ago
I bet alot of that EPS growth was due to share buybacks.
supra082
Supra082 - 6 years ago
Billy, what you've just written should be known by anyone who looks at summarized financials. As a fellow accountant and future CPA, I see "earnings management" everyday.

That is why you must also look at statement of cash flows. These too, however, can be affected by a variety of things; ie loans.

The mismanagement of earnings from Enron was so egregious yet so simple that even an accounting student could have spotted it. Earnings are very easily manipulated; particularly through depreciation and amortization because disposable values must be estimated. Capitalizing expenses or funky methods of inventory/cost of goods valuations.... I could go on all day but I won't.

Buffett always stresses quality of management.

EPS can be manipulated in so many ways, its not even funny. While useful, one should not base his valuations solely on EPS.
vooch
Vooch - 6 years ago
ccyork,

Is the difference as simple as Buffett's definition of "Owner Earnings" vs. "the 587 companies with Net Profit" ?

Tell me more, if you can.

- Vooch

jaumepared
Jaumepared premium member - 6 years ago
Hard not to like MO! And yes, we have significant diversification within companies like MO and JNJ. Would be nice to have the ability to get a Morningstar Mutual Fund report on them and analyze them as portfolio managers; not just as stocks. Is senior management adding enough Alpha? In a case like BRK, we can analyze and accept WEB's decisions. Is that the case with hired guns management at places like JNJ and HD?
ccyork
Ccyork - 6 years ago
vooch Wrote:

-------------------------------------------------------

> Is the difference as simple as Buffett's

> definition of "Owner Earnings" vs. "the 587

> companies with Net Profit" ?

it has to do with earnings management and earnings manipulation. i can't really add anything to what's in the article. check it out

http://www.nytimes.com/2007/09/23/business/yourmoney/23stra.html?_r=1&oref=slogin


-- ccyork


spaul
Spaul - 6 years ago
Good argument, Billy--you keep repeating these ideas, and they're starting to stick in my brain. Thanks. It's too bad JNJ today isn't priced the way MO was when you started buying and will probably not offer the concentrated wealth building play you were able to get from MO. You're reasoning on the MO was excellent and served you well, even if it took many years for the bet to play out. Do you think that was a once in a lifetime sort of opportunity? Looks like it was from my perspective.
commodity
Commodity - 6 years ago
Value is the only way to invest long term.

Reason WEB is a value investor.

Ben Graham went broke 3 times playing the Wall St game

as seen on CNBC everyday-- Kudlow -Cramer INC.


Ben found out that value will make you rich.



WCOM - was a roll-up - roll-ups always blow-up

Enron had several qt,s of neg cash flow before it crashed.


There is noway to gaurd against fraud.

Sometimes they just make up the numbers.


WEB buys no stock unless it has a 10 yr earnings history.

Sooner or later fraud comes out.
commodity
Commodity - 6 years ago
Being a CPA means nothing when it comes to stocks.

You must learn accounting as it applies to buying stocks.

There is a big diffrence.

WEB is not a CPA but he is an expert on buying stocks.

Most CPA,s know nothing about buying stocks.

It is a diffrent game.
dasitaly80
Dasitaly80 - 6 years ago
commodity Wrote:

-------------------------------------------------------

>

>

> You must learn accounting as it applies to

> buying stocks.

>


Commodity,do u have any advice about learning accounting as it applies to buying stocks?for example,books,pdf,etc
billytickets
Billytickets - 6 years ago
CCyork:excellent point on accounting manipulations:

Supra: I didnt know what the Enron" statements were all about .Thats what scared me as an accountant I didnt understand

jaumapred:Great post Study their ROE and ROC and you will both camilleri and weldon are good capital allocators

Spaul: Yes Mo was a great opportunity because the threat of"litigation" has and STILL SCARES people today. Imagined fear vs real Fear ,the title of one of my articles "touches" on that Patience is VERY IMPORTANT.Many "critique" me for "repeating" my shameless self promotion of my book but each week the amount of sales are slowly increasing. IT TAKES TIME to see something WORTHWHILE Pay off.Most readers here would have"given up" because it took MO so long to "reach" its "real" value.Patience is a virtue glad you enjoy it

Commodity:For once we agree being a CPA DOES NOT make you agood investor. It helps one understand reading afinancial though. I agree "application" is more impoirtant than knowledge.Buying Great businesses at great prices and holding them DOES though

Commodity u are wrong about Graham one stock GEICO made him the bulk of his money and as Munger says Ben was a better teacher than a investor.graham's best contribution was Chapters 8 and 20 in intelligent investor .peace

DaveinHackensack
DaveinHackensack - 6 years ago
I am taking a CFA prep class now that covers the accounting fundamentals (the last class covered the quant fundamentals). In the first session of the accounting class, the instructor (who runs his own fund) made the distinction between managerial accounting (what a company's managers and internal accountants look at) and financial accounting (what securities analysts look at).
zippbrain
Zippbrain - 6 years ago
anyone else tired of this guys endless self promotion. Ok, we get it, you think you the best value investor in the world. Don't treat us like children and emphasize your point with capitals. Sentence structure will allow someone to do that in their own head. I don't trust anyone who claims they have it all figured out. The world can change on a dime, and forever. Do you have the intellect to circumspectly process these changes into you value investing framework or are you just a entrenched, inflexible clone....I certainly don't know but you bravado is getting old. Lear one of the best qualities of your mentor WEB, humility and NEVER try to sell yourself, people respond better and assign a greater degree of credibility to people with these qualities.

billytickets
Billytickets - 6 years ago
Zip brains: Hahaha Everytime someone like you speaks I sell more books.No one is "forcing you or the other 800+ viewers to"tune in". RULE1 in capitalism.THE PUBLIC decides WHAT THEY WANT TO DO not some self PROCLAIMED EXPERT".Hope you are getting a marketing lesson as well as a investing lesson.Anheuser Busch has been around over 100 years but STILL ADVERTISES( the capitals are special for you zipbrains). No offense but Iam not as "well known" as BUD yet( but Iam improving each day)Levae the marketing"thinking" to those of us most suited for it

Here is a perfect exampleif you don't believe me

Posted by: spaul (IP Logged)

Date: September 26, 2007 09:13AM


Good argument, Billy--you keep repeating these ideas, and they're starting to stick in my brain. Thanks. It's too bad JNJ today isn't priced the way MO was when you started buying and will probably not offer the concentrated wealth building play you were able to get from MO. You're reasoning on the MO was excellent and served you well, even if it took many years for the bet to play out.

Never said that i was the best value investor in the world but say my book will show the reader a simple duplicable plan to achieve finaincial security and make your living off your opinion and NEVER have to go to a job everyday like yours truly IF YOU CHOOSE TO.

Never said I had it ALL figured out ,In fact I have said their are MANY different ways to become finiancially independent and say their are many who are "much richer" than I that are either unwilling or unable to articulate their plan. My plan can make you finiancially independent if YOU decide to work it thats all

Iam aware the world changes on a dime my companies have been through 22 %unemployment 16% fed funds rates and 2 World Wars,

Im not as smart as you probably but have allocated capital into such "unconventional assets" as sports tickets concert tickets and sports memorbalia as well as my boring stocks and have done well enough EVERY YEAR to pay my household expenses and build equity

Iam probably an inflexible entrenched shameless self promoting clone who can not cut grass or cook but has achieved finaincial security SOLELY from capital allocation.

I follow WEB's investing ideas but Please I do need NOR WANT his"advice" on how to be"humble".I would take singing lessons from steveie wonder but not driving lessons.Please tell me your "qualifications" for giving such "advice" to me so I can decide whether to heed your"advice"



See when WEB got started in investing he had relatives able to invest 105,000 with him ( which is over a million in today's dollars) His dad was a stockbroker and a US congressman and he went to Columbia where his dad PAID for his college. He still took a Dale carnegie course because he wanted to keep learning how to"solicit" new money all over Omaha. WEB's dad did agreat job an WEB's focus on ammassing wealth is both enlightening and impressive. Iam GLAD that WEB's "enviornment" did NOT cause him to have a "chip on his shoulder" like the kids in my neighborhood had.I respect WEBS sharp mind and would not TODAY be FINANCIALLY INDEPENDENT without him SHARING HIS KNOWLEDGE.Iam deeply greatful.

See My dad was ateacher who was the 1st college graduate in our family and the first to not work in the trades or be afarmer( phys ed teacher not econ.lol) who had to quit teaching to make a better living. I didn't have any rich relatives ( but my dad and mom encouraged my"creativity") and I needed to"sell" things so I could save my first $ 9,000 cause I had to work from age 16 so i could pay for college ( no excuses here just "facts") I started with no job and $9000 14 years ago and have built an investment portfolio whose dividends if i DO NOT make another investment( and i will.lol) will be well over 250K at age 65.which is ok for aguy who has not had a JOB in that span. This may"shock" an expert like myself but there are actually some folks who can"identify" with me and would like to see if my "duplicable plan" can do for them what it did for me

So please dont be offended when this inflexible "idiot savant"( maybe 75% idiot and 25% savant) DOES NOT HEED YOUR WELL INTENTIONED BUT FUTILE ATTEMPT TO CHANGE MY BEHAVIOR.

Your opinion is well noted and certainly you have the"right" to express it and personally I "enjoy" dissent and feel lucky to be able to speak "candidily" I appreciate "all your advice" and help .And since you are so "generous" with career advice I will share some"marketing" advice with you for FREE. Stevie don't tell Dale JR how to drive .

All the peopel who have emailed me and encouraged me with kind words about my posts and books.THANKS TO ALL.I APPRECIATE EACH AND EVERYONE.peace



Bigg Mo
Bigg Mo - 6 years ago
Good
Bigg Mo
Bigg Mo - 6 years ago
Good rebuttal Billy! Can't wait to get the book!
Bernard2222
Bernard2222 - 6 years ago
Wow, very insightful Bigg Mo. You created a new account just to congratulate billy on his rebuttal? This is getting ridiculous.
zippbrain
Zippbrain - 6 years ago
Okay, POINT well MADE. SORRY to INTRODUCE any NEGITIVITY. ONWARD with you PROFOUND WISDOM that almost takes on the DIMENTIONS of myth in it's STUNNING (cetainly over my head) CONTENT. SOMEDAY, have no doubt, you will be a LEGEND.
billytickets
Billytickets - 6 years ago
Oh i dont personally "mind" negativity . The world is filled with all kinds of people There are still thosefolks who believe Elvis is alive and the world is flat. Also folks who complain about the cost of health insurance but pay 350 dollars each to buy a cavs tickets 6 rows from the top.Like WEb says if EMT was true he would have a tin cup in his hand.

My"wisdom" is my"gift " to hundreds of people who read this forum every day and are looking to "improve" their investment acumen and quality of life.THEY not you or me a couple of"smart guys" will decide what they want to hear

What they CHOOSE TO DO with it is THEIR choice . I do agree that my book and its "tenents" will pass the "TEST OF TIME". My book ( order it at ticketbill@aol.com) will help "simplfy" my dupiclable plan for THOSE who DECIDE to take the"step".This has received over 1000 views so it seems many are "curious" about what will be said next on here.Thanks to all who view and post.peace


Evan
Evan - 6 years ago
Supra082,

What do you think of Harley's financial statements?

Billytickets,

I'd buy your book, so long as the editor made you take out the capitals. It makes your writing hard to read.

All,

Since I have no more money to stuff into it, I think a great stock for safety and capital appreciation is Sears Holdings; the actual liquidation value of the company is up around $170 per share (after adjusting for real estate on the books, and estimating intangible brands), and the company is headed by a great activist shareholder with a large portion of his money in the company. Right now the company is earning $3 NI/sqft while firms like JC Penny are making $15... If EL can cut enough costs as to make the company as efficient as it's peers (efficiency being something EL has driven home historically), the company can increase NI by at least 5x. There is further potential if the company becomes as efficient as some of the top performers, Wal Mart and Home Depot.

On top of that potential is EL's ability to invest all SHLD's cash as he sees fit. With a history of yearly returns north of 29%, its a compelling opportunity.

Cheers.
billytickets
Billytickets - 6 years ago
Evan the book is "actually" edited but i have a couple instances where capitals are used for emphassis. Thanks for the kind words

Ironically I was "hired" to analyze SHLD for a client and will be working on it this week. Certainly EL is great and SHLD is been beaten down which you all know i LOVE.ill keep you updated

Evan nice report on SHLD it is well written

supra082
Supra082 - 6 years ago
Evan

HOG has a very beautiful balance sheet. High ROA and high ROE. FCF has maintained a predictable upward pattern with one exception (2006 hiccup year). Current ratio is good.. I would like to see accounts payable go down but they seem to be doing this. Dividends have been increased every year for the past few years. Outstanding shares have also decreased for the past few years. I usually view these things as a positive. I value HOG @ 48.44 and this is pricing in little growth (using a conservative discounted cash flow analysis).

The brand name of Harley is very strong and so is customer loyalty... but I personally wouldn't own this stock because a motorcycle like a Harley is usually a discretionary item. These goods see declines in sales when the economy goes downhill and I foresee the economy to stall a bit.

You could do a lot worse... great looking balance sheet. Good free cash flow. There is no margin of safety by my calculations but as WEB said, its ok to buy great companies at fair prices.

I hoped this helped. Good luck with your investing.
Evan
Evan - 6 years ago
Thank you Supra082,

The balance sheet does look fairly strong, but digging through their financials a bit I happened upon something that didn't sit right with me. Graham suggested that a person look at the change in equity (adding back in dividends and money spent on share repurchases) to get a true picture of what the company earns. Ultimately NI on the I/S shows a change in the balance sheet... but these two numbers are different in the case of HOG, and by a fairly wide margin. Using WB's owner's earnings gives yet another number, so I can't seem to make sense of this discrepancy. Why is the change in equity so different from the company's NI? To me, it seems like the company may be inflating their revenue figure. Any thoughts?

Evan.
supra082
Supra082 - 6 years ago
Evan

Equity can be affected by other things... consider a situation where you would increase liabilities to fund an expense. Could you provide some more info/numbers on your issue?

Overall, I would suggest you use WEB's owner earnings formula which is very similar to FCF calculation(the income statement and balance sheet method). Pabrai, another guru whom I admire, also likes to use FCF.

Good management is important because it reflects honest financial statements. Honest financial statements are paramount to an accurate valuation. You can use operating cash flow to estimate quality of earnings.

No method is fool proof... looking at a variety of metrics is a good idea. Good luck!
Evan
Evan - 6 years ago
Sorry supra082 ,

I can't come up with much more information than that. The problem doesn't seem to be a one time issue, either; the same method reveals that the company has had smaller "cash earnings" in most of the last 5 years. I know that its possible to adjust accounts on the balance sheet, but this would have to be reflected in the income statement, no? The only thing I can think of is that the company is aggressive in recording revenue.
twolvesfann
Twolvesfann - 6 years ago
Billy and All, want to hear your opinion on two of my consumer holdings BTI and DEO. Dividends are good and their brand names have the widest moats. If you like MO, my guess is you love BTI for its international exposure. same with DEO too. Apply your average down method on BTI and DEO, one can't possibily go wrong IMO. Good to have u here.
billytickets
Billytickets - 6 years ago
I think both are certainly NOT cheap but they are BOTh 2 companies i LOVe especially British tobacco. A person who bought them at current levels( which are not"cheap") and averaged down every 15% should do well. Iam"baised" but I think Mo is cheaper than british tobacco and the international spin off will unlock further value. Love the 2 companies though Great post.peace
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Both British Tobacco [BTI] and DEO are right near multi-year highs. BTI's P/E and other valuation measures are all far above normal. This would be a great time to SELL both of these stocks. It's quite predictable you'll be able to repurchase each of them way cheaper in the reasonable future.

Don't get sucked in to buying or holding because they've done so well recently... you can't buy past performance- only future reults- and from these levels that is likely to be bad.
twolvesfann
Twolvesfann - 6 years ago
stockdoc, I thot i would share my views on your response. Our styles and time frames might be different so we may have different opinions.

"Both British Tobacco [BTI] and DEO are right near multi-year highs."

multi year highs- only because of their business performance. BTI sells more of its brand cigarettes at higher prices today than 5 years ago and DEO sells more johnie walker and other brands at higher prices at more countries.

"BTI's P/E and other valuation measures are all far above normal. This would be a great time to SELL both of these stocks."

What I know for sure is these businesses are stable businesses. They may have quarterly hickups. However five to ten years from now they would still be better businesses with a pricing power. Paul Adams, CEO of BTI forecasts 8-9% organic profit growth and coupled with share buy backs and dividends would yield a return of 15%. BTI's P/E of 18 for 15% return is not too heated IMO. I will only add if it falls from these levels knowing business is in tact. Same with Paul Walsh CEO of DEO just reassured 9% organic profit growth. Coupled with share buy backs and dividends, the return compared with P/E is not too heated again IMO.

"It's quite predictable you'll be able to repurchase each of them way cheaper in the reasonable future. Don't get sucked in to buying or holding because they've done so well recently..."

I cant time tops and bottoms unless something I hold carries a P/E of 50 where as the business returns is 10%. I am a fan of Phil Fisher who says other than personal reason you sell only because business climate deteriorated like Newspaper shrinking market and not much pricing power.

"you can't buy past performance- only future reults- and from these levels that is likely to be bad."

May be u know more than I do to say future results from these levels are likely to be bad. I didnt see any downside for the businesses of BTI and DEO.

Cheers!
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
BTI has traded at much lower than today's P/E each and every year since becoming a separate public company in 1998 [measured at each year's low- that year's best buying opportunity].

Here are the best actually achieved lower P/E's [read: good times to buy] in the previous years:

1998 10X

1999 11X

2000 6X

2001 11X

2002 12X

2003 14X

2004 9.3X

2005 11X

2006 12X

2007 14X

HISTORY SHOWS that you had chances each and every year to buy BTI at valuations much lower than today's 18X trailing earnings. [not my opinion- verified fact]. Why then would anyone assume you would not have a chance to buy BTI at much lower P/E's in the future at low points in the market cycle either for the company or due to general market conditons?

BTI has never before traded with a P/E this high and it has traded at substantially lower multiples during each of the past 10 years. There is a very high probability that you'll have a chance to re-enter this position much cheaper than today's price even if business continues to be good.


Even if you allow for 14X the 2008 estimate of $4.62 BTI shares would trade at just $64.68 or well under their current quote. It's not just me that sees this... Value Line has a 3- 5 target on BTI in the August edition as $60 - $85 /share even on higher earnings expectations for the future.

TWolvesfan- Nothing in your anwser above addresses the historically high valuation issue.

DEO looks pretty much the same.

kfh227
Kfh227 premium member - 6 years ago
A follow up to this:

"Enron had several qt,s of neg cash flow before it crashed."

Enron elimintaed the dividend when the stock was only 20% off its all time high. Anyone that payed attention to this warning got out with a nice profit.

twolvesfann
Twolvesfann - 6 years ago
stockdock, I dont argue that it may not be available cheaper. With regards to historic valuation and P/E, dollar lost 9% in the last 12 months to GBP in which BTI is reported. Account for that in todays P/E, you got 9% cheaper P/E in dollar terms already. I am not gonna sell now because of this year P/E. You will have to pay 9% more today than last year to purchase GBP. I would only add at lower prices and attractive valuations going forward. Regarding when I sell - only when I see deterioration in business. One more reason I like BTI- hedge against dollar. same with DEO - partial hedge against declining dollar.
twolvesfann
Twolvesfann - 6 years ago
Billy and All, I've been reading your posts over the weekend. Thanks for good insights on

many topics.

would like to hear from you on some topics

1. What is your view on life insurance industry as a business for say 10 to 15 years period?

I've a position in MFC (Manulife Financial Corporation - 2nd largest in North America and worlds 6th largest) I was reading latest annual report and CEO Dominic Alessandro highlighted in North America people are ageing and the trend of outliving the savings and not so great social beneftis they receive would be catalysts for the growth of their life insurance and long term care business. MFC is only one of the 2 AAA rated life insurance company and their dividend yield is more than their peers such as MET PRU.

2. While we can use mind share and brand names like Marlboro, Coke, Pepsi for consume products, what do you use to measure for the moat of a life insurance co. While consumer products are great, I think Financial services are not something we can not have in our portfolio. If my memory serves correctly Buffet holdings are 38% Financials

and 31% consumer goods.
billytickets
Billytickets - 6 years ago
great questions:I used to sell term insurance for more than 10 years so I feel I can tackle your question. MFC is a strong company and seems to be reasonably priced.Having said that , I do not personally like the future of the life insurance industry because of the increased competition online and how consumers are much more educated that do buy insurance. I have not studied their finiancials so i do not know the specifics about this particular business

2)financial companies are much harder to evaluate ( for me than consumer goods). WEb has alarge stake in AXP and WFC and that is a large % of his financials. Iam personally on the "sidelines" with all financials as they are not my thing and my 3 mentors in the real estate business have all told me that the sub prime "crisis" is real and not imagined. If I did buy a financial I would buy USB and WFC because WEB's ability to evaluate these companies is superior to mine I did buy USG today though.peace
billspetrino
Billspetrino - 3 years ago
This is a great example of despite the market being at its absolute peak

BNI was taken out higher than it was here and I recommended to many on this forum

KFT is higher than it was and has paid a solid dividend

Bud got taken out at agreat profit in 2008

WMT is higher than 3 years ago

and JNJ is about even and those who reinvested dividends have beaten cash in that time span

This was written near the market peak and those who stayed defensive and concentrated on building a solid dividend machine and avoided speculative plays got through the mess best of all

Notice is the comment ABOVE how i said i AVOIDED all financial companies because they are so hard to EVALUATE

How many folks got "burned" because they "thought" foolishly they understood financials and banks?

Hope all this helps

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