Archive for August, 2009

  • Warren Buffett’s New Buy
    , August 17th, 2009 at 9:58 am

    We were very pleased to see that Warren Buffett’s Berkshire Hathaway (BRKA) has added Becton, Dickinson (BDX), one of our Buy List stocks, to his portfolio. Obviously, Warren must be a regular reader.
    There is one thing that troubles us. On the SEC filing, the company is listed as Beckton Dickson & Co.
    See for yourself.

  • The Market’s Excessive P/E Ratio
    , August 17th, 2009 at 9:37 am

    There’s recently been some commentary on the stock market’s elevated P/E Ratio (see here and here).
    I think this is a good instance where the P/E Ratio fails to tell us much. We have to remember that the P/E Ratio is an unusual statistic because it looks at the relationship between two different kinds of the numbers. A stock’s price is a fixed-point number, which means you know exactly what a price is at any given time, but earnings is a rate, meaning it must be defined at something that only exists between two certain points in time.
    There’s nothing inherently wrong about combining two different kinds of numbers though we should be bear in mind its limitations and this is one such time. The reason is that earnings took such a bath in the fourth quarter of 2008. Operating earnings for the S&P 500 were $-0.09 for Q4 of 2008 and reported earnings were $-23.25. As long as we’re carrying that dud quarter in our trailing four quarters, earnings will look very depressed.
    Those losses are massive outliers. The good news is that they’re also past us. At the end of the third quarter, the S&P’s trailing four-quarter operating earnings will probably be around $40, at by the end of the fourth quarter, they’ll vault up to $55. That’s simply because we’re subtracting an awful quarter and adding on a more typical quarter. We can expect that the market’s P/E Ratio will dramatically plunge, but that won’t mean that the market is suddenly becoming a good value.

  • Play the Federal Reserve Game
    , August 14th, 2009 at 9:02 pm

    The San Francisco Fed has created perhaps the wonkiest video game world history—it’s the Federal Reserve Game!
    Haven’t you always wanted to test your monetary policy skillz online? Well, now you can! Set rates too high and you’ll cause a recession. Go too low and inflation will creep up.
    See if you have….
    the cool judgment of an Arthur Burns.
    the sober confidence of a William McChesney Martin
    or the raw sexuality of a Marriner Eccles
    Note: I tried to audit the game but kept getting an error message.
    (Via: Economix via Carney)

  • 16 Companies that Have Raised Their Dividend by 10% or More for the Last Nine Years
    , August 14th, 2009 at 5:15 pm

    Let me add a disclaimer at the start of this post. This is the result of a data dump so the numbers may not be correct. I searched for companies that have increased their dividend by at least 10% for the last nine straight years. I haven’t doubled-checked the data off another source, but here are the initial results.
    Federated Investors (FII)
    Linear Technology (LLTC)
    Bank of Kentucky Financial (BKYF)
    C.H. Robinson Worldwide (CHRW)
    Expeditors International of Washington (EXPD)
    AFLAC (AFL)
    TJX Cos. (TJX)
    Brown & Brown (BRO)
    Novo Nordisk (NVO)
    Fastenal (FAST)
    John Wiley & Sons (JW-A)
    Johnson & Johnson (JNJ)
    Pfizer (PFE)
    Mercury General (MCY)
    Polaris Industries (PII)
    LSB Financial (LSBI)
    The current year isn’t included since we’re not done, but a few stocks may fall off the list by year’s end.
    The ones that really stand out are Pfizer, Johnson & Johnson and AFLAC. According to my data, these have raised their dividend by 10% or more for at least 18 years. Pfizer cut its dividend in half this year so it’s due to fall off the list.
    The smallest dividend increase for AFLAC has been 12%. The company has already raised its dividend by 16% this year, plus the stock is going for about nine times this year’s earnings forecast (not the Street’s forecast, but AFL’s).
    J&J increased its dividend by only 6.5% earlier this year so it’s also in trouble. The company has, however, raised its dividend for 47 straight years.
    Let me add a special shout out to LSB Financial which is the holding company for Lafayette Savings Bank. This isn’t a micro-cap, it’s a nano-cap. It’s a 140-year-old Indiana-based thrift with a market cap of just $17 million. That’s about 25 minutes worth of sales at Wal-Mart (WMT). LSBI has no analysts who follow it. Sadly, it will fall off the list this year — like many financial firms, the thrift chopped its dividend in half.

  • Coolest Map of Bank Failures You’ll See All Day
    , August 14th, 2009 at 2:34 pm

    From The Wall Street Journal. You can really tell when WaMu went under.
    (Via: Clusterstock)

  • Headline CPI Unchanged; Core +0.1%
    , August 14th, 2009 at 8:44 am

    Year-over-year consumer prices are down 2.1% which is the biggest drop since 1950.
    image844.png

  • Wow
    , August 13th, 2009 at 7:54 pm

  • Academic Report: Having Chicks on Your Board Is Bad for Your Stock
    , August 13th, 2009 at 1:41 pm

    The Telegraph:

    Companies with women directors perform badly on stock market, report claims
    Those companies that have just one female director on their board are considerably undervalued – in terms of their share price – compared with companies run entirely by men.
    The study by the University of Exeter, published in the British Journal of Management, makes clear, however, that companies with women directors perform just as well when it comes to making profits.
    Prof Alex Haslam, a psychologist at the University of Exeter, said the lengthy study had tried to strip out any coincidental factors, such as women tending to run retail and technology companies, which might have performed badly during the period of the study: 2001 to 2006.
    “However, the evidence is very strong that gender is the unique factor in this pattern.
    “The market very clearly responds to women’s appointments to boards in an adverse way. Or – to put it another way – they like to back all-male boards. Maybe investors see them as a safe bet.”
    The study examined FTSE 100 companies, Britain’s biggest companies listed on the stock market. At the start of the study, half of all of the companies had all-male boards, but by 2006 just 15 per cent did, suggesting that a quiet revolution had happened during the time, with more female executives making it to the top even if only a handful made it to the very top job of cheif executive. Marjorie Scardino at Pearson and Rose Marie Bravo at Burberry were, at one stage, the only two women to head a FTSE 100 company.
    However, companies with all-male boards had a market valuation equivalent to 166 per cent of their book value, while companies with at least one female board member had a market value equal to just 121 per cent of book value.

    Also…have you seen them drive?

  • Buffett Admits Berkshire Goofed on Derivative
    , August 13th, 2009 at 1:34 pm

    Oopsie!

    Warren Buffett’s Berkshire Hathaway Inc (BRKa.N)(BRKb.N) underestimated the risks of falling stock prices to its billions of dollars of derivatives bets, yet still believes it is valuing the contracts fairly.
    Berkshire revealed its error in a June 26 letter to the U.S. Securities and Exchange Commission, one of several pieces of correspondence with the regulator about the company’s annual report, and made public on Thursday.
    It also agreed to SEC demands for more explanation on $1.8 billion of writedowns on stock investments, and $2.7 billion of auction-rate and other municipal debt holdings. On June 29, the SEC said it completed its review without further comment.
    The correspondence shows Omaha, Nebraska-based Berkshire, which has close to 80 businesses and ended June with more than $136 billion of stocks, bonds and cash, is struggling to comply with SEC requirements to disclose enough about its finances.
    This issue had surfaced in June 2008, when the regulator demanded “a more robust disclosure” of how the insurance and investment company values its derivatives. Buffett did provide some additional disclosure, in what he called “excruciating detail,” in his annual shareholder letter in February.

  • Ever Wanted to Ring the Opening Bell?
    , August 13th, 2009 at 11:03 am

    Here’s your chance.