Life

In this crazy stock market I am not going to advocate investing to anyone, but…..

A couple weeks ago Ray Link made the compelling case for buying dividend stocks.   With the downturn in prices, his case could be stronger than ever right now, and his 80/20 plan is a pretty safe way to approach the market.  Dividend stocks will also help you sleep a bit more soundly in these wild financial times, as their volatility is 1/3rd less than non-dividend stocks.  Another benefit – large companies that pay dividends tend to increase the dividends over time – so your investment has the potential to keep up with inflation. 

If you have a longer time horizon, and only a modicum of faith in many of the biggest corporations in the world, you could make the case for assembling a basket of high dividend stocks from major companies trading fall below their value, as an alternative to buying corporate bonds.   Dividends paid by S&P 500 companies have grown at a compounded rate of 3.2% per year over the last 25 years.   One approach would  be to find stocks of really healthy companies that have a lot of cash, good market prospectus, but are trading at low multiples.

For instance, take a look at the following companies:

• AT&T (T) is one alternative way to play the success of the Apple iPhone (though it is AT&T’s service that mainly takes the heat).  But the fact remains that this is an American corporate fixture, with a market value of over $150 billion dollars.  The stock recently closed at around $24 a share – a little above its 52 week low.  That puts it with a PE ratio of just over 12 – but the best part – it pays a dividend of 6.92%
• Kimberly Clark (KMB) is in the unexciting business of paper products, but I bet many of you used Pampers, and Kimberly napkins, towels and paper plates last weekend.  It trades at a little over $60.  It also has a PE ratio of around 13.5, and pays a dividend of 4.3%.
• Excelon (EXC) is a power company, and we all need power.  It trades at around $38 – midway between its 52 week high and low, with an PE ratio of 9.15 and a great dividend of 5.54%.

In addition, you could look at other high dividend reasonably priced stocks like Eli Lilly (LLY) - PE of 8.6 and pays a 5.8% yield, Pitney Bowes (PBI)- PE of 11.4 and pays a 6.1% yield, McDonalds (MCD) – PE of 15.6 and 3.4% yield, Intel (INTC) – PE of 17.6 and pays a 3% yield, and if you you are so inclined, even a few of the evil corporations like Exxon and Conoco pay well.

All of these companies are financially rock solid, and have a good market prospectus.  If you were to buy five to ten of them with the intention of holding them for a 5-10 year time horizon as an alternative to buying similar time-horizon bonds, you would enjoy equivalent returns via the dividend, but the high probability of a big upside in price.  Sure, there could be a BP Oil in the bunch – but in that case you would not want to hold BP bonds anyway.  It is hard to imagine that companies of this quality will not at least hold their value over 5-10 years.

One caveat….if Congress does not extend the tax cuts this year, dividends will be taxed in 2011 at ordinary income tax rates – as high as 39.6% – which would put a big damper in this plan.

With the continuing  expansion of cloud computing, various aps, and other reasons to put private information on the accessible internet, password security is more important than ever before.  But most of us get lazy.  We figure it won’t happen to us, and accordingly we protect our data with silly passwords like “TIM”, and “CODE”. 

The ideal password combines letters and numerals, and has at least eight digits and letters.  And here is an interesting statistic from National Public Radio’s science department; a hacker utilizing a readily available program can figure out a four letter code in about  1 1/2 minutes.  It would take them the equivalent of 200 years to decode an eight letter password.

I was having a drink with a friend the other night when he announced that he was pulling a significant amount of his money out of the stock market. “I just can’t take it anymore. Up and down, up and down. It’s just not worth it. I am willing to sacrifice return for peace of mind”.  His money is going back to the tiny returns and safe haven of bonds and CDs

Like many of us he is suffering investor fatigue.  When 100 to 300 plus point swings on the Dow become the norm instead of the exception, it’s no wonder that many investors are getting tired and just giving up.

Unfortunately investing in the stock market isn’t rational.  There is no reason that so many great companies are trading so far below their value, and the rational side of me wants to be a buyer.  I suspect that if I relax and take the long perspective I would buy great companies at very attractive valuations and not worry about it.  But in the short term I worry about investor fatigue; that my 50 year old and older friends will say “enough is enough” and continue to pull out their money on the upside bumps, which could mean a very long recovery, and really long periods of bumpiness, with more people giving up and dropping out. 

Our major corporations are flush with cash.  There are a multitude of problems to be solved that could be big business for smart companies.  While we are a long way from economic health, things are improving.  But all that is naught for the market if we’re too tired to invest.

In the midst of the world financial crisis, the huge debts we are running up for our children and grandchildren to pay, the various wars being waged around the planet, environmental disasters, and the seemingly insurmountable problems society faces, it’s sometimes good to get a little positive news about the future of the world.

Britney Spears has announced that she wants to be frozen after her death.  After reading that Walt Disney had himself freeze dried, the pop icon forked over $350,000 to the Alcor Life Extension Foundation in the hope that future generations will be able to enjoy her song and dance stylings as much as we have for the last decade, perhaps in the Britney “Oops, I’m Doing It Again” concert tour in 2180.

I have been buying Apple stock off and on for the last twenty years, and I am pleased to report it has consistently been on of my best investments. My one regret is that I just didn’t buy and hold. This week as Apple’s market cap catapulted past long-time rival Microsoft, NPR did an interesting analysis of the impact if a consumer had chosen to support Apple by buying their stock as opposed to their products. Here are a few interesting points to consider:

• In 2003 if you had chosen to invest  the price of an Apple Powerbook ($3339) on Apple stock instead of buying the computer, your stock would now be worth approximately $120,000!  Your Powerbook, on the other hand, would be worth, well, not so much.
• In 2004 if you had chosen to buy Apple stock instead of buying that iPod mini for $240, your stock would now be worth $6103.

Of course, if we had all just bought stock instead of Apple products, these numbers would look a lot different.

You would assume that the biggest oil spill in history would be really expensive to fix – and it is! Currently BP is paying over $22 million dollars per day to try and stop the spill.  Seems incredible that one company could afford that, until you consider the fact that BP makes an average profit of $45 million dollars per day.

Ever had that uncomfortable feeling when you return from a long trip and you can’t remember where you parked your car in the massive airport parking lot? Or ditto that feeling when you go to the mall and head out into acres of autos to locate yours? Well, there are all kinds of new wonderful cell phone aps and technologies to help you locate things, including your vehicle, but here is my somewhat lower tech solution. I use my iPhone camera to take a picture of the parking lot sign as I am rushing to my flight or store.  The lots are usually well-marked, and if possible I like to park right under the sign and take a photo of my car so I know it is in 4F – or Red Lot 20.  If you are in a huge lot with bus stands snap a photo of the stand. In a mall I might make the shot wider so I know I have to come out the main Nordstrom’s entrance – or wherever I might be.  Then I just need to check my camera roll  – and often the photo also reminds me of the lot layout so I can find my car even faster.

Another advantage of the photo – if taken correctly you have a shot of the cars parked around you – and their license numbers –  in case you come home to a side-swipped car.

I grew up in a small middle class house in Billings, MT. My father bought the house in the late 1950′s, and worked hard – frequently making double payments - to pay the mortgage off in 15 years. He and my mother lived in the house for over 25 years, and when they decided to trade-up they had saved enough money to pay cash for the difference in price to the new house. During the 25 years he lived in the house he never refinanced it, nor  was he constantly having it appraised to see if it’s value had increased.  There was no reason to do so; it was his home, not a real estate investment.  After twenty five years the value had increased – in fact it had about tripled in value – but if you really run the numbers that amounted to a return of a little over 5% a year – a decent but not stellar return.  However, when viewed in the long-term it was a safe, stable, and smart investment.  People of my parent’s generation valued the concept of home ownership for the long-term.

We all know what a mess the housing market is now.  Banks loaned money to people that could not afford the loans.  Interest rates rose, housing prices plummeted, many homeowners could no longer afford to make their payments, and now we have empty houses and people without homes.  The unethical banks are at fault.  The people that bought houses they could not afford are at fault.  And the taxpayers and those that did no overextend pay the price.

I understand the difficult situation of losing your house because you just can’t afford to keep it. But amidst the foreclosure statistics there is a more insidious kind of investor.  The homeowner that bought a house at the top of the bubble, can still afford to make the payments, but seeing the value of the house plummet they choose to walk away.  And when they walk all of us ultimately suffer.  They have taken a home loan and turned it into an investment real estate loan.

For a credit qualified buyer, the interest rate on a loan for a home is one of the best deals around.  Even seasoned and well-capitalized investors pay much higher rates to finance investment real estate.  That’s because it is a riskier investment for all involved.  The bank understands that the investor could potentially walk away.  They understand that commercial real estate prices can fluctuate wildly.

But when it comes to home loans they anticipate that the borrower has a much greater self-interest in making their payments.  The home loan business was built on  borrowers with my father’s generation’s attitude about home ownership – not the current generation that see’s their home as a rolling real estate investment.  People that can afford to make their home loans, but choose not to do so, change the game for all of us, and may ultimately raise the risk parameters – and ultimately the interest rates – for the people that do pay their bills.

One way that companies expand is by extending their brands into new areas. And often this makes sense. Bose makes great speakers, so it was not a leap for me to believe they make great headphones. A little more of a leap…..Caterpiller makes wonderful heavy equipment, so I might be convinced they would make good heavy duty work boots. Some things would make absolutely no sense. Pfizer is a world-class pharmaceutical company, but I would not want to eat a Pfizer-burger.

Many corporations simply license their brands, and while this might seem like easy money, it presents significant risk to the core brand. If I buy a pair of $75 Armani Jeans made by a Chinese manufacturer under a licensing agreement with Armani, and they fall apart the first time I wash them, I would be hesitant to buy a $2000 suit from the real Armani.

So whether you are expanding or licensing your brand, you need to be sure you are protecting the core brand by assuring that consumers have a consistent experience between brands and expanded brands. But we are in a brand expansion world, and unfortunately many companies want to reap the benefits of their brand without taking the responsibility. Case in point…

I used to do a lot of business with US Bank. Like most banks, they expanded over the years to be much more than a bank, offering a full slate of investment services. Since working with one institution was easier for me, I tried out these services, but ultimately decided to just work with them on their core banking capabilities. During this process I had a big problem with their investment division. They essentially broke a contract with me, and have yet to pay me as the contract specified. When I complained to my business banker, I was told that “he had absolutely no control”. “Different division and we don’t communicate” he said. The problem with this is that they sold me the investment services based on their core brand and the convenience of working with one institution. And the result? As the consumer I just see one US Bank logo. Since I am unhappy with one division, I certainly won’t work with another unless they all get together to protect their core brand and do the right thing, and ultimately they lose all my business.

With the benefit of brand expansion comes the responsibility of brand management, and companies are foolish to expand without a plan to keep the consumer experience consistent.

Stephanie Madoff, wife of Bernie Madoff’s son Mark, is having her and the children’s names legally changed from Madoff to Morgan.  She wants to spare her family the “embarassment, harassment, and endangerment” of having the notorious name.

This got me thinking about all the other Madoff’s unrelated to Bernie that have also been Bernie’s victims.  The phone book in New York lists 12 Madoffs, and most major cities have a couple Madoffs, so one can assume there are dozens across the US that have had their name dragged through the mud.  A little like being named Hitler or Mussolini after World War II.  You also never meet anyone named Ponzi, Himmler, or Judas.

By the way, if you just can’t get enough Madoff, there is a blog devoted to covering all things Bernie,  aptly named “Swindler’s List” – http://www.jewishjournal.com/swindlerslist/.  At the blog you can keep up on Bernie’s latest jailhouse fights, but most interesting, they list Bernie’s possessions that are up for auction, so you can perhaps find a little bit of Madoff for your own home.