The 12 stock for 10 years portfolio consists of stocks I would be comfortable putting into an IRA for 10 years. The main criteria is for companies with a history of large positive cash flow, that seemed likely to continue that trend.
Since April of 2005 the portfolio Marketocracy* calculated annualized rate or return (which excludes Tesco) is 7.5% (the S&P 500 annualized return for the period is 6.8%).
Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that (it is not like this portfolio takes much management), the return beats the S&P 500 annual return by about 270 basis points annually (9.5% to 6.8%). And I think the 270 basis point “beat” of the S&P rate is really under-counting as the 200 basis point “deduction” removes what would be assets that would be increasing (so the gains that would have been made on the non-existing deductions in the real world – are missing). Tesco reduces the return, still I believe the rate would stay close to a 200 basis point advantage.
I make some adjustments (selling of buying a bit of the stocks depending on large price movements – this rebalances and also lets me sell a bit if I think things are getting highly priced and buy a bit if they are getting to be a better bargin). So I have sold some Amazon and Google as they have increased greatly and bought some Toyota as it declined (and now sold a bit of Toyota as it soared). This purchases and sales are fairly small. Those plus changes (selling Dell and buying Apple for example) have resulted in a annual turnover rate under 5%.
I am strongly considering buying ABBV and maybe ABT. Abbot recently split into these 2 separate companies. I probably would have added this last year but I wasn’t sure what to do given the breakup so I waited (luckily I bought it, personally, as they have performed quite well) I may also sell some or all of Tesco and PetroChina.
The current stocks, in order of return:
|Stock||Current Return||% of sleep well portfolio now||% of the portfolio if I were buying today|
|Amazon – AMZN||486%||8%||8%|
|Google – GOOG||311%||17%||15%|
|PetroChina – PTR||104%||6%||6%|
|Templeton Dragon Fund – TDF||89%||4%||4%|
|Danaher – DHR||78%||9%||9%|
|Toyota – TM||70%||13%||11%|
|Templeton Emerging Market Fund – EMF||50%||6%||8%|
|Apple – AAPL||22%||12%||15%|
|Pfizer – PFE||20%||7%||7%|
|Cisco – CSCO||19%||4%||5%|
|Intel – INTC||9%||7%||7%|
|Tesco – TSCDY||-5%**||0%*||4%|
The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.
I was just taking a look at a couple of properties in Zillow and found it interesting how big the real estate tax bite can be. I have 2 rental properties and the real estate tax cost is 15% and 12% of the rental income. At least for my area Zillow underestimate rent rates (the vacancy rate is very low and properties in general rent within days or weeks – at rates 10%+ higher than Zillow estimates on average -based on my very limited sample of just what I happen to notice).
I thought I would look at the real estate tax to property value estimate and rent estimate by Zillow in Various locations.
Arlington, Virginia – real estate taxes were 1% of estimated property value and 17.5% of rental estimate.
Chapel Hill, North Carolina – 1.5% of value and 41% of rental estimate.
Madison, Wisconsin – 2.4% of value and 39% of rental estimate.
Flagstaff, Arizona – .7% of value and 9.5% of rental estimate.
Grand Junction, Colorado – .4% of value and 6% of rental estimate.
This is just an anecdotal look, I didn’t try to get a basket of homes in each market I just looked at about 1-5 homes so there is plenty of room for misleading information. But this is just a quick look and was interesting to me so I thought I would share it. While the taxes are deductible (from the profit of the rental property) they are a fixed expense, whether the house is rented or not that expense must be paid.
A high tax rate to rental rate is a cash flow risk – you have to make that payment no matter what.
In my opinion one of the most important aspects of rental property is keeping the units rented. The vacancy rate for similar properties is an extremely important piece of data. Arlington, Virginia has an extremely low vacancy rate. I am not sure about the other locations.
I wanted to use Park Slope, Brooklyn, NYC but the data was confusing/limited… so I skipped it; the taxes seemed super low.
One of the frustrating things for shareholders is how readily companies give away stock. A huge company like Apple has been giving away huge amounts of stock (through stock options) even while adding tens of billions in cash to their stockpile.
Outstanding stock for Apple
Jan 2006 – 848 million shares
Jan 2007 – 862 million shares
Jan 2008 – 879 million shares
Jan 2009 – 891 million shares
Jan 2010 – 907 million shares
Jan 2011 – 921 million shares
Jan 2012 – 932 million shares
Jan 2013 – 939 million shares
So even in the last year, while promoting a $10 billion buyback – the net result was 7 million more shares (not fewer as a “buyback” suggests); it did reduce the amount of increase to less than it has been recently. 7 million more shares * $425 = $2.975 billion more stock in place. If Apple uses $50 billion more to buy back stock that would allow purchase of 100 million shares at $500 a share ($500 is less than I would guess the average price will be, but we will see what actually happens). That would get the share balance back to the Jan 2006 level, if there were not huge new additions during the buyback period (which there probably will be).
Companies certainly like to heavily publicize share buyback programs. They don’t trumpet how much additional stock they issue each year with the same zeal (most of which, for successful companies not in desperate need for cash, is provided through extremely sweetheart stock options for executives and board members at the expense of diluting stockholder’s equity – the easiest form of excessive executive pay to give away as it doesn’t cost the company cash).
It will be interesting to see to what extent share buybacks actually decrease the share balance and to what extent they just eliminate the exploding issuance of shares Apple has engaged in while piling up the largest cash reserves ever recorded.
Given Apple’s financial position I do not believe diluting stockholders equity by issuing huge amounts of stock was a wise policy the last 7 years. I think reversing that policy is wise. Buying back the stock they gave away is sensible but it would have been wiser not to give so much away in the first place. I’ll be surprised, and happy, if the outstanding share balance drops below 890 million (the Jan 2009 figure).
I do think Apple is a great buy at these levels (I bought some more last week). The earnings reported today are not as spectacular as those reported recently but they still made a profit of $9.5 billion in the quarter (and had positive cash flow of $12.5 billion bringing total cash on hand to $145 billion). It isn’t like this is a company that is failing. It is just a company that isn’t growing earnings as rapidly. They are still earning enormous amounts of cash.
The decline in margins is disappointing (but not surprising) but the margins are still great (just not as amazingly great as recently). The worry over further declines in margins seems justified to me and is one of the big risks for the stock going forward. I think margins will remains at a level that justifies a much higher price than the stock has today, but only time will tell.
I would have liked to see the dividend increase more, but a dividend increase was a good move.
USA health care spending continues to grow, consuming an ever increasing share of the economic production of the USA. USA health care spending is twice that of other rich countries for worse health care results.
- USA health care expenditures grew 3.9% to $2.7 trillion in 2011, or $8,680 per person, and accounted for 17.9% of Gross Domestic Product (GDP).
- Medicare spending grew 6.2% to $554.3 billion in 2011, to 21% of total health care spending.
- Medicaid spending grew 2.5% to $407.7 billion in 2011, or 15% of total health care spending.
- Private health insurance spending grew 3.8% to $896.3 billion in 2011, or 33 percent of total health care expenditures.
- Out of pocket spending grew 2.8% to $307.7 billion in 2011, or 11 percent of total health care spending.
- Hospital expenditures grew 4.3% to $850.6 billion in 2011.
- Physician and clinical services expenditures grew 4.3% to $541.4 billion in 2011.
- Prescription drug spending increased 2.9% to $263.0 billion in 2011.
- Per person personal health care spending for the 65 and older population was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and 3.3 times spending per working-age person ($4,511).
Individuals (28%) and the federal government (28%) accounted for the largest share of those paying for health care in the USA. Businesses pay 21% of the costs of health care while state and local governments pay 17%.
The United States Centers for Medicare & Medicaid Services (CMS) project that health care spending will rise to 19.6% of GDP by 2021. Since the long term failure of the USA health care system has resulted in costs increasing faster than inflation every year for decades, it seems reasonable to expect that trend to continue. The burden on the USA grows more and more harmful to the USA each year these rising costs continue.
In 2004, the elderly (65 years old and older) accounted for 12% of the population, and accounted for 34% of spending.
Data from US CMS (sadly the way they provide the data online my guess is this url will fail to work in a year, as they post the updated data – I don’t see a way to provide a link to a url with persistent data).
Half of the population spends little or nothing on health care, while 5% of the population spends almost half of the total amount (The High Concentration of U.S. Health Care Expenditures: Research in Action).
Related: USA Spends Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Health Care in 2009 – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – USA Health Care Costs reach 15.3% of GDP – the highest percentage ever (2005) – Systemic Health Care Failure: Small Business Coverage
Across the globe, saving for retirement is a challenge. Longer lives and expensive health care create challenge to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for example.
The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.
Top Countries for Retirees
- 1 – Norway
- 2 – Switzerland
- 3 – Luxembourg
- 6 – Finland
- 9 – Germany
- 10 – France
- 11 – Australia
- 13 – Canada
- 15 – Japan
- 19 – USA
- 20 – United Kingdom
Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.
Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).
The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.
On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).
See the full press release.
Related: Top Stock Market Capitalization by Country from 1990 to 2010 – Easiest Countries in Which to Operate a Businesses: Singapore, Hong Kong, New Zealand, USA – Largest Nuclear Power Generation Countries from 1985-2010 – Leading countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Countries with the Top Manufacturing Production
Determining exactly what needs to be saved for retirement is tricky. Basically it is something that needs to be adjusted based on how things go (savings accumulated, saving rate, planned retirement date, investing returns, predicted investing returns, government policy, tax rates, etc.). The simple idea is start by saving 15% of salary by the time you are 30. Then adjust over time. If you start earlier maybe you can get by with 12%…
How Much to Save for Retirement is a very good report by the Boston College center for retirement research. They look at the percent of income replacement social security (for those in the USA) provides. This amount varies greatly depending on your income and retirement (date you start drawing social security payments).
Low earners ($20,000) that retire at 65 have 49% of income replaced by social security. Waiting only 2 years, to 67, the replacement amount increases to 55%. For medium earners ($50,000) 36% and 41% of income is replaced. And for high earners ($90,000) 30% an 34%.
Starting savings early make a huge difference. Starting retirement savings at age 25 requires about 1/3 the percentage of income be saved as starting at 45. So you can save for example 7% from age 25 to 70 or 18% from age 45 to 70. Retiring at 62 versus 70 also carries a cost of about 3 times as great savings required each year. So retiring at 62 would require an impossible 65% if you didn’t start saving until 45. But these numbers are affected by many things (the higher your income the less social security helps so the higher percentages you need to save and many other factors play a role).
Starting to save early is a huge key. Delaying retirement makes a big difference but it is not nearly as much in your control. You can plan on doing that but need to understand that you cannot assume you will get to set the date (either because finding a job you can do and pays what you wish is not easy or you are not healthy enough to work full time).
If you don’t have social security (those outside the USA – some countries have their versions but some don’t offer anything) you need to save more. A good strategy is to start saving for retirement in your twenties. As you get raises increase your percentage. So if you started at 6% (maybe 4% from you and a 2% match, but in any event 6% total) each time you get a raise increase your percentage 100 basis points (1 percentage point).
If you started at 27 at 6% and got a raise each year for 9 years you would then be at 15% by age 36. Then you could start looking at how you were going and make some guesstimates about the future. Maybe you could stabilize at 15% or maybe you could keep increasing the amount. If you can save more early (start at 8% or increase by 150 or 200% basis points a year) that is even better. Building up savings early provides a cushion for coping with negative shocks (being unemployed for a year, losing your job and having to take a new job earning 25% less, very bad decade of investing returns, etc.).
Investing wisely makes a big difference also. The key for retirement savings is safety first, especially as you move closer to retirement. But you need to think of investment safety as an overall portfolio. The safest portfolio is well balanced not a portfolio consisting of just an investment people think of as safe by itself.
Related: Retirement Planning, Investing Asset Considerations – Saving for Retirement Must Be a Personal Finance Priority – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation
Enjoy this edition of the Curious Cat Investing, Economics and Personal Finance Carnival. This carnival is different than many blog carnivals: I select posts on those topics from what I read (instead of posting those that submit to the carnival as many carnivals do). If you would like to host the carnival add a comment below.
- The Economics of Netflix’s $100 Million New Show – “ith Netflix spending a reported $100 million to produce two 13-episode seasons of House of Cards, they need 520,834 people to sign up for a $7.99 subscription for two years to break even.”
- Chart of Top Countries for Manufacturing Production 1999-2011 by John Hunter – “the four leading nations for manufacturing production remain solidly ahead of all the rest. Korea and Italy had manufacturing output of $313 billion in 2011 and Brazil moved up to $308 are in 4-6 place. Those 3 countries together could be in 4th place (ahead of just Germany). Even adding Korea and Italy together the total is short of Germany by $103 billion.”
- Why a Transaction Fee Matters to You by David Brin – “By raw extrapolation, this zero-point-zero-three-percent (0.03%) fee could raise a whopping deficit-curbing $352 billion dollars in ten years, while helping capital markets to settle down” [I agree we should use a very small fee to raise money and reduce incentive for high frequency trading/frontrunning - John]
- Mexico: The New China – “Today, what Shenzhen is to Hong Kong, Tijuana is becoming to San Diego. You can drive from our San Diego engineering center to our Tijuana factory in 20 minutes, no passport required. (A passport is needed to come back, but there are fast-track lanes for business people.)”
The story of global manufacturing production continues to be China’s growth, which is the conventional wisdom. The conventional wisdom however is not correct in the belief that the USA has failed. China shot past the USA, which dropped into 2nd place, but the USA still manufactures a great deal and has continually increased output (though very slowly in the last few years).
The story is pretty much the same as I have been writing for 8 years now. The biggest difference in that story is just that China actually finally moved into 1st place in 2010 and, maybe, the slowing of the USA growth in output (if that continues, I think the USA growth will improve). I said last year, that I expected China to build on the lead it finally took, and they did so. I expect that to continue, but I also wouldn’t be surprised to see China’s momentum slow (especially a few more years out – it may not slow for 3 or 4 more years).
As before, the four leading nations for manufacturing production remain solidly ahead of all the rest. Korea and Italy had manufacturing output of $313 billion in 2011 and Brazil moved up to $308 are in 4-6 place. Those 3 countries together could be in 4th place (ahead of just Germany). Even adding Korea and Italy together the total is short of Germany by $103 in 2011). I would expect Korea and Brazil to grow manufacturing output substantially more than Italy in the next 5 years.
Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9%, the USA Bureau of Labor Statistics reported today. The change in total nonfarm payroll employment for November was revised from +161,000 to +247,000, and the change for December was revised from +155,000 to +196,000 which means this report shows an increase of 284,000 (157+86+41). In 2012, employment growth averaged 181,000 per month.
The number of unemployed persons, at 12.3 million, was little changed in January. The
unemployment rate was 7.9% and has been at or near that level since September 2012.
Among the major worker groups, the unemployment rates for adult men (7.3%), adult women (7.3%), teenagers (23.4%), whites (7.0%), african-american (13.8%), Hispanics (9.7%), and Asians (6.5%) showed little or no change in January.
In January, the number of long-term unemployed (those jobless for 27 weeks or more) was about unchanged at 4.7 million and accounted for 38.1% of the unemployed. The continued high level of long term unemployment is a continuing concern.
Health care continued to add jobs in January (+23,000). Within health care, job growth occurred in ambulatory health care services (+28,000), which includes doctors’ offices and outpatient care centers. In the last year, health care employment has increased by 320,000.
Manufacturing employment was essentially unchanged in January and has changed little, on net, since July 2012.
Average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents to $23.78. Over the year, average hourly earnings have risen by 2.1 percent. In January, average hourly earnings of private-sector production and nonsupervisory employees increased by 5 cents to $19.97.
No, it is not time to sell Apple, if your portfolio is not already too heavily overweighted in Apple it would make sense to buy. There is about as much wrong with Apple today as Toyota 3 years ago, which means essentially nothing is wrong. Yes, neither company is perfect. Maybe people were carried away with how awesome Apple was, but I don’t think the stock price every was.
Apple was a great buy at $700. Of course in the same situation buying it at $500 would be even better. I think it is a great buy at $500 today. I think Apple is going to move ahead just as Toyota has the last few years. The people jumping around at every single rumor of a data point are going beyond reacting to each data point they are reacting to rumors of data points.
I could be wrong. If Apple’s earnings cave over the next 5 years people can claim they say early signals. After a long time watching investors react to data and rumors and speculation I think they are just being foolish. Even if Apple is deteriorating, there needs to be a much better explanation for why investors should believe that than I have seen.
The best reason to question Apple is how long of a run they are on. Figuring the “law” of convergence in mean should make investors wary. That isn’t really true but that idea – that you just don’t stay on such a run (especially when you are huge and the have the largest market capitalization in the world).
But that is more just saying Toyota can’t keep being awesome. There is some sense that most likely they will stumble. But the problem is it is more likely about every other company will stumble first. The winners keep winning more than they start failing. But they also do often start failing. 100 years from now there is a decent chance Apple doesn’t exist. But there is a greater change most of the other companies you can invest in won’t. And there is a greater chance most other investments will do worse than Apple. That is my guess. Other investors get to place their money where there mouth is and we will see in 5 and 10 years how things stand.
I’ll stick with Apple and Toyota and Google and Danaher and Intel and….