His point on dollar cost averaging is sensible. Markets go up, more than down, overall [the statistically best approach] if you have a lump sum to invest the best strategy would be to invest it all now. There is added risk with this however, which he would accept. Also it doesn’t change the main reason people end up dollar cost averaging (by default, with retirement savings from each paycheck).
He discusses these ideas, and many more in his book: Debunkery: Learn It, Do It, and Profit from It-Seeing Through Wall Street’s Money-Killing Myths.
Related: Curious Cat investment books – Investment Risk Should be Evaluated as Part of a Portfolio, Rather than Risk of Each Individual Investment – Save Some of Each Raise
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. I continue to be very satisfied with the portfolio and don’t see any reason for changes.
The current Marketocracy* calculated annualized rate or return (which excludes Tesco) is 7.2% (the S&P 500 annualized return for the period is 4.7%). 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 4.5% annually (it would be a bit less with Tesco, but still close to 4%, I would think).
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 | 410% | 11% | 7% | |
| Google – GOOG | 184% | 16% | 14% | |
| PetroChina – PTR | 125% | 8% | 6% | |
| Templeton Dragon Fund – TDF | 100% | 9% | 9% | |
| Templeton Emerging Market Fund – EMF | 74% | 6% | 6% | |
| Danaher – DHR | 47% | 9% | 10% | |
| Apple – AAPL | 40% | 6% | 7% | |
| Toyota – TM | 14% | 10% | 11% | |
| Intel – INTC | 6% | 5% | 6% | |
| Tesco – TSCDY | -3%** | 0%* | 10% | |
| Cisco – CSCO | -15% | 4% | 5% | |
| Pfizer – PFE | -17% | 5% | 7% |
The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.
Related: 12 Stocks for 10 Years: Feb 2011 Update – 11 Stocks for 10 Years, July 2010 Update – 12 Stocks for 10 Years, July 2009 Update – hand picked articles on investing
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Google is up over 13% in after hours trading on the great earnings announced last night.
That is the start of the earnings release. You can sure tell Larry Page is interested in Google+ success.
More significantly, Google web site revenue up 39% increase over second quarter 2010 revenues of $4.50 billion. Google Network Revenues (Google’s partner sites, through AdSense programs), $2.48 billion, which was 28% of total revenues, in the second quarter of 2011 (up 20% from 2010 – good, but, Google up 39% on their own sites is amazing).
GAAP earnings per share increased 35% compared to 2010. Margins did decrease, but not a huge amount: and less than many feared (Google continues to invest large amounts in future prospects).
Those are great results anytime. When you remember that money in saving accounts get less than 1% now that type of growth is even more impressive. And when you consider how large Google is now it is even more impressive. Apple is achieving similarly impressive growth as a huge company – but it is very rare.
Google ended the last quarter with over $39 billion in cash. I do think they should pay a dividend (I worry they will feel pressure to spend the cash they have and due to the large amount of cah make some foolish decisions). I continue to own Google stock. And it is the largest holding in my 12 stocks for 10 years portfolio.
Related: Google’s Earnings Grow 17%, but Investors Unhappy (last quarter) – Google Posts Good Earning But Not Good Enough for Many – Great Google Earnings (March 2007)
I think Amazon is a great company and Jeff Bezos is a great leader. I sold the stock I had in Amazon hoping that prices would fall and I could buy it back (I sold a small portion held in my 12 stock for 10 year portfolio). So far that hasn’t worked. The latest earnings from Amazon were more of the same. Very good revenue growth (up 38% to $9.86 billion). Very large increases in spending. And bad earnings news (net income down 33% year over year). I think this is due to smart choices by Amazon (I would be a bit more focused on current earnings but I understand the vision of Bezos and it is very wise and support it).
Normally the stock market punishes this type of pattern. Even Google, that has a similar pattern (but with much better earnings growth), has a stock price that has been held back much more. This quarter investors again punished Google for good earning growth but also high expense growth. Amazon avoided that response, even with shrinking earnings and guidance of lower earnings. Jeff Bezos wrote about these decisions to invest in increasing expenses in Amazon’s shareholder letter
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All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we don’t take that approach. Technology infuses all of our teams, all of our processes, our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do.
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And we like it that way. Invention is in our DNA and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers. We still have a lot to learn, and I expect and hope we’ll continue to have so much fun learning it. I take great pride in being part of this team.
Operating cash flow increased 9% to $3.03 billion for the trailing twelve months, compared with $2.78billion for the trailing twelve months ended March 31, 2010. Free cash flow decreased 18% to $1.90 billion for the trailing twelve months, compared with $2.32 billion for the trailing twelve months ended March 31, 2010.
Operating income was $322 million in the first quarter, compared with $394 million in first quarter 2010. Net income decreased 33% to $201 million in the first quarter, or $0.44 per diluted share, compared with net income of $299 million, or $0.66 per diluted share, in first quarter 2010.
I continue to think Amazon is being a bad corporate citizen by fighting efforts to have Amazon play its proper role in the collection of sales tax. Ethics mean doing the right thing even if it costs you something personally. Amazon continues to act as an organization that fights what is right for society for their own greedy reasons. This is the worst behavior Bezos continues to push and does indicated a refusal to accept the responsibilities of participation in a society. Overall I believe Bezos does many great things but this disrespect for our society is a serious ethical problem.
Related: Amazon Soars on Good Earnings and Projected Sales (Oct 2009) – 12 Stocks for 10 Years: Feb 2011 Update – Another Great Quarter for Amazon (July 2007) – Amazon’s Bezos on Lean Thinking
Google again had some pretty spectacular earnings. Google reported revenues of $8.58 billion for the quarter ended March 31, 2011, an increase of 27% compared to the first quarter of 2010. GAAP net income in the first quarter of 2011 was $2.30 billion, compared to $1.96 billion in the first quarter of 2010. Non-GAAP net income in the first quarter of 2011 was $2.64 billion, compared to $2.18 billion in the first quarter of 2010.
Operating expenses, other than cost of revenues (which are essentially just a revenue split with sites showing Google ads), were $2.84 billion in the first quarter of 2011, or 33% of revenues, compared to $1.84 billion in the first quarter of 2010, or 27% of revenues. The growth in expenses and reduction in the profit margin is the biggest concern for invests and why Google’s stock is down 6% today.
GAAP operating income in the first quarter of 2011 was $2.80 billion, or 33% of revenues. This compares to GAAP operating income of $2.49 billion, or 37% of revenues, in the first quarter of 2010. Non-GAAP operating income in the first quarter of 2011 was $3.23 billion, or 38% of revenues. This compares to non-GAAP operating income of $2.78 billion, or 41% of revenues, in the first quarter of 2010.
Google-owned sites generated revenues of $5.88 billion, or 69% of total revenues, in the first quarter of 2011. This represents a 32% increase over first quarter 2010 revenues of $4.44 billion. Google ads on other companies web sites grew at a 19% rate. Revenues from outside of the United States totaled $4.57 billion, representing 53% of total revenues in the first quarter of 2011, compared to 52% in the fourth quarter of 2010 and 53% in the first quarter of 2010.
From 2006 to 2010 Google’s revenue grew at a 29% annual rate, as did net income. The price of the stock was $460 on December 31, 2006. For 2006 per share earnings were $9.94. At the end of 2010 Google sold at $594 and in 2010 earnings per share were $26.31. Today the price is $535. Yes it is likely earnings will not grow at a 29% annual rate over the next 5 years (and this quarter they grew at 17% – so slower than the previous 4 years). 17% is hardly a bad performance.
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Warren Buffett has published his always excellent annual shareholder letter. It is a pleasure to read them every year, when they are published, and re-read them at other times of the year.
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At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish.
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From a standing start in 1985, Ajit has created an insurance business with float of $30 billion and significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By his accomplishments, he has added a great many billions of dollars to the value of Berkshire.
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At bottom, a sound insurance operation requires four disciplines… (4) The willingness to walk away if the appropriate premium can’t be obtained. Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has led too many insurers to write business at inadequate prices. “The other guy is doing it so we must as well” spells trouble in any business, but none more so than insurance.
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a few have very poor returns, a result of some serious mistakes I have made in my job of capital allocation. These errors came about because I misjudged either the competitive strength of the business I was purchasing or the future economics of the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes my eyesight has been poor.
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It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.
Warren Buffett packs in great lessons all throughout the letter. Read it and take them to heart.
Related: Buffett Calls on Bank CEOs and Boards to be Held Responsible – Warren Buffett’s Q&A With Shareholders 2009 – The Greatest Wall Street Danger of All: You – Warren Buffet Webcast to MBAs – Warren Buffett’s 2007 Letter to Shareholders – Warren Buffett’s Annual Report
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The biggest investing failing is not saving any money – so failing to invest. But once people actually save the next biggest issue I see is people confusing the investment risk of one investment in isolation from the investment risk of that investment within their portfolio.
It is not less risky to have your entire retirement in treasury bills than to have a portfolio of stocks, bonds, international stocks, treasury bills, REITs… This is because their are not just risk of an investment declining in value. There are inflation risks, taxation risks… In addition, right now markets are extremely distorted due to the years of bailouts to large banks by the central banks (where they are artificially keeping short term rates extremely low passing benefits to investment bankers and penalizing individual investors in treasury bills and other short term debt instruments). There is also safety (for long term investments – 10, 20, 30… years) in achieving higher returns to gain additional assets – increased savings provide additional safety.
Yes, developing markets are volatile and will go up and down a lot. No, it is not risky to put 5% of your retirement account in such investments if you have 0% now. I think it is much riskier to not have any real developing market exposure (granted even just having an S&P 500 index fund you have some – because lots of those companies are going to make a great deal in developing markets over the next 20 years).
I believe treating very long term investments (20, 30, 40… years) as though the month to month or even year to year volatility were of much interest leads people to invest far too conservatively and exacerbates the problem of not saving enough.
Now as the investment horizon shrinks it is increasing import to look at moving some of the portfolio into assets that are very stable (treasury bills, bank savings account…). Having 5 years of spending in such assets makes great sense to me. And the whole portfolio should be shifted to have a higher emphasis on preservation of capital and income (I like dividends stocks that have historically increased dividends yearly and are likely to continue). And the same time, even when you are retired, if you saved properly, a big part of your portfolio should still include assets that will be volatile and have good prospects for long term appreciation.
Related: books on investing – Where to Invest for Yield Today – Lazy Portfolios Seven-year Winning Streak (2009) – Fed Continues Wall Street Welfare (2008), now bankers pay themselves huge bonuses because the Fed transferred investment returns to too-big-to-fail-banks from retirees, and others, investing in t-bills.
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.
The current Marketocracy* calculated annualized rate or return (which excludes Tesco) is 7.6% (the S&P 500 annualized return for the period is 4.8%). 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 4.8% annually (it would be a bit less with Tesco, but still over 4%).
In the last 6 months, I sold a portion of the Amazon position (the price seems quit rich for the stock and the portion of the portfolio it represented has increase due to the large gain) and I bought some additional Toyota (due to a good price and to increase the portion of the fund Toyota represented). In the last 6 months Toyota and Danaher have done particularly well.
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 | 361% | 10% | 7% | |
| Google – GOOG | 189% | 16% | 14% | |
| PetroChina – PTR | 110% | 7% | 6% | |
| Templeton Dragon Fund – TDF | 96% | 10% | 10% | |
| Templeton Emerging Market Fund – EMF | 70% | 5% | 6% | |
| Danaher – DHR | 47% | 10% | 10% | |
| Toyota – TM | 25% | 10% | 10% | |
| Apple – AAPL | 25% | 6% | 5% | |
| Intel – INTC | 2% | 5% | 7% | |
| Cisco – CSCO | -3% | 4% | 6% | |
| Tesco – TSCDY | -2%** | 0%* | 10% | |
| Pfizer – PFE | -20% | 5% | 7% |
The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.
Related: 12 Stocks for 10 Years: Oct 2010 Update – 11 Stocks for 10 Years, July 2010 Update – 12 Stocks for 10 Years, July 2009 Update – hand picked articles on investing
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Google finance has a nice new feature to let you chart your entire portfolio. You can then compare it to the S&P 500 or other stocks. This is a very nice feature. Yahoo Finance is about the only part of Yahoo I still use. I do use Google Finance some but they still fall short and I use Yahoo Finance much more. This feature will at least encourage me to put my portfolio in Google and start tracking it.
It would be great if this could give you portfolio annual rates of return (including factoring in cash additions and withdraws and keeping track of sales over time to show a true view of the portfolio). It does look like it will factor in stock purchases and sales which is very nice. You can import csv files with transaction history – another nice feature.
It also strikes me as a very smart move (as a Google stockholder that is nice to see) as advertising rates around investing are high. The more time Google can provide financial advertisers the more income they can make.
Related: Lazy Portfolios Seven-year Winning Streak – Google Posts Good Earning But Not Good Enough for Many (April 2010) – Dollar Cost Averaging – Curious Cat Investing Books
Buffett Rules Out Double-Dip Recession Amid Growth
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“I’ve seen sentiment turn sour in the last three months or so, generally in the media,” Buffett said. “I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.”
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[GE CEO] Immelt said. “We need people to be able to feel like they’re going to get loans, the process is going to work and that they understand the rules,” Immelt said. Signs across the world show growth improving as evidenced by a rise in GE’s orders
Related: Warren Buffet Webcast to MBAs – Global Economy Prospects Look Good But Also at Risk (June 2010) – Auto Manufacturing in 2009: USA 5.7 million, Japan 7.9 million, China 13.8 million