Situation: Food commodities are coming back in favor as investments, as protein sources are becoming more affordable. Demand for meat, milk, soybeans, and cereal grains is robust. Companies that help farmers and ranchers produce those protein-rich commodities stand to benefit.
Mission: Apply our standard spreadsheet to all of the companies on the 2016 Barron’s 500 List that support agricultural production, and have a 16-Yr trading record that has been analyzed statistically by the BMW Method.
Execution: see Table.
Administration: You’ll want to know how to invest in the companies that emerge from the ongoing need to consolidate operations: Potash is buying Agrium, Bayer is buying Monsanto, and duPont’s CEO will run the agricultural assets of duPont and Dow Chemical once that merger is completed. So, 5 of the 9 companies listed in the Table are “in play”; you can learn a great deal about what each company offers its merger partner by studying the Table.
Bottom Line: Companies that supply farmers with their tools for production are slowly emerging from a financial wasteland (caused by the overproduction of agricultural commodities). Their finances have improved only because of consolidating operations and dialing back production, which has been brought about through mergers: Dow Chemical with du Pont, Agrium with Potash, Syngenta with China National Chemical, Monsanto with Bayer. Only time will tell whether lean production will translate into enough demand to sustain these new companies. China will be the key source of demand, whether we’re talking about food commodities or solar panels.
Risk Rating: 8 (where 10-Yr Treasuries = 1, S&P 500 Index = 5, and gold bullion = 10)
Full Disclosure: I dollar-average into Monsanto (MON) and also own shares of Agrium (AGU).
NOTE: Metrics are current for the Sunday of publication. Red highlights denote under-performance vs. VBINX at Line 17 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256: Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = average stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 4-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% approximates Total Returns/yr from a stock index of similar risk to owning shares in a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index at Line 32 in the Table. The ETF for that index is MDY at Line 16. For bonds, Discount Rate = Interest Rate.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, May 28
Sunday, May 21
Week 307 - Silver Is Perhaps The Most Interesting Alternative Asset
Situation: Stocks and bonds have been at or near the tops of their historic valuations for over 5 years. No corner of those markets has been overlooked; “crowded trades” are everywhere. In such circumstances, investors will reach for value by looking at alternative asset classes. Real Estate Investment Trusts (REITs) are my favorite (see Week 274). The goal is to find assets that are a) “non-correlated”, i.e, have low Beta because price-action is often out-of-sync with the market, and b) have enough economic utility to occasionally generate Alpha, which is a high “return on investment that is not a result of general movement in the greater market.”
Why is silver interesting, given that it has only gained 3.9%/yr in value over the past 30 years? For comparison, the lowest-cost S&P 500 Index fund (VFINX) has gained 9.4%/yr and the lowest-cost investment-grade bond index fund (VBMFX) has gained 6.0%/yr. Reason #1: A key use for silver is growing exponentially, which is the build-out of solar power toward a United Nations goal of generating 30% of the planet’s electricity by 2030. Copper and aluminum can be used in solar panels instead of silver, but those substitutes are less efficient and have not proven to be commercially viable, partly because the amount of silver needed per solar panel continues to decrease.
Silver has a fascinating history. For example, in 1979 the Hunt brothers attempted to “corner” the silver market and were able to borrow enough money to buy 1/3rd of the world’s supply outside government hands. This resulted in more than a 700% price increase but brought attention to the high leverage used in purchasing commodities. After the commodity exchange (COMEX) adopted “Silver Rule 7” on January 7, 1980 (to restrict the ability of speculators to purchase commodities on margin), the price of silver promptly fell 50% and the Hunt brothers were unable to meet their bank’s margin call for $100 million. They ultimately declared bankruptcy.
Could this happen again? Yes. Silver prices fluctuate more dramatically than gold prices, since silver has greater industrial demand and lower market liquidity. The rapid proliferation of solar panels will no doubt aggravate that problem; sovereign wealth fund managers will be tempted to hoard silver. Let’s do the math. World silver reserves are just under 600,000 tons. Solar panels in currently contain ~2/3rds of an ounce of silver: A ton of silver is consumed to make ~44,000 solar panels, and 4 panels are needed to make a kilowatt-hour (kWh) of electricity. So, a ton of silver generates 11,000 kWh. A billion kWh = 1 TWh (terawatt-hour). Currently, ~21,000 TW are used every hour on our planet (https://yearbook.enerdata.net/electricity-domestic-consumption-data-by-region.html). A goal of producing 30% of electricity from solar panels by 2030 implies that those panels would need to generate ~11,000 TW per hour (after allowing for population growth). A ton of silver generates 11,000 KW per hour, so a billion tons of silver is needed to generate 11,000 TW per hour. Assuming that an ~10-fold increase in efficiency will be achieved by then, only 100 million tons of silver will be required. World silver production in 2015 was ~31,000 tons. Multiply that by 13 yrs and you get ~400,000 tons. Adding that to the current reserve of 600,000 tons, you’d have one million tons available for all industrial uses on the planet through 2030. Where are the remaining 99 million tons going to come from?
Mission: Examine ways to invest in silver, using our standard spreadsheet analysis.
Execution: (see Table).
Administration: There are 4 ways to invest in silver:
1) Purchase ingots, coins, or shares in a silver ETF (SLV).
2) Purchase stock in a silver mining company, the largest and most successful being First Majestic Silver (AG).
3) Purchase stock in a financial company that loans money to silver miners in return for claims on the “stream” of the silver produced. The main silver-streaming company is Silver Wheaton (SLV) but the dominant company for financing both gold and silver mines (in return for gold royalties or a stream of silver production) is Franco-Nevada (FNV).
4) Purchase shares of a gold mining company that produces large amounts of silver as a by-product. Both companies having the largest reserves are based in Canada: Goldcorp (GG) and Barrick Gold (ABX).
Bottom Line: This is gambling, on steroids. To be successful, you’d need to have infinite patience and have enough time to update information on silver inventories every week, as well as work-in-progress for solar panels relative to demand. You can probably do well by gradually building a position in silver or the silver ETF (SLV). Professional stock pickers who focus on natural resources like to stick with the companies that a) have the largest reserves and b) develop new reserves at least as fast as they consume reserves. Barrick Gold (ABX) wins on both counts.
Risk Rating: 10 (where 10-Yr Treasuries = 1, S&P 500 Index = 5, and gold bullion = 10).
Full Disclosure: I have no silver-related holdings.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Why is silver interesting, given that it has only gained 3.9%/yr in value over the past 30 years? For comparison, the lowest-cost S&P 500 Index fund (VFINX) has gained 9.4%/yr and the lowest-cost investment-grade bond index fund (VBMFX) has gained 6.0%/yr. Reason #1: A key use for silver is growing exponentially, which is the build-out of solar power toward a United Nations goal of generating 30% of the planet’s electricity by 2030. Copper and aluminum can be used in solar panels instead of silver, but those substitutes are less efficient and have not proven to be commercially viable, partly because the amount of silver needed per solar panel continues to decrease.
Silver has a fascinating history. For example, in 1979 the Hunt brothers attempted to “corner” the silver market and were able to borrow enough money to buy 1/3rd of the world’s supply outside government hands. This resulted in more than a 700% price increase but brought attention to the high leverage used in purchasing commodities. After the commodity exchange (COMEX) adopted “Silver Rule 7” on January 7, 1980 (to restrict the ability of speculators to purchase commodities on margin), the price of silver promptly fell 50% and the Hunt brothers were unable to meet their bank’s margin call for $100 million. They ultimately declared bankruptcy.
Could this happen again? Yes. Silver prices fluctuate more dramatically than gold prices, since silver has greater industrial demand and lower market liquidity. The rapid proliferation of solar panels will no doubt aggravate that problem; sovereign wealth fund managers will be tempted to hoard silver. Let’s do the math. World silver reserves are just under 600,000 tons. Solar panels in currently contain ~2/3rds of an ounce of silver: A ton of silver is consumed to make ~44,000 solar panels, and 4 panels are needed to make a kilowatt-hour (kWh) of electricity. So, a ton of silver generates 11,000 kWh. A billion kWh = 1 TWh (terawatt-hour). Currently, ~21,000 TW are used every hour on our planet (https://yearbook.enerdata.net/electricity-domestic-consumption-data-by-region.html). A goal of producing 30% of electricity from solar panels by 2030 implies that those panels would need to generate ~11,000 TW per hour (after allowing for population growth). A ton of silver generates 11,000 KW per hour, so a billion tons of silver is needed to generate 11,000 TW per hour. Assuming that an ~10-fold increase in efficiency will be achieved by then, only 100 million tons of silver will be required. World silver production in 2015 was ~31,000 tons. Multiply that by 13 yrs and you get ~400,000 tons. Adding that to the current reserve of 600,000 tons, you’d have one million tons available for all industrial uses on the planet through 2030. Where are the remaining 99 million tons going to come from?
Mission: Examine ways to invest in silver, using our standard spreadsheet analysis.
Execution: (see Table).
Administration: There are 4 ways to invest in silver:
1) Purchase ingots, coins, or shares in a silver ETF (SLV).
2) Purchase stock in a silver mining company, the largest and most successful being First Majestic Silver (AG).
3) Purchase stock in a financial company that loans money to silver miners in return for claims on the “stream” of the silver produced. The main silver-streaming company is Silver Wheaton (SLV) but the dominant company for financing both gold and silver mines (in return for gold royalties or a stream of silver production) is Franco-Nevada (FNV).
4) Purchase shares of a gold mining company that produces large amounts of silver as a by-product. Both companies having the largest reserves are based in Canada: Goldcorp (GG) and Barrick Gold (ABX).
Bottom Line: This is gambling, on steroids. To be successful, you’d need to have infinite patience and have enough time to update information on silver inventories every week, as well as work-in-progress for solar panels relative to demand. You can probably do well by gradually building a position in silver or the silver ETF (SLV). Professional stock pickers who focus on natural resources like to stick with the companies that a) have the largest reserves and b) develop new reserves at least as fast as they consume reserves. Barrick Gold (ABX) wins on both counts.
Risk Rating: 10 (where 10-Yr Treasuries = 1, S&P 500 Index = 5, and gold bullion = 10).
Full Disclosure: I have no silver-related holdings.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, May 14
Week 306 - A-rated Dividend Achievers That Have Outperformed The S&P 500 For 25 Years At Lower Risk
Situation: Some companies have served investors well over the past 25 yrs, compared to an investment in the Vanguard 500 Index Fund (VFINX). If we define “gambling in the stock market” as a statistical probability of losing more than you would from VFINX in any given market calamity, we find that 10 of those outperforming companies aren’t gambles. As long as those companies retain their management culture, as well as their competitive advantages, they’ll continue to outperform at less risk vs. the S&P 500 Index.
Mission: Subject those 10 companies to our standard spreadsheet analysis, except that in calculating Net Present Value we’ll use the rate of price appreciation over the past 25 yrs instead of 16 yrs, i.e., the BMW Method.
Execution: see Table.
Administration: Our conditions for inclusion are that companies must meet a high standard of quality. S&P ratings for both their stock and bond issues cannot be lower than A-. Balance Sheets must be clean, meaning that Long-Term Debt cannot constitute more than a 1/3rd of total assets, Tangible Book Value cannot be negative (we grant a little leeway in the event of a recent acquisition), and dividends have to be paid from Free Cash Flow (FCF). Companies must have annual revenues that are high enough to warrant inclusion in the Barron’s 500 List of large US and Canadian companies.
Bottom Line: These 10 companies represent 6 of the 10 S&P Industries (see Column Z in the Table). Each stock’s predicted risk of loss (at 2 Standard Deviations below trendline price appreciation per the BMW Method) is less than the S&P 500 Index’s projected loss (see Column M in the Table). All 10 have positive NPVs at a 9% Discount Rate, suggesting that you’re likely to realize at least a 9%/yr total return over a 10 year Holding Period, whereas VFINX has a negative NPV (see Column Y in the Table). Hormel Foods (HRL) and NextEra Energy (NEE) have the highest NPVs.
Risk Rating: 5 (10-yr Treasury Notes = 1, S&P 500 Index = 5, gold = 10)
Full Disclosure: I dollar-average into NEE, and own shares of TRV, ABT, MMM, and HRL.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote under-performance vs. VBINX at Line 18 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256: Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = average stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 3-Yr CAGR found at Column H. Price Growth Rate is the 25-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% approximates Total Returns/yr from a stock index of similar risk to owning shares in a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index at Line 23 in the Table. The ETF for that index is MDY at Line 17. For bonds, Discount Rate = Interest Rate.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Mission: Subject those 10 companies to our standard spreadsheet analysis, except that in calculating Net Present Value we’ll use the rate of price appreciation over the past 25 yrs instead of 16 yrs, i.e., the BMW Method.
Execution: see Table.
Administration: Our conditions for inclusion are that companies must meet a high standard of quality. S&P ratings for both their stock and bond issues cannot be lower than A-. Balance Sheets must be clean, meaning that Long-Term Debt cannot constitute more than a 1/3rd of total assets, Tangible Book Value cannot be negative (we grant a little leeway in the event of a recent acquisition), and dividends have to be paid from Free Cash Flow (FCF). Companies must have annual revenues that are high enough to warrant inclusion in the Barron’s 500 List of large US and Canadian companies.
Bottom Line: These 10 companies represent 6 of the 10 S&P Industries (see Column Z in the Table). Each stock’s predicted risk of loss (at 2 Standard Deviations below trendline price appreciation per the BMW Method) is less than the S&P 500 Index’s projected loss (see Column M in the Table). All 10 have positive NPVs at a 9% Discount Rate, suggesting that you’re likely to realize at least a 9%/yr total return over a 10 year Holding Period, whereas VFINX has a negative NPV (see Column Y in the Table). Hormel Foods (HRL) and NextEra Energy (NEE) have the highest NPVs.
Risk Rating: 5 (10-yr Treasury Notes = 1, S&P 500 Index = 5, gold = 10)
Full Disclosure: I dollar-average into NEE, and own shares of TRV, ABT, MMM, and HRL.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote under-performance vs. VBINX at Line 18 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256: Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = average stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 3-Yr CAGR found at Column H. Price Growth Rate is the 25-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% approximates Total Returns/yr from a stock index of similar risk to owning shares in a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index at Line 23 in the Table. The ETF for that index is MDY at Line 17. For bonds, Discount Rate = Interest Rate.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, May 7
Week 305 - Dogs of the Dow
Situation: We all know that Compound Interest is the most powerful force in the investing universe but the second most powerful force is less well known: Reversion to the Mean. That’s the force that makes many of the poorly-performing stocks from the last business cycle look good in the next business cycle. How this “magic” works is through the decisions made by investors, who either don’t put more money into a good but overbought stock (thereby marking its “high”), or do put more money into that same stock after it has become oversold (thereby marking its “low”). In the case of large and well-established companies, this “now I like it/now I don’t” oscillation can evolve faster than the normal business cycle; but for commodity-related companies it will evolve slower. Investors are eager to know when a “low” has been reached for actively traded stocks, such as those in the 30-stock Dow Jones Industrial Average (DJIA). That’s why we have “The Dogs of the Dow,” a respected investment theory that identifies high-quality but temporarily struggling stocks by their attractive dividend yields. Most DJIA stocks pay an above-market dividend, which that may go up or remain unchanged but will almost never go down. If the stock drifts lower in price, investors will be alerted to this by its rising dividend yield. Why? Because they’re getting paid more to own the stock and will tell their friends.
“Proponents of the Dogs of the Dow strategy argue that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with a high dividend relative to stock price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low-yield companies.”
At the end of each year, “Dogs” are identified as the 10 highest-yielding stocks DJIA. “Dogs of the Dow Theory” instructs you to invest equal dollar amounts in each of those 10 stocks in the first week of January. You can be certain that some of those stocks will show remarkable price appreciation over the next 12 months, but most won’t. By following this Theory, your odds of beating the DJIA are better than even, but most investors think they can improve on the odds by “winnowing out” companies having a business plan that appears likely to remain ineffective longer than a year.
Mission: Subject the 2017 Dogs of the Dow to our spreadsheet-based analysis.
Execution: see Table. Metrics highlighted using purple mark issues that will reduce the chances of that stock outperforming the DJIA this year.
Bottom Line: A great deal of research backs up Dogs of the Dow Theory. And, it has more value that Dow Theory in generating an series of Buy Signals. If you learn nothing else from our blog, learn Dow Theory and use it to ignore market pundits.
The thing to understand about the Dogs of the Dow strategy is that you aren’t going to restructure your equity portfolio every January by seeking to own equal dollar amounts of all 10 Dogs. But the list is very useful when Dow Theory is generating "Buy" signals. On such occasions, find a way to winnow the list down to 4 or 5 stocks and buy shares in companies you don’t already own. The most popular method is to pick the 5 lowest-priced, which have come to be called “Small Dogs of the Dow”. This year’s Small Dogs are Coca-Cola (KO), Verizon Communications (VZ), Merck (MRK), Pfizer (PFE) and Cisco Systems (CSCO). Two of those stocks, VZ and MRK, have S&P ratings of B/M, i.e., a clear message to the retail investor that these are best avoided.
Of the remaining 3, Coca-Cola (KO) shares are likely to be the most “safe and effective” to own. Emerging markets are past the Great Recession and starting to grow, giving Coke an opportunity to capitalize on its dominant position in countries where the middle class is growing at 10%/yr.
CSCO is attractive for a different reason. Companies around the world are finally increasing their capital expenditures faster than GDP. Computers and software are the fastest-growing class of capital expenditures. Cisco Systems (CSCO) has been increasing its sales and earnings faster that expected, and the company has been aggressively raising its dividend (see Column H in the Table).
Returning to the full list of 10 companies, Boeing (BA) is the hands-down winner in terms of Net Present Value (see Column Y in the Table) and has no serious issues with its balance sheet (see Columns P-R). As noted above, companies are investing more in computer-managed equipment and nothing tops aircraft in that regard. For example, the Department of Defense and NASA spend over $20 Billion a year on Boeing equipment. One thing you can be sure of under President Trump is that he will ramp up expenditures on right-wing jobs programs like the military. IBM also will benefit from the above-noted increase in corporate spending on capital equipment.
Risk Rating: 6 (where 10-Yr Treasury Notes = 1, S&P 500 Index = 5, and gold bullion = 10)
Full Disclosure: I dollar-average into both KO and IBM.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote under-performance vs. VBINX at Line 18 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256: Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = average stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 3-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% approximates Total Returns/yr from a stock index of similar risk to owning shares in a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index at Line 24 in the Table. The ETF for that index is MDY at Line 17. For bonds, Discount Rate = Interest Rate.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
“Proponents of the Dogs of the Dow strategy argue that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company; the stock price, in contrast, fluctuates through the business cycle. This should mean that companies with a high yield, with a high dividend relative to stock price, are near the bottom of their business cycle and are likely to see their stock price increase faster than low-yield companies.”
At the end of each year, “Dogs” are identified as the 10 highest-yielding stocks DJIA. “Dogs of the Dow Theory” instructs you to invest equal dollar amounts in each of those 10 stocks in the first week of January. You can be certain that some of those stocks will show remarkable price appreciation over the next 12 months, but most won’t. By following this Theory, your odds of beating the DJIA are better than even, but most investors think they can improve on the odds by “winnowing out” companies having a business plan that appears likely to remain ineffective longer than a year.
Mission: Subject the 2017 Dogs of the Dow to our spreadsheet-based analysis.
Execution: see Table. Metrics highlighted using purple mark issues that will reduce the chances of that stock outperforming the DJIA this year.
Bottom Line: A great deal of research backs up Dogs of the Dow Theory. And, it has more value that Dow Theory in generating an series of Buy Signals. If you learn nothing else from our blog, learn Dow Theory and use it to ignore market pundits.
The thing to understand about the Dogs of the Dow strategy is that you aren’t going to restructure your equity portfolio every January by seeking to own equal dollar amounts of all 10 Dogs. But the list is very useful when Dow Theory is generating "Buy" signals. On such occasions, find a way to winnow the list down to 4 or 5 stocks and buy shares in companies you don’t already own. The most popular method is to pick the 5 lowest-priced, which have come to be called “Small Dogs of the Dow”. This year’s Small Dogs are Coca-Cola (KO), Verizon Communications (VZ), Merck (MRK), Pfizer (PFE) and Cisco Systems (CSCO). Two of those stocks, VZ and MRK, have S&P ratings of B/M, i.e., a clear message to the retail investor that these are best avoided.
Of the remaining 3, Coca-Cola (KO) shares are likely to be the most “safe and effective” to own. Emerging markets are past the Great Recession and starting to grow, giving Coke an opportunity to capitalize on its dominant position in countries where the middle class is growing at 10%/yr.
CSCO is attractive for a different reason. Companies around the world are finally increasing their capital expenditures faster than GDP. Computers and software are the fastest-growing class of capital expenditures. Cisco Systems (CSCO) has been increasing its sales and earnings faster that expected, and the company has been aggressively raising its dividend (see Column H in the Table).
Returning to the full list of 10 companies, Boeing (BA) is the hands-down winner in terms of Net Present Value (see Column Y in the Table) and has no serious issues with its balance sheet (see Columns P-R). As noted above, companies are investing more in computer-managed equipment and nothing tops aircraft in that regard. For example, the Department of Defense and NASA spend over $20 Billion a year on Boeing equipment. One thing you can be sure of under President Trump is that he will ramp up expenditures on right-wing jobs programs like the military. IBM also will benefit from the above-noted increase in corporate spending on capital equipment.
Risk Rating: 6 (where 10-Yr Treasury Notes = 1, S&P 500 Index = 5, and gold bullion = 10)
Full Disclosure: I dollar-average into both KO and IBM.
NOTE: Metrics are current for the Sunday of publication. Red highlights denote under-performance vs. VBINX at Line 18 in the Table. Purple highlights denote Balance Sheet issues and shortfalls. Net Present Value (NPV) inputs are described and justified in the Appendix to Week 256: Briefly, Discount Rate = 9%, Holding Period = 10 years, Initial Cost = average stock price over the past 50 days (corrected for transaction costs of 2.5% when buying ~$5000 worth of shares). Dividend Growth Rate is the 3-Yr CAGR found at Column H. Price Growth Rate is the 16-Yr CAGR found at Column K (http://invest.kleinnet.com/bmw1/). Price Return (from selling all shares in the 10th year) is corrected for transaction costs of 2.5%. The Discount Rate of 9% approximates Total Returns/yr from a stock index of similar risk to owning shares in a small number of large-cap stocks, where risk due to “selection bias” is paramount. That stock index is the S&P MidCap 400 Index at Line 24 in the Table. The ETF for that index is MDY at Line 17. For bonds, Discount Rate = Interest Rate.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
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