Use access key #2 to skip to page content.

I'll gladly pay you Tuesday for a hamburger today.

Recs

28

January 16, 2009 – Comments (12)

 

My investment philosophy has dramatically shifted over the past couple of years.  I now focus on buying stock in and bonds of companies that have tremendous yields.  No more of this "I'll gladly pay you Tuesday for a hamburger today" waiting for someone to pay me more for something than I originally paid for it, thanks.

Capital gains are nice and if I do a good job at buying things on the cheap, they will eventually come...BUT I strongly believe that at best, the earnings of most companies will be flat to down over the next year or two and the multiples that investors are willing to pay for these companies are likely to remain at a depressed level for some time, both because of economic weakness and a loss of confidence caused by scandals like Madoff, Satyam, and myriad of other events.

I realize that the dividends of many companies will come under pressure as the economy struggles, so I have been focusing on rock solid blue chip companies with low payout ratios, companies with outstanding moats like pipelines and power companies, and things that have a higher claim on assets and earnings than common stock does has like preferred stock and bonds.  Just yesterday, I picked up shares of inflation protected preferred stock in a company that the government has been and will continue to shovel money into which yield over 9% and a corporate bond of a solid company that has five years left on it with an annual yield to maturity of over 10%.

I'm on the fence about where the economy is headed right now.  As it usually is, I think that the truth lies somewhere in the middle, between the "this is the end of life as we know it" and "we should see a recovery in the second half of '09" crowds.  We will probably experience the worst recession since the Great Depression and it will likely last until at least some time in early 2010.  Even when things stop deteriorating, I don't expect them to bounce back quickly. 

However, I have said it before and I'll say it again, this is not going to be anything like the Great Depression.  There are too many differences between what happened then and what is happening today.  The government will spend, spend, spend and the Fed / Treasury will print money until it the printing presses break to prevent a depression from happening.  This may not be the ideal solution, some would argue that we would be better off taking our medicine now rather than suffering the consequences of this unprecedented government intervention, which will likely be higher taxes and slower growth for many, many years and possibly higher interest rates and a precipitous drop in the value of the U.S. dollar.

There are some amazing deals out there right now in terms of yields in this sort of environment.   Yields like this just weren't available over the past decade because there was so much leverage being used and so little risk aversion out there that even things like the junkiest of junk bonds weren't yielding that much more than treasuries.  Fear is back and it's good for those who are seeking high yielding investments. 

I am now able to buy investments that will pay me to hold onto them even if the economy takes years to recover and never resumes the leverage-fueled growth that we have experienced over the past two decades.  Even if interest rates begin to rise, I'll gladly take 8%, 9%, 10% returns on my money given what is going on right now.  I have picking up assets with tremendous yields and I have been spreading my bets around so if any one company implodes I will not experience much pain.

That's all I have for now.

Deej

12 Comments – Post Your Own

#1) On January 16, 2009 at 9:50 AM, ocsurf (< 20) wrote:

"Just yesterday, I picked up shares of inflation protected preferred stock in a company that the government has been and will continue to shovel money into which yield over 9% and a corporate bond of a solid company that has five years left on it with an annual yield to maturity of over 10%."

Care to share this company with us?

Report this comment
#2) On January 16, 2009 at 10:09 AM, TMFDeej (99.24) wrote:

Thanks for reading ocsurf.  Unfortunately TMF rules prevent me from discussing any companies within 10 days of trading them.  I'd be happy to tell you what it was if you check back with me 10 days from now.

Deej

Report this comment
#3) On January 16, 2009 at 10:14 AM, TMFDeej (99.24) wrote:

I just came across an article that interestingly seems to contain many of the same ideas same thesis that I just posted, that the government will keep spending as much as it has to in an effort to prop up the ailing the economy, that things will be bad throughout 2009, and that the recovery will be slow. 

Unfortunately, I don't have sound on this computer so I'll post a link to the piece and the interview below as much for my own benefit as anything.  I'll listen to the intereview with John Mauldin tonight.  I suspect that it is pretty good, his "Thoughts from the Frontline" newsletter usually is. 

Trillions More: Govt. Will Keep Spending Until Economy Reflates, Mauldin Says

 

Deej

Report this comment
#4) On January 16, 2009 at 10:15 AM, Mary953 (78.84) wrote:

10 days from now, I'll be watching too.  I hope that includes the corporate bond as well.  ;-)

Report this comment
#5) On January 16, 2009 at 10:16 AM, Mary953 (78.84) wrote:

10 days from now, I'll be watching too.  I hope that includes the corporate bond as well.  ;-)

Report this comment
#6) On January 16, 2009 at 10:27 AM, saunafool (98.78) wrote:

I'm with you. When I'm screening for buys these days, I have dividend yield set at a minimum of 4%. The short list of high yields with billions of cash with little or no debt:

INTC

NOK

PFE

I own NOK and PFE, will probably buy more, and will probably add INTC in the near future.

Report this comment
#7) On January 16, 2009 at 10:49 AM, TMFDeej (99.24) wrote:

Thanks for the list sauna.  I own PFE and like it, despite its flaws.

I don't own INTC and NOK because they are a little too tied to discretionary spending for my taste, but I can certainly see why one would find Intel attractive at this level.

Deej

Report this comment
#8) On January 16, 2009 at 11:03 AM, darroj (28.87) wrote:

I've been looking along similar lines recently.  Been looking at PFE for a about a month now.  Purchased more PM, MO, GE, also picked up NWL. I do eagerly await for 10 days to pass also though :)

Report this comment
#9) On January 16, 2009 at 12:03 PM, TMFDeej (99.24) wrote:

Excellent choices, darroj.  I personally own PM, MO, and GE.  For various reasons, I wouldn't go overweight any of them. 

On MO my reason is constant legislative and lawsuit risks here in the U.S. as well as the recently passed tax increase.

On PM it's the large push by charities like Bloomberg's to bash smoking internationally and the eroding margins caused my a shift in sales to cheaper products.

On GE it's the obvious black box that is GE Capital and the slowing economy.

However, I have smaller positions in all three and like all of them.

I don't own any Rubbermaid, but it looks fairly attractive at this level...other than that slug of debt that it has on the books.  I may have to take a closer look at it.  Thanks for the idea.

Deej

Report this comment
#10) On January 16, 2009 at 1:27 PM, darroj (28.87) wrote:

Thanks for the reply Deej! 

PM is my biggest holding (though I'm pretty diverse, PM is about 1/7 of my portfolio, but some of that is the fact that PM didn't go down nearly as much as everything else.) Still hoping for them to start serious production in China.

Agree with you on MO, but I picked it up below 15, couldn't resist.

I'm pretty light in GE, but at 13 I may add a few more shares.

NWL I also picked up cheap, after they said they won't hit 4q earnings (stock dropped from 13 to 9). I like Calphalon products, and they have lots of other big names - My Pitch

Can you share any more insight on PFE? Stock hasn't done too well over the last 5 years, which is making me look at more of a safer JNJ play.

Other things on the radar: DOW, AA, DEO, HNP 

Report this comment
#11) On January 16, 2009 at 5:07 PM, binve (< 20) wrote:

Thanks Deej. As always I love your blogs, they are always very thoughtful. And thanks for the Maudlin interview. I read Thoughts from the Frontline whenever I can.

Report this comment
#12) On January 26, 2009 at 6:33 PM, darroj (28.87) wrote:

Deej, are we talking 10 calendar days or business days? :) Share some secrets.

Report this comment

Featured Broker Partners


Advertisement