Capitulation! Throwing in the Towel to Ride the Bull

Ride the BullWMTForget owning gold bullion and “cheap” precious metals mining companies  that are priced for bankruptcy or dissolution. The pain of temporary underperformance is too great. I have always liked franchise-type companies and now it is time to ride the trend. I will buy these companies this morning. How will I fare over the coming years?

WMT_VLCLX

CLX_VLGIS

GIS_VLJNJ

JNJ_VL

How do you think these investments will turn out? Why? Will this happen?

FALLING OFF TRHE BULLNot a chance with the Fed guarantee of any buy the dip strategy. What alternative do you have than buying Fed-juiced stocks?

See Video below. Schiff gets laughed at for suggesting gold.

When the Fed gets the economy to “escape velocity” then it will be able “exit” QE-to-infnity. Yes, when we see a herd of elephants flying over New York City, then we will know that day has come.

I don’t want to be like Seth Klarman–foolishly conservative: http://www.zerohedge.com/news/2013-05-05/seth-klarman-expains-when-investing-its-hardest-and-why-he-not-joining-momentum-trad

Most U.S. investors today have a clear opinion about what everyone else has no choice but to do. Which is to say, with bonds yielding next to nothing, the only way investors have a chance of earning a return is to buy stocks. Everyone knows this, and is counting on it to remain the case. While economist David Rosenberg at Gluskin Sheff believes government actions could be directly or indirectly responsible for as many as 500 points in the S&P 500, or 30% of its current valuation, traders have confidence in Ben Bemanke because betting that his policies will drive equities higher bas been a profitable wager. Bernanke, likewise, is undoubtedly pleased with these speculators for abetting his goal of asset price inflation, though we all know that he will not call them first when he decides to reverse direction on QE. Then, the rush for the exits will be madness, as today’ s “clarity” will have dissolved, leaving only great uncertainty and probably significant losses.

Investing, when it looks the easiest, is at its hardest. When just about everyone heavily invested is doing well, it is hard for others to resist jumping in. But a market relentlessly rising in the face of challenging fundamentals–recession in Europe and Japan, slowdown in China, fiscal stalemate and high unemployment in the U.S.– isthe riskiest environment of all.

 

6 responses to “Capitulation! Throwing in the Towel to Ride the Bull

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  2. You might not do that badly if you measure your performance as change in book value + dividends.

    But if you take $10,000 and buy GIS at a P/B of almost 5, you’re only getting $2000 of their book value. If dividends + change in BV/S give you $2300 a year from now, have you made 15% or lost 77% in that first year (since the $10K in cash on YOUR B/S has been replaced with a position now carried at $2300).

  3. …actually, I guess that $10K in cash initially becomes $2K BV in GIS and $8K of “goodwill”.

    At year end you’d still have $8K of goodwill (no longer amortized under GAAP) and $2.3K in GIS BV, for a 3% total change in your BV.

    Can’t get away from having to watch the price you pay.

  4. All four are good franchises (high ROE, ROIC, increasing sales and CF, share buybacks, and stable/increasing margins) , but none of them are selling at a discount, so I wouldn’t expect anything greater than average returns going forward. Still, you could do a lot worse.

  5. Great post John… Just like KO or WMT in 1998 or JNJ in 2005, even the greatest franchises in the world can have their stocks yield 0% returns for years… sometimes a decade or longer if purchased too high. Time is only an acquaintance (not true friend) of the great business at these prices.

  6. Pingback: Collected Wisdom from the Blogosphere | Absolute Return

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