I'm not sure I would fully agree with Mark Cuban. What was the full context of his quote? Taken to some extreme, everything is worth only what you can convince someone to pay for it. Nothing would have any intrinsic value. We could be talking about cars, shoes, soda pop, or stocks. Look at Berkshire Hathaway and all the cash it has and all the cash it produces. Seeking Alpha says the P/B ratio is 1.64. What would the extra 0.64 be? You're also buying the management and the security and growth they provide through prudent capital allocation. Plus, you get admission to Berkshire's annual meeting. 🥰 That's got to be worth something too, right? 😉
The "Sure Dividend" article by Ben Reynolds provides a pretty good framework. It's easy to understand and easy to follow. 👍 I'm saving it into my collection of "Compounding" articles. I would tweak some of the rules. 👀
Rule #1. I'm OK with shortening the historical window from 25 years to 15 - 17 years. That window of time will take us back to the GFC. Going back further is looking at social and economic conditions that may not be as relevant. People's habits and the technology they use to scratch those habits have changed. Business operation and management practices have changed significantly. I understand the point being to see how the company behaved and operated under different economic conditions but I'm not sure we can necessarily apply all the lessons from 1999 in 2024 as we could have applied them in 2007. Otherwise, why stop at 1999? Some companies, like Coca-Cola, could be examined back even further! 💪
Rule #6. Rather than give a hard limit to the P/E ratio I would say look for a rate of change, especially after it exceeds a hurdle like +10% over historical averages. If the P/E starts growing high, quickly then question the business holding. 📈
Rule #8. The point of this is to diversify but what kind of diversification would you have if your 12 to 18 stocks are of businesses in the same sector or industry? You could be building up some kind of common systemic risk. In this case, I think it would be OK to be a little bit of a "stock collector" and own businesses that do not fully relate to each other. Have 2 or 3 financials, 2 or 3 industrials, 2 or 3 consumer staples, 2 or 3 REITs, etc. And it's OK to have the common stock and the preferred stock counted together as 1 holding. This rule can bring up a lot of good conversations about portfolio management and sizing. Do you own enough of each business so the dividend payment is the same from each company? Do you put more into companies with lower valuations despite a lower dividend payout? I don't think there is a right or wrong answer. It's a matter of what do you want more along the way.
Each rule by itself, if taken to an extreme, can be risky. Using all the rules together to balance each other out will be harmonious. 😊
On Rule #1 - choosing how far back to look at things is tough. I tend to go with the "focus on the things that wont' change" approach myself. Jeff Bezos took this approach, and Morgan Housel's latest book "Same As Ever" is on the same theme. People will like the taste of a cold Coke no matter the economic conditions, trends, or social norms. That's probably why you can examine it so far back!
Taken to extremes, most things can be risky 😀 too much diversification dilutes your results, too much concentration can be a disaster (if you get it wrong). The PE thing to extremes is interesting, selling too early and holding to too high of a PE both likely sacrifice future gains. Selling too early makes you miss out on the ride up. Holding too long means you have to wait for the earnings to grow into the valuation.
These are the kinds of things that make investing interesting though!
I'm not sure I would fully agree with Mark Cuban. What was the full context of his quote? Taken to some extreme, everything is worth only what you can convince someone to pay for it. Nothing would have any intrinsic value. We could be talking about cars, shoes, soda pop, or stocks. Look at Berkshire Hathaway and all the cash it has and all the cash it produces. Seeking Alpha says the P/B ratio is 1.64. What would the extra 0.64 be? You're also buying the management and the security and growth they provide through prudent capital allocation. Plus, you get admission to Berkshire's annual meeting. 🥰 That's got to be worth something too, right? 😉
The "Sure Dividend" article by Ben Reynolds provides a pretty good framework. It's easy to understand and easy to follow. 👍 I'm saving it into my collection of "Compounding" articles. I would tweak some of the rules. 👀
Rule #1. I'm OK with shortening the historical window from 25 years to 15 - 17 years. That window of time will take us back to the GFC. Going back further is looking at social and economic conditions that may not be as relevant. People's habits and the technology they use to scratch those habits have changed. Business operation and management practices have changed significantly. I understand the point being to see how the company behaved and operated under different economic conditions but I'm not sure we can necessarily apply all the lessons from 1999 in 2024 as we could have applied them in 2007. Otherwise, why stop at 1999? Some companies, like Coca-Cola, could be examined back even further! 💪
Rule #6. Rather than give a hard limit to the P/E ratio I would say look for a rate of change, especially after it exceeds a hurdle like +10% over historical averages. If the P/E starts growing high, quickly then question the business holding. 📈
Rule #8. The point of this is to diversify but what kind of diversification would you have if your 12 to 18 stocks are of businesses in the same sector or industry? You could be building up some kind of common systemic risk. In this case, I think it would be OK to be a little bit of a "stock collector" and own businesses that do not fully relate to each other. Have 2 or 3 financials, 2 or 3 industrials, 2 or 3 consumer staples, 2 or 3 REITs, etc. And it's OK to have the common stock and the preferred stock counted together as 1 holding. This rule can bring up a lot of good conversations about portfolio management and sizing. Do you own enough of each business so the dividend payment is the same from each company? Do you put more into companies with lower valuations despite a lower dividend payout? I don't think there is a right or wrong answer. It's a matter of what do you want more along the way.
Each rule by itself, if taken to an extreme, can be risky. Using all the rules together to balance each other out will be harmonious. 😊
On Rule #1 - choosing how far back to look at things is tough. I tend to go with the "focus on the things that wont' change" approach myself. Jeff Bezos took this approach, and Morgan Housel's latest book "Same As Ever" is on the same theme. People will like the taste of a cold Coke no matter the economic conditions, trends, or social norms. That's probably why you can examine it so far back!
Taken to extremes, most things can be risky 😀 too much diversification dilutes your results, too much concentration can be a disaster (if you get it wrong). The PE thing to extremes is interesting, selling too early and holding to too high of a PE both likely sacrifice future gains. Selling too early makes you miss out on the ride up. Holding too long means you have to wait for the earnings to grow into the valuation.
These are the kinds of things that make investing interesting though!