Saturday, March 7, 2009
Who is doing well despite all of the economic problems? I noticed that one of Dan Ferris' old Penny Letter stocks, Sturm, Ruger, hit a new all-time high recently.
And Tom Dyson's 12% Letter pick McDonald's is thriving, too. More than 58 million people are dining at McDonald's every day – an all-time record. The stock is down a bit from its highs, but pays a 3.5% dividend. Even better, Tom found a way to "juice" that return to 20% over a seven-month period. He calls it "Dividend Capture."
One of the things we thought we might see near the bottom of this bear market was a refutation of buy-and-hold investing.
We simply figured by the time the great bull market of 1982-2007 was finally and really dead, the mantra of the period would end up in disrepute. We figured the great apostles of buy and hold – like the publishers at The Motley Fool – would end up being wiped out and discredited. (In all fairness, our own buy-and-hold disciple, Dan Ferris, has suffered his own share of reversals lately, too.)
But quite honestly, it didn't occur to us to think about the likely fate of the world's leading "buy and hold" philosopher: Warren Buffett.
According to the always insightful Jeff Matthews, Buffett's losses in 2008 wiped out all of his accrued gains. Specifically, looking at Buffett's largest positions, his portfolio was worth $72 billion at the end of 2007. And today? The value of Buffett's portfolio has declined by approximately $35 billion – a loss of more than 50%.
Currently, the total value of Buffett's portfolio is $37 billion, which happens to be almost exactly the same amount of money he's invested over the decades. Thus, after a roughly 35-year investment career, Buffett's total capital gain, as of today, is about zero.
Thinking about what happened to Buffett's portfolio, thinking about the few "round trips" in my own recommended portfolios (Nokia, anyone?), and realizing the Dow is back to the same levels it was when I began my career in finance, nearly 15 years ago, I have never been so convinced about the importance of trailing stop losses. A profit isn't real until you take it.
The Mortgage Bankers Association reports that in the fourth quarter of last year, almost 12% of all U.S. residential mortgages were delinquent, meaning they were either late on their payments or in foreclosure... That's about 5.4 million homeowners.
New foreclosures have remained essentially flat the last three quarters. That's because lending servicers are working with loan modifications and some borrowers are running 90 days behind on purpose so they can qualify for special programs.
That makes sense, considering who owns about 63% of the mortgage servicing market: Bank of America (21.13% market share), Wells Fargo (18.3%), JPMorganChase (15.44%), and CitiMortgage (8.32%).
First of all, these companies don't want huge numbers of foreclosed properties on their hands. Second – and just as important – they want everyone to know how wonderful they are for working with delinquent borrowers, perhaps to avoid political backlash over the fact that they've been handed a government-financed oligopoly.
Banking is the most overregulated industry in the United States. No coincidence, it's also one of the least competitive and completely screwed up.
Jim Rogers hit the media circuit last week, telling CNBC the U.S. government should let AIG go bankrupt.
The insurer recently announced a $61 billion fourth-quarter loss – the largest ever for a U.S. company – and received an additional $30 billion in government funds (it already received $150 billion). Rogers argues "AIG has trillions of dollars of obligations, let them fail, let the courts sort it out and start over. Otherwise we'll never start over."
Rogers pointed to Japan's "lost decade," which was caused by trying to bail out the banks... "The idea that you have too much debt, too much borrowing, and too much consumption and you're going to solve that problem with more debt, more consumption, and more borrowing? These people are nuts."
Rogers also argues power is moving away from "money shifters" to people who produce real goods. He advocates becoming a farmer. "We're still going to eat, probably; we're still going to wear clothes, probably. Farmers cannot get loans for fertilizers right now. So the supplies of everything are going to continue to be under pressure," Rogers said.
If you're a Jim Rogers fan (and we definitely are), you've got to read his most recent interview... Rogers offers up one of his best rants of all time. Read the interview on The Daily Crux, here...
Date Range:2/26/2009 to 3/5/2009
Date Range:2/26/2009 to 3/5/2009