Tom's Comments

Reinvesting When Terrified

'Reinvesting When Terrified' is the title of a column written by Jeremy Grantham in March 2009. This column is full of most interesting ideas and certainly worth finding…especially if you are thinking you'd like to buy a stock. “you absolutely must have a battle plan for reinvestment and stick to it”, Jeremy Grantham says. Grantham's article is one page long…a PDF file. Here are Grantham's last two sentences: “Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”

Jeremy Grantham was the one who, over the last few years when stock prices were rising madly (Connolly Report p.544 Dec '03), said it was the greatest sucker rally in history. Grantham was correct, of course. The annual return on the S&P 500 over the last ten years to February 28 2009 was minus 5.1%. The TSX over the same period: 2.6%. Talk about a lost decade! I found Grantham's article at

· 2009/03/22 10:53 · Tom Connolly

Investors' odds are improving

Again, from The Economist, another terrific Buttonwood column…very upbeat. Here is my favourite sentence: ”…investors can get a dividend income from equities (even allowing for the likelihood of reduced payouts) that is a multiple of the returns available from cash deposits”

Financial Epochs

“FINANCIAL EPOCHS come and go on little cat feet. Nobody issues a press release to herald their arrival. And no one rings a bell to toll their departure. One day people wake up to discover that the world has changed.” This is the way James Grant introduced the last chapter in his 2008 book Mr. Market Miscalculates. Who am I to say, but I think James Grant is right: we are in a whole new ball game. The cat has quietly gone buy:-)

Here's the way Mr Grant ended his book: “If we are wrong about all this, we will have touted our readers off a possible move into Treasury securities to dramatic new lows in yield. But that risk we judge to be far less costly than a move to much higher yields on the back of an inflation rate not much higher than the one the market is ignoring today (May 2 2008).” 412 What is James Grant saying? Full book report on Mr Market Miscalculates inside

· 2009/03/04 07:55 · Tom Connolly

Letter to Shareholders 2009

This year's letter (22 pages) from the chairman (Warren Buffett) is a better read than normal. Here are a few of my favourite sentences:

  • 4 “We're certain, for example, that the economy will be in shambles throughout 2009 - and, for that matter, probably well beyond - but that conclusion does not tell us whether the stock market will rise or fall.”
  • 5 “When investing, pessimism is your friend, euphoria the enemy.”
  • 5 “We like buying underpriced securities . . .”
  • 7 “we…hold the purchased companies through thick and thin (though we prefer thick and thicker)”
  • Mr Buffett's brief comments on the new “leveraged-buyout operators” now re-labeled “private equity” were marvelous. 7

If you are into this type of reading, but do not have much time, be certain to read pages 15, 16 and 17 of this PDF file. It is loaded with a variety of most interesting comments are many topics. On page 16, for instance, this sentence.

  • “Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long.”
  • Connolly Comment - Beware of people who claim to speak in Mr. Buffet's name. Read the words of 'The Charirman' himself. An exception would be Chapter 9 about Warren Buffet in Value Investing from Graham to Buffett and Beyond by Greenwald et all, 2001. This is my favourite value investing text, especially the chapter on Seth Klarman from page 231. I must get my book report on Value Investing from Graham to Buffett and Beyond posted sometime.
· 2009/03/01 08:54 · Tom Connolly

Down from what?

On February 25 the Caisse de dépôt said it was down $39.8 billion in 2008. Down from what?

In January 1929 Consolidated Edison was trading at $202 in New York. By August it was $450. I could not find the price on December 31 1929, but suppose Consolidated Edison was $200 at the end of the year, did the shareholder lose money? I should look up the price in July of 1932…the nadir of the market. Top to bottom, they say, the market lost 88% of its value back them. But did it really? $450 was a giddy price for Consolidated Edison in the summer of 1929. I should try to find if its dividend was reduced over this period.

Foolishly, the Caisse bought too much ABCP, but I'd bet its assets are still producing income. How should we measure performance? Many of our stock prices are down, but, in sum, our dividends are up. I bought common stocks for the growing income they provide. The plan is working. When I get around to preparing our income tax forms, I'll work out our dividend growth for 2008. We spend the income, not the capital. Well actually we did spend some capital last year…a 'new' car in April. I have not yet borrowed to buy the stock we sold back. Soon perhaps…

Here's another 1930s example. This one is from The Battle for Investment Survival by Gerald M. Loeb which was written in 1935. In 1929, at the peak, Dupont was trading at $58. The low was $5.50 in 1932. It took until 1949 for duPont to reach its 1929 peak again. In my view, neither of those facts are relevent. How many people bought DuPont at the peak. In 1929 DuPont's dividend was $1.48 a share. The dividend was reduced in the early 1930s, but by 1939 it was well over it's 1929 figure at some $1.75. In fact, by 1936, the dividend was $1.56. Is that a long time to recover? Would it have been worth holding the good stock through the great depression?

· 2009/02/26 06:23 · Tom Connolly

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“The key is to wait for the market to decline and to pick companies with the best likelihood of maintaining their dividends” Martin D. Weiss, The Ultimate Depression Survival Guide. TC: Notice his fifth word: there is a lot of waiting with the dividend growth strategy. Valuation is everything. Arnold Bernhard's 1959 book Evaluation of Common Stocks talking about valuation at the time of purchase on page 121. (When I get a jiff, I'll add it here.) The bigger question is: when do you know the market has declined? That's a tough one. One of my guides it yield. I plot yield data.

most_recent_comments.txt · Last modified: 2009/07/10 08:22 by tom
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