Monthly Archives: November 2010

Interesting way to select dividend stocks

I just ran across an article that Kapitall has on SeekingAlpha that posits an interesting and, I believe, useful way to screen for dividend paying stocks.   The basic idea is to look for high-yield stocks that also have a high level of open interest in call options vs. put options.

What does this indicator mean?  In theory, people buy call options when they believe that a stock is likely to go up and they buy put options when they believe a stock is likely to decline.  The premise in the Kapitall article is to look for stocks with high yields that also appear likely to go up according to the open interest on puts vs. calls.  So, these stocks seem like they are likely to be winners on the perspective of yield and price appreciation.

From my perspective, the story looks a little more nuanced.  Continue reading

Jeremy Grantham Talks Asset Allocation, the Fed and Where He’s Advising Clients to Invest

Famous investor and predictor of bubbles, Jeremy Grantham finds a lot to worry about these days. For starters he’s no fan of the Federal Reserve’s ongoing behavior. Also, he’s pretty sure “we’re running out of everything” when it comes to commodities. And Grantham thinks the S&P 500, currently trading at 1178 is more properly valued at 900. His advice to the clients of his firm, Grantham Mayo Van Otterloo (GMO), is predictably circumspect: pile up cash so you can buy when the current, growing US equities bubble bursts, overweight great franchise companies like Coca-Cola (KO) and Johnson & Johnson (JNJ), modestly overweight emerging markets and “underweight everything else.” Oh, and one more thing: “patience.”

If he wasn’t so charming to listen to, Grantham would really be depressing. Though he thinks the economy will “muddle through” that’s about as positive as he got in the course of a very good video interview (video below) with CNBC’s Maria Bartiromo. Continue reading

Carl Richards on Conquering Investing Mistakes and Learning to Talk About Money

Carl Richards has a few thoughts on how we might get around some of our own bad money habits, and he shared them in the video discussion below. A student of behavioral finance, Richards combines that interest with the practical experience of working as a financial advisor in Park City, Utah, where he sees plenty of these concepts playing themselves out in all the wrong ways in his work at Prasada Capital Management. Continue reading

Inflation is Low? The Answer is Personal.

The front page of Wednesday’s Wall St. Journal features an article on rising commodity prices title Commodity Prices Surge.  Prices on a wide range of commodities have risen in double digit percentages so far in 2010.  Companies such as Dean Foods and Sara Lee have seen their earnings hit hard by the rising costs of commodities they use in their products.

Meanwhile, it was announced in mid October that there would be no Cost of Living Adjustment (COLA) for social security recipients for 2011.  The COLA is calculated based on government-compiled inflation data, so the zero COLA means, apparently, that inflation is low.

Meanwhile, health care costs are expected to rise about 10% from 2010 to 2011.  Tuition at public colleges and universities has gone up by almost 8% in the last year. Continue reading

Investing for Income or Total Return?

I recently wrote an article for Advisor Perspectives that examines the tradeoffs between investing for total return vs. income investing, in which one emphasizes assets that generate dividends and interest payments.  In theory, if the markets are reasonably efficient, investors should not care whether they live on income generated by their portfolios or they sell assets to provide their income.

My article starts by looking at a study by Vanguard that compares income investing to total return investing.  The Vanguard study concludes that a total return approach makes more sense.  I find that the study’s results unfairly penalize income investing strategies and ignore certain important ‘real world’ effects.

I do not find that income investing is necessarily superior, but I do conclude that there is not reason for investors who are inclined towards an income-focused approach should be discouraged.

Your thoughts?

Bush Tax Cuts, Congress and Smart Investment Tax Planning

The Huffington Post is reporting that the White House is likely to give in and allow the extension of the full Bush-era tax cuts.  But until the divided Congress acts on the pending expiration of the 2001 and 2003 Bush tax cuts, tax planning will involve some guess work this year. Continue reading

Are You a Stock or a Bond? How to Factor Your Job Security into Your Investing Portfolio

Are you a stock or a bond?

Answering that question is one of the keys to successful asset allocation and financial planning according to a growing number of academics and financial executives. Continue reading