Comments on: Can stocks be safer than bonds? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Wed, 06 Jul 2011 17:22:50 +0000 “Don’t be in any hurry to buy equities!”

I’m not. I’ve been selling over the past year. (Very substantial selling, amounting to some 20% of our net worth.) But I’ve got a hundred grand ready to buy again if/when the bear returns.

By: TFF Wed, 06 Jul 2011 17:20:09 +0000 Thanks for the mention, y2kurtus…

Our allocation is roughly 75% stocks (split between 12-15 different multinationals, based both in the US and elsewhere), 25% fixed-value (annuity, TIPS, bonds, and cash holdings). I see the stock allocation as the more promising segment of the portfolio, but am sufficiently comfortable that we don’t need to take the risk of a more aggressive allocation.

Splitting the stock allocation between ~15 different companies minimizes the “Enron risk”. It is theoretically possible that JNJ will experience some massive disaster and will be forced to cut its dividend, however a complete wipeout would cost us just ~5% of our assets. This is an acceptable level of risk for us.

Finally, would like to strongly second this sentiment: “Debt is treacherous, and hides its risks; with stocks, the risks are out there in the open for all to see.”

Suppose I were to invest 40% of our assets in ten-year bonds? Suppose we were to then see double-digit inflation for seven years? On a real-value basis, approximately 20% of our assets would be wiped out. Irrecoverably wiped out (barring deflation), not a temporary dip like the 2008-9 market crash. That is the equivalent of having FOUR of our fifteen blue-chip issues getting wiped out.

The correlation between investment-grade bond returns is very tight, since they depend primarily on currency and macroeconomic climate. Putting 40% of your money into dollar-denominated bonds (even if split between Treasury and corporate) is almost as risky as putting 40% of your money into a single stock. And no sane advisor would EVER recommend that!

By: ezam1 Wed, 06 Jul 2011 16:04:49 +0000 Recommending the purchase of JNJ when we are only halfway through a the biggest bear market in equities since the 1970’s? Well it just shows how difficult it can be to kill the bull. Don’t be in any hurry to buy eqities!

In the words of Jesse Livermore:
“Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting.”

By: txgadfly Wed, 06 Jul 2011 14:30:14 +0000 A major item not considered here is the structural difference between a well run company and a Government.

A well run company will be run by people whose primary interests are aligned with the shareholders. If the company prospers, both management and shareholders prosper, as well as employees. A Government such as the one in the USA is devoted to transferring wealth from the least powerful in the country to the most powerful. With a corrupted election procedure, there is no check on their ability to print money and raise regressive taxes such as FICA. They cannot lose an election because only their candidates are permitted to run and they control the courts.

So, if you think politicians are good people who really have your best interests at heart, buy Treasuries. If you examine the record and check out the tiny differences between our political parties, buy either JNJ or BP.

By: threeRivers Wed, 06 Jul 2011 10:35:26 +0000 Noone mentions that for a lot of folks, Social Security is a big part of their retirement income. For those folks, they are already heavily overweighted in US Treasuries. Any additional dollar they put into bonds just puts them even more over the top. Inflation isn’t in the picture when you are that top heavy from the gitgo. And that’s without any thought to the other gorilla in waiting, just the simple fact that dollar denominated public debt is the biggest bubble in all of history, by far. This time, this bubble will be the Grand Finale.

By: y2kurtus Wed, 06 Jul 2011 02:47:56 +0000 @tgriffin,

I don’t read Felix’s post as trashing my “advice” at all. Felix is never going to offer an alternitive financial plan because he has always structured his blog blog as a clearinghouse of ideas.

The thrust of my comment (which I don’t intend as advice) is that if you want to buy assets that guarentee a nominal dollar amount IE $1000/month than buy bonds and don’t stop working until you’ve got the dough to survive todays low rates.

If you want to insure that you can eat well, pay the light bill, put gas in your tank, and perhaps even uncork a few bottles of decent wine in year 15 of an active retirement; well then the 1 day liquidity and low volitility of a treasury bond portfolio don’t protect you from inflation/currency devaluation which I will argue are probably your largest risks at this point.

I would happily invest in well managed equities that paid out a fixed % of earnings rather than a fixed amount /share. Also over half of my investments pay no dividends at all. My current plan is to work until death and leave as much as possible to my family, library, and land trust.

A day will almost surely come when I’ll need to draw from my portfolio, but I don’t distinguish between capital gains and dividend income the way the IRS does.

By: djiddish98 Tue, 05 Jul 2011 12:20:27 +0000 Comparing the dividends of BP and JNJ are apples to oranges. One company has raised their dividends for 48 years in a row; another paid a lower dividend as early as 2002 (based on the dividend data from BP’s website).

It would be interesting to compare the change in yield from the S&P Dividend Aristocrats over time with that of the 10 year treasury.

By: Shadeun Tue, 05 Jul 2011 06:59:42 +0000 Given the structure of the company, in the traditional sense, J&J debt is safer and wont reduce during recession. In fact if you talk about preferred equity then that satisfies your complaints about payout ratios and still allows upside participation and inflation hedging.

By: tgriffin Tue, 05 Jul 2011 06:33:51 +0000 What are you recommending? 100% invested in 10-year Treasuries? To trash y2kurtus’s thesis as if the choice is binary is at best incomplete on your part. I doubt y2kurtus would put 100% of his funds in one stock. If you had $1 million dollars in your retirement account and were 60 years old, what would be your allocation? Your age in bonds, 30% in stocks and 10% cash? How many stocks would be part of that 30% or would you buy an index? And where would you put your cash? In US bank money funds that buy commercial paper in European banks that are exposed to Greece? If not in such money funds, then where would you cash go? It is a lot harder to say what you would actually do than just trash the thesis of y2kurtus. Do you care to step up with advice or do you just want to remain a critic of others?