February Option Expiration & Our Enhanced Dividend Strategy

by Glenn Busch February 21, 2013
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The enhanced part is strategically using covered calls to generate extra return. This is not a buy-write strategy. We will sell a covered call when we see an opportunity. It could be during a period of high volatility when option premiums are high and/or when a position has become over-extended in the short-run. We will usually only have a few options in the portfolio at a time and it is very possible that certain positions will not have call options ever written against them.

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The Big Picture ~ Revisiting 5 Investing Principles

by Glenn Busch February 20, 2013
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As we enter 2013, we thought it would be a good idea to review our core investing principles. These are truly big picture items that every investor should remember when investing in the capital markets, regardless of time horizon or risk tolerance. Most investors have a longer‐term ʺend gameʺ for their investment, whether it is to fund a more comfortable retirement, a charitable cause, a college education, a big ticket purchase, leaving money to heirs, etc. Yet, too often, we find the investment decision making process muddied by short‐term news and issues completely out of our control. We believe the following core investing principles ring true in any market or economic climate and should help all investors successfully navigate the financial markets and improve the odds of achieving their long‐term goals.

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12 Best Opportunities for Bargain Hunters

by Gabriel Wisdom February 19, 2013
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Meanwhile, back on earth, here are The 12 Best Opportunities for Bargain Hunters, taken from our book “Wisdom on Value Investing” published by John Wiley & Sons.

1. Fallen Angels
When high-growth companies become overpriced, like a roller coaster at the top of the track, they peak and begin the ride downhill, picking up speed and momentum as they go. Momentum junkies get out and selling accelerates. When the selloff is over, these companies often are priced at dramatic discounts to what they’re actually worth.

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Expected Real Returns as Warren Buffett’s Favorite Valuation Metric Rises Above 100%

by Glenn Busch February 14, 2013
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For the first time since the recovery began, Warren Buffett’s favorite valuation metric has breached the 100% level. That, of course, is the Wilshire 5,000 total market cap index relative to GNP. See the chart below for historical reference.

I only point this out because it’s a rather unusual occurrence and the recent move has been fairly sizable. It happened during the stock market bubble of the late 90′s, but then occurred again just briefly during the 2006-2007 period when the valuation broke the 100% range in Q3 2006 and stayed above that range for about a year. We all know what followed the 2007 peak in stock prices.

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Dividend Yields Have Driven Equity Returns Since 1970

by Glenn Busch February 14, 2013
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From the a picture is worth a thousand words department, I want to highlight the chart below from Dylan Grice, formerly of Societe Generale and now of Edelweiss Holdings, on total equity returns and the large role dividends have played in driving those returns since 1970.

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Bruce Berkowitz on Fund Closure and Bank of America

by Glenn Busch February 4, 2013
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Bruce Berkowitz appeared on Bloomberg to discuss his recent decision to close the Fairholme Fund (FAIRX) to new investors and the fund’s large holdings in financial companies, AIG and Bank of America (BAC).

The closure of the Fairholme Fund stems in part from the focused nature of the fund. If new money were to pour into the Fairholme Fund current shareholders would be diluted and Bruce might not be able to buy more of his top holdings.

How will Bruce get around these issues? Is this what the Fairholme Partnership is all about? “Stay tuned”…

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A Value Investor’s Gut Check Moment with Apple

by Glenn Busch January 29, 2013
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Aswath Damodaran values Apple at $609 per share and at Apple’s current price of $457 this implies about 32% potential upside. However, as Mr. Damodaran points out the biggest problem a “value” or “contrarian” investor faces is not finding a company’s fair value but that gut check moment of putting your money behind your work as the market pushes against you.

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The Great Rotation

by Gabriel Wisdom January 28, 2013
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Three years ago, we told you about a major “sea change” underway, driven by 78 million aging baby boomers looking to replace paychecks with a steady and reliable income stream in retirement. Our research observed individual and institutional investors slowly and steadily moving out of growth-only securities, and into dividend paying stocks. This theme continues to gather momentum. Now we want you to know about “The Great Rotation.”

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