Happy Hour: Buffett Watch

We’ve reached the point in the year when business news transitions to the Warren Buffett reality show. Saturday morning Berkshire Hathaway will release its annual letter. Only this year is the 50th anniversary. So the Buffett watch started a little early with a bit more speculation on what the letter would say.

Most of the business world wants to know about the future – his successor or what company he plans to buy next. I expect he’ll talk about the past, like every other year. And like years past, there’s a good chance you’ll learn something if you read it. Continue Reading…

Dividend Growth Investing Case Study

Time is the Friend - Buffett QuoteDividend investing seemed to get more popular after the financial crisis. Not that investors didn’t want dividends before then, but a good crisis can make investors rethink and change their strategy. In hindsight, the trend toward dividends makes sense. But why?

From my perspective there are a couple reasons. The financial crisis was harsh enough that investors turned toward “safer” investments.

Dividend stocks aren’t really safer than other stocks. They have their own unique risks. By safer, I mean less volatile, which generally is true, and less volatility was in high demand after the crash. Continue Reading…

Happy Hour: Cause or Effect

Robert Shiller announced his CAPE ratio on twitter last week. I mentioned it in a post earlier this week. I won’t post his quote again, so jump over to check it out. In it, he compares today’s CAPE level with the previous high of 2007.

It doesn’t take much to over think it, put two and two together, and see another crash as a foregone conclusion. The reference of ’07 makes that connection. Though, to be fair, Shiller is simply stating a fact, not making a prediction. But my first thought was – what role did the high CAPE in ’07 play in the resulting crisis? Continue Reading…

Putting the CAPE Ratio Into Context

Ben Graham QuoteThe past few years has seen a growing discussion around how to best value the market. More recently, the argument turned toward just how overvalued is the market and what does it mean? I thought I’d try to answer those two questions.

Several market valuation tools have become more common since the crisis. I use the term loosely because none of the valuation tools are 100% accurate and some are terribly inaccurate. In reality, people want a market timing tool. Keep that in mind while reading further.

One of the more popular tools is the CAPE ratio (Cyclically Adjusted PE Ratio) or Shiller PE named after it’s creator, Robert Shiller. Shiller is a Yale professor who realized the market is hardly efficient, wanted a way to measure that inefficiency, and wrote a book about it appropriately named Irrational Exuberance. Continue Reading…

Happy Hour: Excuses In Investing

I spent most of my formative years playing sports – mainly basketball. My own biased belief is athletes have a unique view toward winning and losing because they deal with it earlier in life and more often than most people. It may or may not be true. I have no idea. It’s just my biased experience from sitting in the stands after spending most of my youth on the court.

The early lessons from sports are hard work and team work pay off. As the kids move up the ranks, they learn how to handle winning, losing, and fixing mistakes. Continue Reading…