Saturday, November 23, 2013

KEEP STOCKS and CARRY LONG

Lately I have been seeing plenty of variations on the by today classical slogan, KEEP CALM and CARRY ON, made during the 2nd world war in the United Kingdom to make sure that the British population kept their heads high. To my knowledge this particular slogan was never used but was re-discovered some years ago and are now everywhere on mugs, stickers, posters etc. So why not make a variation that involves stocks?

I find that KEEP STOCKS and CARRY LONG has a very nice ring to it. My first thought was: keep long and carry stocks but I find that less catchy. Alternatively one should change the keep to BUY STOCKS and CARRY LONG but I find that it goes a bit too far from the original but it is nice enough to get its own poor graphical creation by me.

KEEP STOCKS and CARRY LONG, Fredrik von OberhausenBUY STOCKS and CARRY LONG, Fredrik von Oberhausen

So it goes down to a voting that can be found on the right side! Which is the best one?


I once read an article from an economy journalist or blogger that was telling a story about his neighbour. This old man apparently lived in a very small house but had millions of USD in stocks. His strategy was to buy and hold, not for a little while... not for some year but... for ever. Each time a blue-chip company dropped due to whatever reason he stepped in big with the dividends that he had been saving up and then he just kept doing that over and over and over again. In the end he had a massive portfolio of several of the American giants that were feeding him more dividends per year then he would ever even know what to do with it. If I remember it correctly this story was about that this neighbour died of old age and that his money was given to charity. Americans, in general, are very good at contributing to charity much more so then Europeans I think. Still, it is a very interesting concept, buy and never sell.

Unfortunately I am too stupid to remember the name of the people and I did not even remember to save the link to the excellent article that was written. Maybe some one will let me know and then I will directly link to it here.

I know that Warren and Charlie have some stocks that they have practically kept for ever such as the Washington Post. How come? Is it based on increasing dividend versus inflation?

Inflation on 1,000 $ from 1950 to 2013 means an increase by a factor 9.7 because it would today be the equivalent of 9,690 $.
If that very same investment of 1,000 $ in 1950 in a good company with 10% yearly growth (both revenue, profit and share price) then that would be the equivalent of owning shares for 405,265 $ and that company could then today also be paying a good dividend of 4% which would give 16,210 $ (minus taxes) only this year and completely excluding all the years in between and the re-investment that could have been made. So simply by holding those shares for so long one receives 16 times the money invested each year and almost double the value in comparison to what that money was worth due to the inflation... What happens if you sell those shares? Then you would be forced to pay taxes on the profit which would be on 404,265 $ (I use 30% taxes as example including the trading fee) so you get out 282,986 $ which you will be forced to invest in a new company. If you want to be able to collect the same yearly dividend then you are forced to find a company that pays out at least 5.7% in yearly dividend and you step from safety to risk with your new investment.

So if the fundementals of the company has not changed then why sell? and over a longer time aspect fundamentals might get back on track again... given time...

There is also a Swedish famous investor called Aktiestinsen (stins = (railway) station master and aktie is stocks, so it becomes "stocks station master"). His real name is Lennart Israelsson and here is a short article about him in DN so unfortunately in Swedish. He was working as a railway station master his entire life and when he was 30 years old he invested 600 SEK (today the equivalent of 50.000 SEK or 5580 EUR or 7525 USD) which was his entire then life savings. Today, 67 years later, with compound interest, re-investment of dividends, added investments from his salary that has grown to 150 million SEK (around 16.7 million EUR or 22.6 million USD). Very impressive! One of the most important thing for the investors is having a long life. Look at Warren, look at Charlie, look at Lennart. All of them are old guys and they have had an even bigger chance to collect compound interest!

His investment strategy is very simple:
  • Stick to boring companies (he loves forest & real estate companies)
  • Avoid new companies
  • P/E between 5 to 15 for buying
  • Cash flow of 4 to 5% (something I personally do not look at)
  • Paying good dividends
Aktiestinsen also once said something about stocks that was similar to that they are "multiplying like rabbits". What he meant was that he buys one company and by simply keeping it for 20 years or more the shares from that one company have ended up being shares in three or even four companies. Simply: buy, hold and prosper!

Lennart Israelsson have, just like Warren, given away his fortune to charity. All honour to both of them!

1 comment:

Fredrik von Oberhausen said...

Berkshire Hathaway with Warren Buffett and Charlie Munger has now finally sold their entire position in Washington Post. I guess they no longer felt any obligation to keep the stock after the family that owned the company for so many years now sold their part.