How is MMP doing? November 18, 2009
Posted by shaferfinancial in Finance.Tags: Magellan Midstream Partners
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The third equity I own is MMP, a master limited partnership. Their primary business is the transportation and storage of petroleum products. A simplification plan which is eliminating the general partner goes into place this year, which caused some costs to be accounted for this quarter. Going forward the costs should be lowered.
The storage part of the business is doing quite well, while the transportation is doing well in gasoline, but not so well in diesel and aviation fuel. It acquired a new terminal in Oklahoma and added the “Longhorn Line” which is around an additional 700 miles of pipeline. These capital acquisitions amounted to $272M of the $510M planned for 2009.
Of concern is the increase in debt of 50% over the last year mainly due to acquisitions that have not started producing [which should reach full potential in late 2010]. Decrease in dividend coverage from 1.2 to 1.1. This means at current operating profits the dividends could not be increased. However, the current environment is improving and as it improves profits should improve. The additional storage and transportation lines will also increase profits going forward as they are brought on line and maximized. There is also a large ethanol pipeline planned if congress approves backing of the debt.
Overall, I am happy with this investment, especially since at my cost the dividend yield is 9.4%. I will consider additional shares in the future, but watch future revenues closely.
HCN; How did they do in the 3rd Quarter??? November 12, 2009
Posted by shaferfinancial in Finance, Uncategorized.Tags: health care REIT, my portfolio
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As my regular readers know, I own three different equities. I commented on the largest ownership, BRKb a couple of days ago. Today I will comment on third quarter results for HCN.
First HCN. This REIT has performed admirably through the real estate issues of the last year and a half. It has maintained its dividend payout of .68/quarter. This gives me a dividend yield of over 11% on my cost. Gross additional investments for the quarter were $156 M making it over $500M for the year. It also raised $434 M in an equity offering in September which it used mostly to pay down debt. The debt to equity ratio has been driven down to a very conservative 40%. Outstanding debt with rates of around 7.2-8% were retired and some replaced with debt at rates of 5.9%. The maturity of debt was also moved out several years, so there should be no problem with near side risk for debt. Their is a $1B line of credit available.
Some properties were sold as per company strategy. The company continues to lower the ratio of nursing homes and off campus MOBs in favor of CCRCs and on campus facilities. The CCRCs did not perform as well during the last year mainly due to general real estate malaise.
Of concern is the lowering of Funds Available for Distribution which dropped from $.82 to $.72 compared to the third quarter of last year. For the year it has dropped from $2.39 to $2.24 year on year. This has driven the payout ratio to 91% for the year as compared to 85% for same period last year. However, this result is due to the lowering of the leverage and the using of funds for capital investments. As I have stated before this is a conservatively run REIT, that aims for long term results instead of short term gains. I feel comfortable with lowering of the leverage for the time being with the credit markets still impaired. I also note that rents continue to increase and the quality of projects also continue to be improved. The CCRCs I believe are the wave of the future and will improve dramatically as seniors are able to sell their homes into an improving real estate market.
I note that between 2008 and 2009 there will be an additional $2Billion in real estate owned for HCN, continuing its remarkable pace of 25% average yearly increases since 2003.
I will add to this position going forward as long as it stays below $47/share. It is goes above, I will have to rethink any further purchases as it will be IMHO overly priced at that point.
Berkshire Hathaway Highest ever Book Value! November 9, 2009
Posted by shaferfinancial in Finance.Tags: Berkshire Hathaway, my portfolio
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Berkshire Hathaway reported late Friday its 3rd quarter results. As expected its book value went above $80K to $81,247 per A share. It is now trading at 1.26 times book value. Its book value is now at an all time high. Pretty impressive performance in the middle of a recession!
However, there is still much more upside potential with its operating profits not fully recovered from the recession. Many of its businesses are still suffering from the effects of the recession with reduced revenue and profits.
Total earnings did triple from the third quarter of 2008.
Proving its critics wrong, is one thing, but driving its book value to an all time high in a recession is simply an amazing performance. The future is really bright as we see slow improvement in operating businesses this quarter over the first two of the year. Tremendous value is being created by the deals Buffett made in the last 2 years and the purchase of BNI announced last week should continually improve both cash flows and profits for many years to come.
I will continue to own and add to my shares of Berkshire going forward.
By the way, there is tremendous upward potential over the short-term for Berkshire, IMHO, and folks who have been sitting on the sideline should now strongly consider purchasing BRK.
Next post will go over the other two stocks I own, HCN and MMP.
Should I Buy and Hold? November 6, 2009
Posted by shaferfinancial in Finance, Uncategorized.Tags: buy and hold strategy
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Check this out. Pretty Funny.
You all should know where I stand on this buy-and-hold idea!
Warren Buys a Railroad November 5, 2009
Posted by shaferfinancial in Finance.Tags: Berkshire Hathaway, Buffett buys a railroad
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Warren Buffett bought the balance of Burlington Northern Railroad [78%] this week. As usual there is much chatter, most of it negative about the latest Berkshire move. But the truth is this is classic Buffett. He bought a well managed business, for a fair price. Now much is made of his 30% above market price, but this is from people who have never bought a local business, let alone a $34 Billion business.
Does anyone out there think that railroads are suddenly going to stop being the transportation of choice for coal? Or stop moving product around the country? Does anyone think that trucking will be able to compete with the price of diesel where it is at or where it is going? Consider the railroad is profitable in a recession, how much cash flow will it produce as the economy heats up?
Just another reason to believe that Berkshire Hathaway will continue to double the returns of the S & P 500 Index.
Now, the other move was that it is splitting the B shares 50 to 1. I am agnostic about this, but this move probably results in Berkshire being included in the S & P 500 index in the future. So all those index mutual fund investors can get some of those superior returns!
More Commentary on Berkshire Hathaway October 30, 2009
Posted by shaferfinancial in Finance.Tags: Berkshire Hathawy
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Value Investing v. Momentum Investing October 29, 2009
Posted by shaferfinancial in Finance.Tags: Choosing investment style, Momentum Investing, Value Investing
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So you want to be an investor. You better make some decisions up front. One of those is choosing a style of investing. Of course most people just start throwing money around and never think about this, but you should. The two main styles are value and momentum. Value investing, popularized by Benjamin Graham and his disciple Warren Buffett, looks for investments that have a history of consistent performance that can be bought for a fair price. The thinking is that as long as the performance remains consistent you can come to a fair price to be paid and wait until the investment can be bought for that fair price or even lower. Negative emotions are your friend as negative market emotions drive down the prices of even good performers.
Momentum investors could care less about price or performance. They rely on correctly noting the direction the price of an investment is going early into its trajectory. Both positive and negative emotions are relied upon as momentum investors like the ability to sell short if the trajectory is down. The key is hopping on the trajectory early and getting off soon after the trajectory changes.
Note, both these strategies require market timing, one by changes in momentum, the other by good pricing. Now momentum strategies are very high-tech these days with folks writing their own computer code to give the buy and sell signals to take their emotions out of the equation. And proponents of both strategies have publicly disclosed returns and wealth that are impressive.
Now hear this, there are many folks that say that “market timing” doesn’t work, but the fact remains that is the only thing that works to create wealth.
For me, I decided over a decade ago that I was going to be a value investor. 2008 was a very good teacher for me. I did not have a huge amount of $$$$ saved up to take advantage of the values that appeared like I should have. That won’t happen again. Fortunately for me, Warren Buffett did. Early on I decided I would put much of my money into his hands to invest for me while I learned. I often suggest other folks do the same.
Many times I find folks are reticent to put their money in Buffett’s hands, instead trusting in some indexing/mutual fund/asset allocating strategy dreamed up by some engineer/accounting/financial adviser/numbers guy who purports to have found the best risk adjusted way to invest. To each their own, but until I find one of those guys publicly noted rate of return that rivals Buffett, I will continue to do what I do.
On the Future of Berkshire Hathaway October 27, 2009
Posted by shaferfinancial in Finance.Tags: Berkhsire Hathaway, Berkshire Hathaway as an investment?
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Folks regularly question Berkshire Hathaway as an investment going forward [on this blog as well as all over the internet].
Watch this interview with Sokol, one of Berkshire’s CEOs and tell me what you think this tells us about BRK? At 7min and 30 seconds it gets really interesting!
The Truth! October 26, 2009
Posted by shaferfinancial in Finance, Uncategorized.Tags: The truths about investing
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Here are a couple of financial truths:
You will never reach your goals by following the herd;
Already, the Wall Street crowd has put into place and started implementing their plan for your money going forward. Have you seen the adds where they are working on your fear, your fading retirement hopes, etc.?;
It does you no good to become a do-it-yourself investor if you don’t also become a knowledgeable investor;
You can’t become knowledgeable by reading/following the same advice that failed you before;
Any strategy that doesn’t look at purchase price is bound to fail ie dollar cost averaging, no money down real estate purchases, routine mutual fund purchases, etc.;
If you don’t have the inclination or the time to make investing a hobby, then don’t expose yourself to the stock market;
Investing is a game that is best played to win, not to become average;
Beware of a strategy that says that investing is easy;
Never put all your assets into one investment;
Always have reserves;
Diversify yes, but not by owning 50 or 100 different stocks or bonds;
Think income investing once you are 50 years old;
As Promised; Expenses Exposed for EIUL October 21, 2009
Posted by shaferfinancial in Finance.Tags: EIUL Expenses
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So many people speak about EIUL expenses as something extraordinary. Here are some facts; actual expenses exposed for you. The following are the expenses for an EIUL of a 45 year old man, good health, who puts in $10000 a year for five annual payments premium. The assumed interest credit is 8.21% or a full 1% below what the 20 year look back is [if you had bought this policy 20 years ago what the average interest credit would have been].
Age Prem prem Ch COI Pol Iss Other Accu Value Surr Value Death Value
45 10,000 -550 - 223 - 875 - 60.0 8,973 2,563 223, 429
46 10,000 -550 - 245 - 875 - 60. 0 18,659 12,355 233,115
47 10,000 -550 - 269 – 875 - 60 .0 29,114 22,918 243,570
48 10,000 -550 - 282 – 875 - 60 .0 40,413 34,328 254,869
49 10,000 -550 -297 – 875 - 60 .0 52,624 46,653 267,080
50 0 0 - 71 -875 - 120 .0 55,790 50,190 103,212
51 0 0 - 72 -875 - 60. 0 59,281 55,081 105,520
52 0 0 - 74 -875 - 60 .0 63,056 60,256 107,825
53 0 0 - 79 -875 - 60. 0 67,136 65,735 110,102
54 0 0 -84 -875 - 60 .0 71,544 71,544 112,325
55 0 0 - 90 0 - 60. 0 77,256 77,256 115,884
56 0 0 - 101 - 0 60 .0 83,425 83,425 121,800
57 0 0 - 111 0 - 60. 0 90,089 90,089 127,926
58 0 0 - 118 0 - 60 .0 97,293 97,293 134,264
59 0 0 - 125 0 -60 .0 105,081 105,081 140,808
60 0 0 - 131 0 -60.0 113,501 113,501 147,551
61 0 0 -148 0 - 60 .0 122,595 122,595 156,921
62 0 0 - 167 0 - 60. 0 132,414 132,414 166,841
63 0 0 - 188 0 - 60. 0 143,016 143,016 177,340
64 0 0 - 209 0 - 60 .0 154,467 154,467 188,450
65 0 0 - 228 0 - 60 .0 166,837 166,837 200,205
The internal rate of return at age 65 is 7.55% meaning the total cost of all the expenses and fees and cost of insurance is 1.66%. The internal rate of return rises the longer you hold the policy.
So, yes there are expenses that are mostly front loaded, but less than the average mutual fund.
What tax bracket do you think you will be in at retirement? Think you will pay more than 1.66% tax rate?
