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.
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!
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;
Efficient Market Theorist and its Discontents! October 7, 2009
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Regular readers know that I am not a believer in the efficient market theory. Facts are, I am a social scientist and understand the huge amount of data that tells us we generally act upon our emotions and are not rational especially in times of stress. The percentage of folks that can remain completely rational at all times is extremely small.
But efficient market theory demands of market participants that they are rational at all times [as a whole] among other questionable assertions. So it is of no surprise that I blog against the theory and the strategies that extend from it like mutual fund investing, asset allocation and diversification.
For me it all started with reading Warren Buffett, but he is far from the only EMT discontent. Unfortunately, the media, the financial planning world, and most of the internet media are big fans of EMT and its associated strategies. What that has led to is the vast majority of folks losing out on a once in an investors lifetime opportunity. Because so many people were either panicking or convinced that their asset allocation, mutual fund, strategy was solid the vast amount of people missed it. What is it? If you had been paying attention you could have bought solid companies at rock bottom prices back in March and April. Want examples? General Electric went below $7 [currently at $16.16]. Wells Fargo below $9 [currently $29.26]. Goldman Sacks below $60 [currently at $190.48] and Berkshire Hathaway went down below $73,000 [currently at $100,400]. Apple below $80 [currently $190.25].
Now my point isn’t to play Monday Morning Quarterback with stock picking. Only to point out that if you had followed Warren Buffett’s investing theories instead of some academic’s or what Wall Street wants you to believe in, there really were “once in a investing lifetime” opportunities. And if you were following those bobble heads or mutual fund sales folks or financial planners or any of the other so called experts you missed it.
My only regret was that I was not more liquid in order to buy more than I did.
Note*** My friend and peer, Brett Anderson has taken up the $100,000 challenge here. Can’t wait for the next post. But more and more people are starting to understand how the Minnesota Life EIUL can enhance your retirement!
What makes people think the system will solve their problems? September 29, 2009
Posted by shaferfinancial in Finance, Uncategorized.Tags: The system will not save you, Use your brain and refuse to listen to people who have given poor advice in the past
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This is one idea that makes so little sense to me. You have a problem with money and you think there is some expert out there that can solve that issue for you with “standard advice.” No, only you can solve that issue. Everybody has the ability to solve their money issues. Now, having said that there are some issues, like unemployment, that are systemic and beyond the individual to fix. However, looking toward the government or “capitalism” to solve that issue is asking the fox how to fix the hen house. That is just a condition we must deal with. How you deal with it is the key to solving your money issues. Truth is, human passivity is a learned response. We are all capable of active intellectual activity to solve problems. All society can do is put up a safety net to temporarily help as this process plays itself out.
Sounds harsh? Well, reality is harsh. As the Buddist tell us, life is suffering, and then we die. Well, I don’t believe in all that suffering part, at least that there is nothing else to go along with that. Life is periodic suffering and periodic joy, which we try to minimize the suffering as we go along.
This is anti-financial planner week here at Uncommon Financial Wisdom. 
Which means it is celebrate the individual week!!!!
Become active in your financial thinking. Ignore the advice of folks that have proven to give bad advice in the past and have not changed.
How the 18 year bull market fools the so called “financial experts.” August 24, 2009
Posted by shaferfinancial in Uncategorized.1 comment so far
Look at this chart. There have been 15 bear stock markets since the great depression [80 years]. Taking out the 1982-2000 bull market the longest bull market was 8 years long. So the 18 year bull market from 1982-2000 was a serious anomaly lasting over twice as long as the second longest. Here is the problem. Most of the thinking and financial planning is based on thinking that 18 year bull market is normative. Look at what people invest in, for example, and when they started to invest in these products. The vast majority of folks that invest in the stock market do it with mutual funds. And this strategy gained a foothold in the 1990s. I have mentioned the social forces encouraging mutual fund investing several times before so I won’t go over it again. But it is important to note that all those nice little charts the mutual fund industry uses, and that average rate of return for the market it uses are dominated by the data from that 18 year period. Even the asset allocation models, where you invest in both stocks and bonds [and now international stocks and REITs] at varying proportions depending upon your risk tolerance and your age are built upon what happened in that time period. Basically, what I am pointing out is that these strategies are all built upon faulty data. Garbage in, Garbage out as they like to say! The mutual fund industry has existed on the back of this lie and has had exponential growth as a result of gullible folks who believed the lie.
I know this is quite the statement, but let’s be honest, and look at what the real investing community does? I’m not talking about the retail investor that dominates the internet. Nor am I talking about the professional mutual fund managers because they have very different set of investing problems. It might surprise you that most research has pointed out that hedge funds on average out perform the market, but of course hedge funds aren’t available to the average investor. [Academics like Malkiel have attempted to disprove this, but has to resort to questionable assumptions] Pension fund managers also tend to out perform the market over the long run, but perhaps the best money managers are the folks who run the endowments for the large institutions. Outperforming the market when you are managing billions of dollars is a real feat [don't get fooled by recency bias looking at 2008 returns].
Warren Buffett has mentioned several times if he only had a billion dollars to invest he could get a 30% return, but that it gets harder the more money you have to invest. What he and other money managers tell us is that the individual investor has a tremendous advantage in investing because we are investing small amounts.
Where does all this leave the individual investor? Well, first one needs to look at active investing strategies that have worked over the long run. I mean really look…….value investing…..real estate investing…….trend following….etc. Decide which of these strategies work best for her/his lifestyle/proclivities. That means throwing out the strategies that have failed like mutual fund buy and hold investing [including asset allocation], flipping real estate, gold, etc. Pay attention to transfers like taxes. Have a plan that is both based on what has worked over the long run and is flexible enough to allow changes as the environment changes. And quit paying attention to all those internet experts [real irony here!], economists, politicians, ideologues, etc. that don’t have a track record of real investing returns you can see. You know the scary part? Warren Buffett’s strategies can be found in The Buffett Way, and to a smaller degree Snowball or look at Joel Greenblatt’s The Little Book that Beats the Market. Why wouldn’t you learn from the most successful investor, Warren Buffett, over the “internet investing experts?” Or the literally thousands of folks out there that have demonstrated success in other types of investing strategies?
Have a great investing week!
Ideologues make bad investors! August 7, 2009
Posted by shaferfinancial in Uncategorized.Tags: ideologues make poor investors, political ideology and investing
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I have many friends who have strong political beliefs on both the left and the right. They regularly make fun of me for my middle of the road political stances. While I respectfully disagree with their political opinions, there is one thing I am sure about; If you let your political ideology bleed over into your investing strategies you will make mistakes, big mistakes.
I sometimes post on Seeking Alpha. I read Calculated Risk. For the last 9 months it has been a zoo at these sites, with the loonies taking over [IMHO]. Now there are many ideologues posting there from both the left and right. Ironically, they both hate the bailout and the TARP funding. They have collectively declared the end of our economy as we know it. After October of 08 and again March of 09 many declared that the stock market was going to go straight down. They say they use “fundamental analysis” but what they really are basing their opinions on is their ideology. The followers of the Austrian school are perhaps the prime example, but there are many on the left making the same declaration. They predicted the Dow index to go to 3500 or even 2500 [currently over 9300]. They think that the next great depression is just around the corner. As the stock indexes rise they scream “sucker rally” and tell us why the indexes will go down to new lows. How many of these folks are standing behind their opinions and selling stocks short we will never know, but if they did they lost tons of money. But what is interesting is the reasons for their beliefs that they post. It is all based on their core ideological beliefs. Whether it is paranoia about the influence of banks like Goldman Sachs or a hatred for big business, you can easily see their investing predictions flowing from their ideology. They don’t even bother to hide their hatred for Obama or Warren Buffett or big business. And the truth is they can’t make rational decisions about when, where, or how to invest when their hatred is what is driving them. So when you invest, leave your politics behind, and really look at what is happening. It will serve you well.
Best Retirement Strategy for Passive Investors? July 22, 2009
Posted by shaferfinancial in Finance, Uncategorized.Tags: compare returns from EIUL to S&P 500, Equity Indexed Universal Life, Right strategy for passive invesors?
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For regular readers, they understand I encourage all to become active investors. But, for some they will never want to be anything but passive investors. That is fine, but it becomes even more critical to make good choices as to strategy and product because it will need to carry you through boom times and recessions. That is, of course, one of the insidious facts of mutual fund investing that most people do. Mutual fund investing is great in boom times when the stock market is moving up over long period of times. In fact, it is during the 18 year bull market [1982-2000] that mutual fund investing made its name for itself. But what most people don’t know is how much of an anomaly that time period was. Look at this chart for the reality of how often the market goes down.
What most people don’t realize is that investing for the long run in mutual funds works really well when the market is going up year after year. But it works much less well when the market has down periods every decade or even every 7 years like is does normally.
That is why I ask people to consider equity indexed universal life insurance as an alternative. You see when you have normal markets [ups and downs] this product works at least as well as mutual funds even with higher front-end expenses. And if the market has several down periods in a decade, it works better.
Take the last 10 years for example:
The market returna [S&P 500 with dividends] is the first column. The following two columns compare how much you would have have in an EIUL with 16% ceiling and 0% Floor compared to a no-expense mutual fund starting with a $1,000 investment :
1999 +21.1% $1,160 $1,211
2000 -9.1% $1,160 $1,101
2001 -11.98% $1,160 $968
2002 -22.27 $1,160 $753
2003 +28.72 $1,345 $969
2004 +10.82 $1,490 $1074
2005 +4.79 $1,561 $1,125
2006 +15.74 $1,805 $1,302
2007 +5.46 $1,903 $1,373
2008 -37.22 $1,903 $862
Quite a difference over the last 10 years, which is exactly the point. Since no one can predict what the next 10 years will do, for folks who just want a general purpose strategy that will perform well under all market situations, the EIUL is far superior. [Note, I didn't include expenses for either product. The up front expenses for the EIUL are higher and will dampen performance compared to the mutual fund, but the lower expenses will not produce better results except under an "all bull" market time period.] Then there is the sleep factor with the EIUL never going less than 0, people should be able to sleep better!
The consequences of listening to mainstream ideas; Or why the middle class is financially failing! July 16, 2009
Posted by shaferfinancial in Finance, Uncategorized.2 comments
Leonard Renier in his book Unintended Consequences calls it “transfers.” Its when your wealth is sent to someone else, sometimes unconsciously, sometimes because it is not considered important, sometimes because the “experts” are listened to.
"These are people and institutions that create situations, control the outcomes, and profit from it. In the past we obtained financial advice from these sources. Many times you are led down a narrow path that they control only to find that the outcome wasn't quite what we thought it would be. You might discover that the financial solutions they provided for you may profit them more than they do you. Their thought processes may create more unintended consequences for you in the form of higher taxes, more fees, and higher interest rates." Leonard Renier
This is one of the differences between the way wealthy people think about money and the middle class. The middle class transfers their wealth to government, to the banks and to investment firms at an alarming rate. Mostly this is done without thought. Do you know that when the tax tables [rates] were lowered, taxation actually went up? Many items that were tax deductions were eliminated. Now there is probably going to be increases in taxes. We will see how far down the income ladder it reaches. Here is a question for you. Do you believe taxes will go up or down in the future? If you said up, then you are being consistent with history.
401Ks/IRAs are predicated on taking tax breaks today and paying taxes on a larger amount in the future. Is this a sound strategy? Are there any accountants that tell you to not save inside these tax deferral wrappers? And if you need your money before your 59 1/2 you can get an extra 10% penalty. Nice deal!
Banks are back to insisting upon large down payments. They are charging higher interest rates for folks who have minor problems on their credit. They even charge you a fee to not do anything [set up an escrow account]. Yes, they will give you better deals the more equity you leave in your home. And they have convinced the majority of folks that leaving equity in your home is a good thing. Is it a good thing for you or the bank? Think about it for a moment. You get a 0% return on your equity, lose the ability to access it easily, and put it a risk from any number of disasters, and they get reduced risk in the form of a margin between the amount owned on the mortgage and the value of the home. And now, apparently, when they don’t even bother to do that, they get the government stepping in to help them. Who wins here? Transferring risk from the lender to you is smart?
The government is selling them money for free and they are lending it out for 5-6%. They will even pay you 2-3% for your money [CD], but make sure you don’t need it before the maturity date, because if you do they might just slap a penalty on it. Why can’t you get this free money?
And of course those investment firms which will invest your money for you, for a fee. How are they doing with your money? Earn that fee did they? Is this what those charts they showed you to get your money demonstrated would happen? Do you think maybe they didn’t exactly tell you the truth when they signed you up? Do you think maybe the strategies they use were flawed? Do you think that with a little knowledge you could do as well and not pay their fee?
When you are done paying your bills and transferring your wealth to the government, banks and investment companies, how much do you have left? What if you could severely curtail your transfers? Which transfer should you start with? The government is your largest transfer, why not start with that? For the middle class the banks are next. Now it is unlikely that you will be able to save enough up front to buy a house, so a mortgage is most likely going to be in your life. Why not use that fact to you advantage? As for the rest; cars, flat screens, furniture, you can create your own bank and borrow from it instead of paying those fees and interest to banks. Now this takes some planning and it takes some time to make it happen, but won’t it be worth it?
The middle class always thinks it can outsmart the system. But the system ends up outsmarting the middle class. I have pointed out the small amount of retirement funds people have saved many times before. This is the proof of financial failure. But it doesn’t have to be your future.
Pick up Leonard Renier’s Unintended Consequences. Read it and then contact me. Start doing something about those transfers.
The forgotten story of how thousands of Georgia’s farmers became millionaires July 13, 2009
Posted by shaferfinancial in Finance, Uncategorized.Tags: coca cola millionaires, make investing simple, my run in with coke wealth
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When I was in college, I took a summer job in south Georgia coaching a YMCA swim team. Little did I know I would run right smack into an amazing story of wealth. Now years later, I recall that story for you and hope you take from it some basic wisdom.
When I took the job, they didn’t tell me they were planning to close the swimming pool down to do repairs before the end of the season. In fact, they only told me about a week before it was to happen. Meanwhile the team had several swimming meets yet to go including the championships. I was resigned to an early end of the swimmers summer when a man came up to me and suggested that we could continue swimming in his back yard pool. Now I was 18 years old at the time, and had a very limited world view and experience. This man was …..well to put it bluntly looked like he lived on the streets. Chewing tobacco, overalls, lack of teeth, and a beat up Ford pick up truck. I think to myself, “you gotta be kidding,” but tell him thanks for his invitation and I will discuss it with the parents of the kids.
Much to my surprise, there was only agreement with this arrangement from the parents. Hmmmm, what was going on here????
The following Monday I drove to this man’s house using his handwritten directions [little did I know no one else needed directions]. I made the turn into a dirt road off the main road and drove and drove and drove. Several miles later I reached the end of the driveway. Around back of this comfortable brick house was the pool, around the same size as the YMCA pool!
I know I was slow on the uptake, but even my little brain realized there was something going on here that I wasn’t aware of. At the end of the first week the man suggested I stay for lunch after swim practice, which I readily agreed too. It was here he told me the story.
“It was before the great depression and his father, a small but fairly successful farmer sat in front of a pharmacy in this small town. It was the type of place where everyone knew everyone else. The local banker wandered by and told his father to come on in and get his loan [for seed]. The banker came out and joined the group, each with their bottle of Coca Cola. The banker looked at this group of farmers and said to them, “sure do like this coca cola. Wouldn’t it be nice to be able to grow this stuff.” They all agreed as each man knew he drank several bottles a day in the long hot summer months.
The next week my host’s father went to get his seed money. The banker saw him and waved. As he sat down the banker had a real serious look on his face. He said, “look John, you need to take your financial life seriously.” Now John, was a conservative man and thought, “what is this banker up to, is he going to raise the interest rate or not give me the loan?” But the banker slid the papers over to John to sign. John looked and to his relief the loan was more than he needed to get the seeds and the interest rate remained the same as last year. That’s when the banker reminded him about their little joke. The banker said, ” you need to start growing coca cola.” Then the banker said, “I want you to go over to Hank and with that extra money buy yourself a share of the coca cola company.” Now John had never bought shares before so he was a little fearful. The banker continued, “pretty soon that share will be growing coke for you and it won’t stop even after your dead and buried.” Well John wanted to keep the banker happy, so he did as the banker advised that year and every year when he had a successful crop. By the time my host’s father died he was a millionaire. [1 share of Coca Cola stock bought in 1919, would be worth close to $4million dollars today if you reinvested dividends]. My host was living off the dividends [and quite well it appeared] from his father’s investment. I asked my host if his father ever tried his hand at buying other stocks. He said, no he spent his life farming, raising his family, and going to church. He never thought about the stock much, preferring to pay attention to more important things in his life.
Now I would find out later, my host was not alone in this. There were thousands of coca cola millionaires living in south Georgia at the time.
This is, of course, one of many examples of folks successfully investing in a local or regional company which makes them millionaires. Berkshire Hathaway has its share of Omaha millionaire stock owners. Microsoft is famous for many of its workers becoming millionaires from stock options. At the same time there are many more people who when the opportunity came by, passed.
Years later the banker was asked why he was so insistent on getting people to buy Coca Cola stock. He said, “I drank gallons of that stuff every week, so did every one I knew; figured we weren’t so different than everybody else.” And as it turned out they weren’t as now Coca Cola is drunk around the world.
Investing doesn’t have to be complex. Actually, as we now know the more complex you make it, the worse off you are probably going to do. No need for advanced statistical analysis, risk based formulas. As Warren Buffett points out just some common sense and the willingness to take a look at the profits, cash flow, price, management and some thinking about the products. Of course, Warren made a little money off of the Coca Cola company starting in the late 1980s!
Don’t make investing more complicated than it needs to be. Pay attention to the fundamentals [easily done in the computer age], forget about the mass media, be willing to admit mistakes, take your extra money, even if it is a small amount, and invest in a company!
