We are conducting a Writer’s Camp at our farm this Labor Day weekend and some ideas we share on how to sell one’s writing in overreactions can help in investing and business as well as writing to sell.
Our son, Jake, on a visit last week.
There is some great catch and release fishing in the rivers around our farm.
Changes from technology and how the consumer views them will have an enormous impact on investments and business in the years ahead. The norm is for the public to overreact to change.
Overreactions can magnify markets in Adventure, Togetherness, Care, Peace of Mind, Convictions and the Who Am I market have blossomed this last decade. Understanding how businesses reach their customers can help you understand what types of businesses will survive and prosper in the changing times ahead.
Merri and I love living in the Blue Ridge during summers. From dawn into night time there are wonderful surroundings and things to do.
Blue Ridge sunrise from at the top of our farm.
Sitting round the camp fire at sunset.
One of the best examples I ever saw of selling in an overreaction was how Orvis used their 2001 Spring catalog. Orvis has been selling sports clothing and equipment for over 100 years and have learned how to adapt to change.
Spring 2001 was the end of the great 1982 to 2000 stock market dotcom bubble. The population had overreacted to the boom and had a monetary fever. Then they overreacted again caught in the slide. Their emotions at that time were filled of fear and reflection.
That 2001 catalog was more a global picture book than hard sell catalog. 2,000 as you may recall was the time right after this Spring issue features five pictorial themes, “The Serengeti Safari, Walking with the Masai”, “Amazonia, Cruise the Amazon and Rio Negro”, “The American West”, “A Celtic Journey” and “Gulf Coast, the Bird’s Eye View”.
Pictures included scenery, wildlife, rugged outdoor type people, (a cowboy, African photographer, fly fishing guide, two authors of outdoor books and a tug boat Captain). One became so caught up in the stories that the offers sort of sneak up. The whole package kept you reading. This is an example of marketing at its best. Plus of course there are numerous mentions that Orvis is committed to conservation and gives five per cent of its pre-tax profit for the conservation of critical fish and wildlife habitat ( which sells to the convictions market). Get this catalog and use it as a bellwether to gauge the marketing acumen of any company you might be considering for an investment.
By Spring 2002 Orvis had totally changed their catalog again… selling bomber jackets… navy Pea coats and other military gadgets. The catalog was very military… because the US had by then suffered 911. The nation really overreacted to that and was in a really militant mood.
Investors and businesses that spot these overreactions can take advantage because overreactions create value.
For example, I added one of the British Hybrid bonds (Skipton Building Society) that is yielding 10%. We looked at these bonds in Thursday’s message on Hybrid bonds.
The 21.5% drop in the British pound, the double dip recession there and the worries about the financial sector in all of Europe have pushed bond yields to 10%.
This is for the same reason I am holding numerous euro investments… especially in the financial sector. The public always overreacts.
Look for High Yield Shares
Good portfolios generally are diversified into shares and bonds. Tom Ruggie at Ruggie Wealth outlines an important reminder in is recent weekly commentary to consider when selecting shares.
WHAT ADDS MORE VALUE TO YOUR PORTFOLIO, CAPITAL GAINS OR DIVIDEND INCOME? When folks invest in the stock market, they hope to get back more money than they put in. This return on their investment can come from either a capital gain, meaning the stock price rises, or it can come from the company paying a dividend, or both. So, historically, has the return from common stocks come mostly from capital gains or from reinvesting dividend payments?
Researchers Elroy Dimson, Paul Marsh, and Roy Staunton of the London Business School crunched the numbers and came to a startling conclusion. Here’s what they discovered:
· Counting capital gains only, $1 invested in the U.S stock market in 1900 grew to $217 by the end of 2010. This is an annualized return of 5.0 percent.
· Counting capital gains andreinvesting your dividends, $1 invested in 1900 grew to $21,766 by the end of 2010. This is an annualized return of 9.4 percent.
· Similar results were found for other markets around the world.
Source: Financial Times article, March 4, 2011
No doubt, capital gains are sexy. Who doesn’t love to go to a cocktail party and talk about the stock you bought which doubled or tripled in value? Yet, as the research shows, the rather boring dividends account for a substantial part of investors’ stock market returns.
A report from ING Investment Management added, “Research shows that companies paying high dividends are likely to become the most profitable, that dividends bring the largest contribution to equity portfolios over the long-term, and, finally, that companies paying high dividends outperform those paying low or no dividends.”
So, yes, dividends matter.
There are times, though, when investors get carried away and bid up the price of dividend-paying stocks such that they’re no longer attractive. Accordingly, ING said, “While companies paying high dividends outperform the market over the long run, they can under perform it over a shorter period.”
Based on the research, it’s clear that over the long term, dividends are an important consideration in building a portfolio.
Yield Matters Even More in Overreactions
In the long run yield is always the measure of value and good value is created by public overreactions.
Three high yielding shares to consider that may have extra value because of overreaction are:
HSBC (symbol HBC) (Finance, 6.36% Depositary Shares, Non-Cumulative Preferred Stock, Series B)
Another example is the Royal Bank of Scotland (Symbol RBS) 7.25% Noncumulative Dollar Preference Shares Series H ADR.
The ETF “iShares S&P U.S Preferred Stock Index Fund” (Symbol PFF). This etf has over 200 holdings and almost one fourth are in the financial sector. All ten of the largest positions as shown below are in the financial sector.
High yield shares can also boost the return in pensions.
The power of pensions invested globally to preserve wealth can be seen by Mitt Romney’s individual retirement account. The news reported that Romney’s IRA holds more than $20.7 million. This is not an endorsement for Romney… this is simply a statement of how potent pensions can be for preserving wealth.
A Romney campaign aide said the tax treatment for his IRA “is the same for Gov. Romney as it is for every citizen of the U.S.” So what Mitt can we do, so too can we all.
An article in the Trust Advisor website shows how Romney may maximize his IRA so investment gains can accumulate tax-free in an IRA in overseas investments. The method used by tax lawyers is to have the IRA invest through an offshore affiliate of the private-equity firm, known as an offshore blocker corporation. Any special tax is avoided because the IRA is investing in the offshore corporation, not in a private-equity partnership.
Tax experts say that might explain why Mr. Romney’s IRA includes holdings in Bain entities based in offshore locations, including one Cayman Islands entity that Mr. Romney listed as having a value between $5 million and $25 million.
See more about Romeny’s IRA and offshore blocker corporations at the Sovereign International Pension Services site.
Join me with Larry Grossman of Sovereign International Pensions and Thomas Fischer of Jyske Global Asset Management for our Oct. 5-6-7 Super Thinking + International Investing & Business seminar.