Saturday, December 10, 2011

Don't be a fan when investing

My favorite team, the Green Bay Packers, have started selling shares of the team to the public to raise funds for a stadium expansion. Given the year the Philadelphia Eagles are having, it may seem like piling on to talk about the Packers, but as a long time fan, I have suffered through many barren years. I bring this up not to talk about the Packers, although I am always happy to talk about them, but to offer a few thoughts on the investment merits of buying stocks.

When you think of the Green Bay Packers, the team might seem like a pretty attractive investment. They have a rabid fan base with a decades’ long waiting list for tickets. They also are the reigning Super Bowl champions, are currently undefeated and have the top quarterback and likely league MVP in Aaron Rodgers. And, like other teams, they benefit from the billions of dollars the NFL gets for broadcast rights which increase with every new contract.

So, buying stock in the Packers may seem like a no-brainer but the Packer’s stock offering is very unique. For $250/share you can own a piece of the team but that ownership is very limited. You can only transfer your shares to immediate family members and you can only sell your shares back to the team for just $0.025. There are no dividends payable on the stock and in the event of liquidation, the money goes to “community programs, charitable causes and other similar causes,” not to the shareholders. Shareholders (and let me add that I am a shareholder, having bought stock the last time they issued shares in the late 90’s) are permitted to vote on certain items and attend the annual meeting in Green Bay. So stock in the Packers offers no real control, no hope of future capital gains and no hope of current income. All in all, not a great investment unless you are a fan and can proudly display your stock certificate on the wall in your home or office — then, as they say in the MasterCard commercials, it is “Priceless.”

If buying stock in the Packers does not qualify as a good investment in the traditional sense what then does make a good investment? I ask this because a lot of people I talk to are nervous about the markets today and rightly so given the state of the economy and the wild swings in stock prices. I suggest you start by looking at investments in stocks as investments in the underlying business, not as pieces of paper. You should only invest in a business in the belief that it will be worth more in future than it is today because its sales and profits will grow. You also may hope that the business will pay you a portion of its profits each year in dividends. The appreciation in the value of the business (which will eventually impact the underlying stock price) and the ongoing dividends you receive, represent the return on your investment. If it is positive, you will make money, if it is not you will lose money.

The risk associated with that business doing better or worse in the future is also a consideration in whether to invest in its stock or not. This is relevant in today’s roller coaster market. If you cannot handle the short term, wild swings in the underlying share price then perhaps individual stocks are not a good investment for you. You may be better off using mutual funds or hiring an advisor to manage your money for you.

Finally, what you pay for the stock is paramount. You can lose a lot of money buying a good business at a very high valuation. Instead, be patient and wait until the stock price is low and the valuation is attractive. You are not compelled to purchase a stock, so buy only when it reaches a price that you like.

We certainly think that if you take a long term approach to investing, this market will present you with lots of chances to buy excellent companies at even better prices. The key to remember is that stock ownership makes you an owner of a business, so be patient and only look to buy stock in those companies that you like and believe are undervalued.

If you want to buy shares of the Green Bay Packers, only do so if you are a fan--it is not a good investment. But when you look to make other investments, take the opposite approach. Don’t be a fan, but, instead, take a long, hard look at the company and make an unemotional decision on whether to invest.

Friday, October 7, 2011

Power of Dividends

Yesterday, Corning announced it was raising its dividend by 50% and would buy back up to $1.5 billion in stock.  The stock was up over 7% on the day.  We are quite pleased by the announcement as we have felt for some time the company has the capacity to return more money to shareholders.  We also think a higher dividend forces more discipline on the company management.

Importantly, we think that investors view dividend increases as meaningful signals by management  of how they view the company’s prospects, given that companies are loath to cut dividends. When we talked with Corning’s Investor Relations department several years ago about the dividend, they pointed to that very issue as why they were unlikely to raise the dividend--they did not want to be in a position where they may have to cut the dividend in a difficult business environment. We hope this indicates Corning is more positive with its outlook.

We look forward to additional signals from other company managements.

Disclosure: As of this date, the authors and clients of Harvest Financial Partners own Corning.  Positions may change at any time. This is not a recommendation.  This blog is for informational purposes only.

Thursday, August 25, 2011

Saturday, July 30, 2011

The Debt Ceiling Debate in Washington

Below is an email we sent out to our clients earlier in the week:

We have had a few questions recently about the debt ceiling debate in Washington. The most frequently asked question concerns what impact the failure to raise the debt limit might have on portfolios we manage. Our expectation is that it would have a minor impact on the investments we hold. We should emphasize that we expect a debt ceiling deal to be made and a delay of a week or so past the August 2 “deadline” does not equate to a default. A delay could lead to a partial government shutdown as outgoing payments must equal the $200 billion the government collects in monthly tax revenues, rather than the approximately $280 billion the federal government spends per month now.

Turning to the investments, the stocks we own either directly or through mutual funds are almost exclusively high quality companies with strong balance sheets. We would expect that they would ride out this period with relatively limited impact on their operations. Some of the companies do a substantial amount of work with the federal government and so might see a short-term revenue hit. We believe that even these companies have the financial wherewithal to manage through that period and ultimately would collect any money owed to them. It is also worth noting, we have had a number of stocks we own directly, hit our target sale prices so we have been selling and allowing cash to build up in our portfolios. This gives us flexibility going forward.

As far as fixed income goes, we primarily own high quality corporate bonds of similarly well managed, conservatively financed companies. We expect no issues in collecting our interest and principal payments from them. Another area of the fixed income market we have invested in, more as a cash management tool, has been callable agency bonds. Again, we think ultimate collection of interest and principal due is not at risk. Our worst case scenario would be, in an effort to conserve cash, these agencies of the federal government might not call their securities (meaning buy back their bonds prior to the maturity date) even though it would make financial sense. This would lead to a modest increase in the average maturity of our bond portfolios.

While the future is unknowable, we believe we are well positioned to ride out this period. Overall, we have cash available for opportunities that a market dislocation might provide and we feel good about what we own.

Wednesday, June 22, 2011


We were interviewed by the Wall Street Transcript this month.  Here it is for your review.Harvest Financial Partners June 2011 Interview

Tuesday, May 31, 2011

Best Buy

We run a model portfolio for a service called Covestor.  They asked us to discuss a recent purchase in the portfolio, so we described why we bought Best Buy. Below is the post with a few minor alterations.

Jim Wright and John Fattibene of Harvest Financial Partners manage Covestor’s Domestic Dividend model, which seeks to invest in high-quality, well-managed companies that pay a dividend. They recently added Best Buy (NYSE: BBY) to the model, so we asked them to share their reasons for the transaction. Their response follows.

We bought BBY because it met our 3 criteria:
1)  The company pays and has been growing its dividend. With a very low payout ratio, we think the dividend should be stable and will continue to be increased.
2)  Best Buy is the largest electronics retailer in the country. While there has been some shift from buying electronics in stores to buying online, we still believe there is a significant part of the population that needs help and wants to see the product before purchasing. Best Buy also has an internet presence. We also like the fact that since electronics continue to shrink, BBY is looking at shrinking its store size.
3)  We bought BBY when it was selling at a low multiple against forward earnings. The company also generates a lot of free cash (cash available after expenses and capital expenditures).
Finally, we felt the company was washed out as it has dramatically underperformed the market over the last year.  We think it represents a terrific value and assess its fair value to be considerably above its trading price.

(Disclosure: As of this date the authors and clients of Harvest Financial Partners own Best Buy. Positions may change at any time. These are NOT recommendations. This blog is for informational purposes only)

Tuesday, May 17, 2011

Jim on Bankrate's website

Jim was interviewed for a series where real advisors give real advice to fictitious characters.  Jim helped out Sam Merlotte from the series True Blood.  Check it out here

Tuesday, April 5, 2011

We Have Been a Fan of Abbott for Some Time Now

Barron's wrote about Abbott Labs in this weekend's edition.  We agree that it's undervalued and while love might be too strong a word, we have liked it for some time for many of the same reasons pointed out in the article. 

Principals and clients of Harvest Financial Partners own ABT.  Positions may change at any time.

Tuesday, March 29, 2011

We Think He is Excellent Too

A hearty congratulations to Clyde McGregor of Harris Associates.  He manages the Oakmark Global and Equity Income funds, two funds that we have invested in ourselves and owned for clients for quite some time.  Lipper named him the inaugural recipient of their Award for Excellence in Fund Management.  (Here is the Press Release from Oakmark's website.)  Based on our experience, Clyde has a talent for company valuation and portfolio construction and has been very good at compounding investor's capital over time.  We think the award is well deserved.

(Principals and clients of Harvest Financial Partners are long Oakmark Global and Oakmark Equity Income.  Positions may change at any time.)

Wednesday, March 23, 2011

Jensen Fund

From this article you might be able to tell why Jensen is one of our favorite funds.  Robert Zagunis at Jensen highlights a couple of stocks we own broadly at the firm, one we just sold and one we are looking at.

(Harvest clients and principals own Abbott and Stryker.  Positions may change at any time.)