Meditations, or, goin’ stoic on that Market

Whether you are a DIY investor, or currently still supporting an “advisor”, there comes a time – likely within 6 months of your most recent investment – that you find yourself doubting your sanity, or intelligence or stomach for all the excitement that Mr. Market has to offer.

The Universe is Change; Life is Opinion

  –Marcus Aurelius

 Me, I have to say that I no longer approach my investments in quite the same ways developed earlier in my life; the lessons learned shocked me each and every time: i.e. the stock price will inevitably follow earnings, and if revenue and earnings are consistent in direction and magnitude, the market will reward you. Until some small court in Texas decides to make an example of your company, awarding $600M in punitive damages. Punitive indeed: where is Loewen Group now? I.e. the price of the underlying commodity has to drive the price of the stock, yes? Did anybody follow their gold stock down while the underlying commodity rose from $250 – $1800. Alternative energy anyone? Organics?


Mr. Market cares not for fundamentals; Mr. Market will do what Mr. Market will do and so it was that yesterday McDonald’s – one of my core holdings – released numbers that failed to meet expectations. By the way, what that really means is that the analysts screwed up, they pooched the numbers, and now it’s McDonald’s fault, but that is another rant for another day. McDonald’s did not meet expectations and the headlines would have you believe that MCD is no longer “relevant”, “can’t sell enough wings”, had “disappointing sales” and “burned investors”, and yet, while the markets kicked off their current decline, these disappointed and burned investors drove MCD up a very healthy 1%.

MCD stock chartSo lets look at the facts then: McDonald’s Corp has been running their enterprise as a publicly traded company for almost 50 years, they have not failed to increase dividends for the last 38 years, growing at a rate greater than 20% over the last ten years. Book value has grown at a respectable 6% pace over the last 10 years, but what does the chart on the left tell you?

Screen Shot 2014-01-24 at 3.29.27 PMHow about the chart on the right? Yes, past performance is no guarantee of future performance, but I believe that there are certain metrics that an organisation will attempt to maintain, at – almost – all costs. That of a Dividend Growth Champion is one of them (witness the drubbing that befell GE when they were forced to cut there dividend). For me all of this noise – and these headlines are nothing but  – is nothing but an attempt to get “eyeballs”.

So while the market roils, consider why you bought the stock. Me, I had rules:

  1. the stock pays a dividend > 3% – check
  2. dividend growth is > 7% – check
  3. dividend had grown for > 10 years – check
  4. percent dividend payout is < 60% FCF – check
  5. current PE is in line with historic PE – check
  6. 5-yr CAGR + Yield = target Total Return (12%) – check

Do I care about the breathless forecasts and headlines that fill up the vast spaces of the ‘net? No. Unless there is a fundamental drift in a stock’s ability to meet my criteria, I see no reason to make a change; in fact, until that change occurs I will continue to re-balance my portfolio with more of MCD, and if I pick it up on a downswing, great.

Net/net, if you find yourself responding to the headlines, you’re doing it wrong.

One thought on “Meditations, or, goin’ stoic on that Market

  1. Pingback: “What to do??” | Day Early, Dollar Short

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