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Discussion Starter #1
As some of you know, I do not invest for dividends. The rational from this was copied from Warren Buffett. There are somethings that the man says that I resonate with and others; not so much.

My opinions (and other's opinions) on dividends is neither right nor wrong. This is just the idea that my brain accepts.

For those who are curious about my opinion on dividends, the following was written in 2005 by Mr. Buffett about dividends.

PS: I broke up the article because of the per-post character limit.
 

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Discussion Starter #2 (Edited)
October 19, 2005
Warren Buffett on 'Dividend Policy'

Dividend policy is often reported to shareholders, but seldom explained. A company will say something like, "Our goal is to pay out 40% to 50% of earnings and to increase dividends at a rate at least equal to the rise in the CPI". And that's it - no analysis will be supplied as to why that particular policy is best for the owners of the business. Yet, allocation of capital is crucial to business and investment management. Because it is, we believe managers and owners should think hard about the circumstances under which earnings should be retained and under which they should be distributed.

The first point to understand is that all earnings are not created equal. In many businesses particularly those that have high asset/profit ratios - inflation causes some or all of the reported earnings to become ersatz. The ersatz portion - let's call these earnings "restricted" - cannot, if the business is to retain its economic position, be distributed as dividends. Were these earnings to be paid out, the business would lose ground in one or more of the following areas: its ability to maintain its unit volume of sales, its long-term competitive position, its financial strength. No matter how conservative its payout ratio, a company that consistently distributes restricted earnings is destined for oblivion unless equity capital is otherwise infused.

Restricted earnings are seldom valueless to owners, but they often must be discounted heavily. In effect, they are conscripted by the business, no matter how poor its economic potential. (This retention-no-matter-how-unattractive-the-return situation was communicated unwittingly in a marvelously ironic way by Consolidated Edison a decade ago. At the time, a punitive regulatory policy was a major factor causing the company's stock to sell as low as one-fourth of book value; i.e., every time a dollar of earnings was retained for reinvestment in the business, that dollar was transformed into only 25 cents of market value. But, despite this gold-into-lead process, most earnings were reinvested in the business rather than paid to owners. Restricted earnings need not concern us further in this dividend discussion.

Let's turn to the much-more-valued unrestricted variety. These earnings may, with equal feasibility, be retained or distributed. In our opinion, management should choose whichever course makes greater sense for the owners of the business. This principle is not universally accepted. For a number of reasons managers like to withhold unrestricted, readily distributable earnings from shareholders - to expand the corporate empire over which the managers rule, to operate from a position of exceptional financial comfort, etc. But we believe there is only one valid reason for retention. Unrestricted earnings should be retained only when there is a reasonable prospect - backed preferably by historical evidence or, when appropriate, by a thoughtful analysis of the future - that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.

To illustrate, let's assume that an investor owns a risk-free 10% perpetual bond with one very unusual feature. Each year the investor can elect either to take his 10% coupon in cash, or to reinvest the coupon in more 10% bonds with identical terms; i.e., a perpetual life and coupons offering the same cash-or-reinvest option. If, in any given year, the prevailing interest rate on long-term, risk-free bonds is 5%, it would be foolish for the investor to take his coupon in cash since the 10% bonds he could instead choose would be worth considerably more than 100 cents on the dollar. Under these circumstances, the investor wanting to get his hands on cash should take his coupon in additional bonds and then immediately sell them. By doing that, he would realize more cash than if he had taken his coupon directly in cash. Assuming all bonds were held by rational investors, no one would opt for cash in an era of 5% interest rates, not even those bondholders needing cash for living purposes.

If, however, interest rates were 15%, no rational investor would want his money invested for him at 10%. Instead, the investor would choose to take his coupon in cash, even if his personal cash needs were nil. The opposite course - reinvestment of the coupon - would give an investor additional bonds with market value far less than the cash he could have elected. If he should want 10% bonds, he can simply take the cash received and buy them in the market, where they will be available at a large discount.

Think about whether a company's unrestricted earnings should be retained or paid out. The analysis is much more difficult and subject to error because the rate earned on reinvested earnings is not a contractual figure, as in our bond case, but rather a fluctuating figure. Owners must guess as to what the rate will average over the intermediate future. However, once an informed guess is made, the rest of the analysis is simple: you should wish your earnings to be reinvested if they can be expected to earn high returns, and you should wish them paid to you if low returns are the likely outcome of reinvestment.

Many corporate managers reason very much along these lines in determining whether subsidiaries should distribute earnings to their parent company. At that level,. the managers have no trouble thinking like intelligent owners. But payout decisions at the parent company level often are a different story. Here managers frequently have trouble putting themselves in the shoes of their shareholder-owners.

With this schizoid approach, the CEO of a multi-divisional company will instruct Subsidiary A, whose earnings on incremental capital may be expected to average 5%, to distribute all available earnings in order that they may be invested in Subsidiary B, whose earnings on incremental capital are expected to be 15%. The CEO's business school oath will allow no lesser behavior. But if his own long-term record with incremental capital is 5% - and market rates are 10% - he is likely to impose a dividend policy on shareholders of the parent company that merely follows some historical or industry-wide payout pattern. Furthermore, he will expect managers of subsidiaries to give him a full account as to why it makes sense for earnings to be retained in their operations rather than distributed to the parent-owner. But seldom will he supply his owners with a similar analysis pertaining to the whole company.

In judging whether managers should retain earnings, shareholders should not simply compare total incremental earnings in recent years to total incremental capital because that relationship may be distorted by what is going on in a core business. During an inflationary period, companies with a core business characterized by extraordinary economics can use small amounts of incremental capital in that business at very high rates of return. But, unless they are experiencing tremendous unit growth, outstanding businesses by definition generate large amounts of excess cash. If a company sinks most of this money in other businesses that earn low returns, the company's overall return on retained capital may nevertheless appear excellent because of the extraordinary returns being earned by the portion of earnings incrementally invested in the core business. The situation is analogous to a Pro-Am golf event: even if all of the amateurs are hopeless duffers, the team's best-ball score will be respectable because of the dominating skills of the professional.

Many corporations that consistently show good returns both on equity and on overall incremental capital have, indeed, employed a large portion of their retained earnings on an economically unattractive, even disastrous, basis. Their marvelous core businesses, however, whose earnings grow year after year, camouflage repeated failures in capital allocation elsewhere (usually involving high-priced acquisitions of businesses that have inherently mediocre economics). The managers at fault periodically report on the lessons they have learned from the latest disappointment. They then usually seek out future lessons. (Failure seems to go to their heads.)

In such cases, shareholders would be far better off if earnings were retained only to expand the high-return business, with the balance paid in dividends or used to repurchase stock (an action that increases the owners' interest in the exceptional business while sparing them participation in subpar businesses). Managers of high-return businesses who consistently employ much of the cash thrown off by those businesses in other ventures with low returns should be held to account for those allocation decisions, regardless of how profitable the overall enterprise is.

Nothing in this discussion is intended to argue for dividends that bounce around from quarter to quarter with each wiggle in earnings or in investment opportunities. Shareholders of public corporations understandably prefer that dividends be consistent and predictable. Payments, therefore, should reflect long-term expectations for both earnings and returns on incremental capital. Since the long-term corporate outlook changes only infrequently, dividend patterns should change no more often. But over time distributable earnings that have been withheld by managers should earn their keep. If earnings have been unwisely retained, it is likely that managers, too, have been unwisely retained.

Historically, Berkshire has earned well over market rates on retained earnings, thereby creating over one dollar of market value for every dollar retained. Under such circumstances, any distribution would have been contrary to the financial interest of shareholders, large or small.
 

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Perhaps Warren Buffett wrote this article in reference to Berkshire's dividend policies. However, actions speak louder than words. 19 out of Buffett's top 20 stocks are dividend payers; compare to 362 of 500 in S&P 500. And, 7 of his top 10 weighted stocks pay above S&P500's average yield.

There are many studies that show dividend payers outperfomed their non-paying counterparts:

Triumph of the Optimists: 101 Years of Global Investment Returns (2002) - Over 101 years, [Elroy Dimson, Paul Marsh, and Mike Staunton] found that a market-oriented portfolio which included reinvested dividends would have generated nearly 85 times the wealth generated by the same portfolio relying solely on capital gains. (1900 to 2000, US & UK.)

Dividends and the Three Dwarfs - [Robert D. Arnott] concluded that dividends were far and away the main source of the real return one would expect from stocks, dwarfing the other constituents: inflation, rising valuations, and growth in dividends. (1802 to 2002, S&P500.)

Taxes, Dividend Yields and Returns in the UK Equity Market - Using data from the London Share Price Database (LSPD), [Gareth Morgan and Stephen Thomas] examined the relationship between dividend yields and stock returns from 1975 through 1993 in the UK. Database companies were ranked by dividend yield at the end of each month and divided into six groups, including a zero dividend group (companies that did not pay dividends). … they find a strong [positive] correlation between the size of the dividend yield and the average monthly return. (1975-1993, UK.)

Market Anomalies: A Mirage or a Bona Fide Way to Enhance Returns? - Using a sample of 4,413 companies which were listed on the London Stock Exchange during January 1955 through December 1988, Lenhoff ranked all listed companies each year according to dividend yield and sorted the companies into deciles. …there was almost a perfect correlation in the decile returns between higher dividend yields and higher annualized returns. The top decile, in terms of high yield, produced an average annualized return over 34 years of 19.3% versus 13.0% for the Financial Times Actuaries All Share Index. (1965 - 1998, UK.)

The Importance of Dividend Yields in Country Selection - Michael Keppler examined the relationship between dividend yield and investment returns for companies throughout the world. … The study indicated that the most profitable strategy was investment in the highest yield quartile. The compound annual investment return for the countries with the highest yielding stocks was 18.49% in local currencies (and 19.08% in U.S. dollars) over the 20-year period, December 31, 1969 through December 31, 1989. The least profitable strategy was investment in the lowest yield quartile, which produced a 5.74% compound annual return in local currency (and 10.31% in U.S. dollars). (1969-1989, world.)

Dogs of the Dow - [Michael O’Higgins] (although this is under attack) discovered that by investing in the 10 highest yielding securities in the Dow Jones Industrial Average of 30 industrial companies, and rebalancing annually, one could substantially outperform the average itself. (1973-1998, Dow Jones Industrial Average.)

Triumph of the Optimists: 101 Years of Global Investment Returns - Higher dividend yield stocks outperformed their lower-yielding counterparts and the index by 180 and 160 basis points annualized from year end 1926 to year end 2000 (a basis point is one-hundredth of a percentage point). This translated into 2.29 times the wealth generated by the lower-yielding stocks. (1926-2000, US.)

The Future for Investors - In Jeremy Siegel’s study, on December 31 of each year, the S&P 500 stocks were sorted into five quintiles ranked by dividend yield. He then calculated the returns of the stocks and quintiles over the next year, re-sorting at year-end. He found that better results were directly correlated with higher dividend yields. The highest yielding quintile (top 20% of S&P 500 based on yield) produced an annualized return of 14.27% versus an annualized return of 11.18% for the S&P 500 Index, which resulted in three times the wealth accumulation of the index. (1957-2002, S&P 500.)

Contrarian Investment Strategies: The Next Generation - David Dreman analyzed the annual returns of price-to-dividend strategies using data derived from the Compustat 1500 (largest 1500 publicly traded companies) for the 27-year period ending December 31, 1996. As indicated in the table below, he found that the highest yielding top two quintiles of the Compustat 1500 stock universe ― as reflected by low prices in relation to dividends ― outperformed the market by 1.2% and 2.6% annualized, respectively, and outperformed the stocks with low-to-no yield by 3.9% and 5.3% annually. (1970-1996, US.)

Lehman Brothers Equity Research - High dividend yield stocks were found to have produced more return with less risk than their low-yield counterparts. The Lehman analysts studied the one thousand largest of U.S. firms ranked by market capitalization, and rebalanced these securities quarterly, starting in January 1970. They found that the top-yielding quintile produced a 13.7% equal-weighted total return per year with a 15.5% standard deviation of return. The bottom-yielding quintile, in comparison, returned 9.0% with a 29.1% standard deviation. (1970-2006, US.)

High Yield, Low Payout - Over the 26-year period, [Credit Suisse Quantitative Equity Research] found that stocks with higher dividend yields generally outperformed those with low dividend yields, but the highest yield decile did not produce the best overall return. As their chart indicates, deciles 8 and 9 outperformed decile 10, the highest yield decile. … However, the best returns have not come from those with the highest yields ― higher yields coupled with low payout ratios have produced the best returns. (1980-2006, S&P 500.)

When The Bear Growls: Bear Market Returns - The Compustat 1500 database (1500 largest publicly traded stocks) was used, and the performance of four value strategies ― low price-to-earnings, low price-to-book value, low price-to-cash flow, and high dividend yields ― were measured and averaged for all down quarters and then compared to the index itself for the 27-year period. All of the value strategies outperformed the market, with the high dividend strategy (low price-to-dividend) performing the best of all the value strategies, declining on average only 3.8%, or roughly half as much as the market. (1970-1996, US.)
 

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It seems to me that Buffet is saying that in most cases it is a good thing for companies to be paying dividends but for a large "parent company" like Berkshire Hathaway - with its exceptionally astute management - more value can be generated by the parent if earnings that they garner from dividends are retained rather than paid out as dividends of their own.

I don't see anything inn that article that would lead one to believe they should shun dividend paying companies.
 

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If you have good management, like Berkshire does, and they have a proven track record of adding value then not paying a dividend or having a lower dividend payout ratio would make sense.

In the case of a company like BCE who continually retained earnings rather than paying larger dividends and completely mismanaged their affairs for several years it doesn't.

A strong management team would also probably realize when they can't add any value with retained earnings and might take shareholder friendly steps like making a special distribution to shareholders or larger NCIBs.

There are lots of different investment styles, and lot's of arguments why each one works :) You have to pick what you feel comfortable with and run it.
 

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I will not invest in anything that does not pay me. Dividends are a true signal that a company is doing well and has the interests of the investor at heart. I detest companies, especially large companies, that proclaim to be making boatloads of money, but will not pay one dime to the shareholder. Books/statements can be cooked, but a nice fat dividend is proof the company is doing well and is rewarding the shareholder.
 

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Discussion Starter #7
I don't see anything inn that article that would lead one to believe they should shun dividend paying companies.
I agree. I don't deliberately shun dividend paying stocks, but most of the high ROE companies that I have investments in don't pay dividends, which is fine by me.
 

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Discussion Starter #8 (Edited)
Perhaps Warren Buffett wrote this article in reference to Berkshire's dividend policies. However, actions speak louder than words. 19 out of Buffett's top 20 stocks are dividend payers; compare to 362 of 500 in S&P 500. And, 7 of his top 10 weighted stocks pay above S&P500's average yield.
It is difficult to avoid dividend paying stocks when you need to invest tens of billions of dollars. The selection is just not there nor are the high ROE businesses.

In short, a company paying dividends is likely to be somewhat healthy. However when comparing dividend payers (good companies) their returns pale against debt-free high ROE companies (great companies).

None of the listed studies compared those because it is not practical for an individual to invest in such specific businesses. All the aforementioned studies compare dividend payers (somewhat healthy) to non dividend payers (a mish mash of great businesses, mediocre businesses and horrible businesses).

If you want good returns, buy dividend payers. If you want great returns, buy debt free high ROE businesses.
 

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To my previous point, if you look at the chart of any given US equity and go back ten years to include the 2008 / 2009 crash, the majority of them have not made any money at all. If you were lucky to have pulled out before the crash, then yes, you may have done well...but your timing would need to be impeccable. Now, if the same stock had paid a decent dividend, then at least you would have had something to show for it...not much, perhaps equivalent to a government bond, but something, rather than ten years of non-performance....
 

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I agree. I don't deliberately shun dividend paying stocks, but most of the high ROE companies that I have investments in don't pay dividends, which is fine by me.
I would agree with that. I would rather have a stock with a 30% upside potential within the next year and if that included a dividend that would be fine. If not - who cares.

Buying a low growth stock just because it pays a dividend is fine for a buy and forget portfolio but if actively managing ones' portfolio and seeking growth, a dividend is nice but not necessary.
 

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If you want good returns, buy dividend payers. If you want great returns, buy debt free high ROE businesses.
This needn't be a dilemma. Why not invest in companies with both characteristics, since yield and ROE are unrelated attributes in a company's overall profile? Before investing in any stock, it'd be prudent to look at all attributes including sales, profits, dividends, debt, cashflow, margins and etc. Investing based on yield alone is futile unless we know the dividends aren't funded by debts and new equities. Investing based on ROE is equally futile unless we can ascertain the quality of the "R", ensuring that it's no smoke and mirror.
 

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I agree. I don't deliberately shun dividend paying stocks, but most of the high ROE companies that I have investments in don't pay dividends, which is fine by me.
I'm having troubles connecting the dots together. On your site, you mentioned that you added more K-Swiss which stood at 28.9% of your overall portfolio.

Between 2004 to 2008, K-Swiss was erroding their ROE from 48% to less than 7%, and while in 2008, they issued a one-time $70M worth of special dividend. To put that into perspective, K-Swiss' net income was only $21M, while sales was $340M.

I don't see how the stock aligns with your dividend/ROE philosophy.
 

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Why not invest in companies with both characteristics, since yield and ROE are unrelated attributes in a company's overall profile? Before investing in any stock, it'd be prudent to look at all attributes including sales, profits, dividends, debt, cashflow, margins and etc. Investing based on yield alone is futile unless we know the dividends aren't funded by debts and new equities.
Hear! Hear!
 

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That's an interesting conversation. Many studies have shown that dividend payers tend to outperform non-dividend payers over large periods of time, such as the past 30-35 years.

I think that dividends tend to show investors that the financial picture depicted by the company is truly accurate and not based off some creative accountant's work on the US GAAP ( or choose your own accounting code). So what if you have a high ROE company. You are hoping that the managers would share the wealth with you if the earnings are continuously reinvested back into the business. what managers are mostly concerned about is raising the stock price enough so that they could cash their options at the expense of the shareholders.

I am a fan of a balanced approach where you have a company with a strong competitive advantage, such as MCD, JNJ, PG,KO and many others, which grows revenues, earnings, cash flows and then pays out a growing stream of dividend payments. Even Wal-Mart, which was growing its business since the learly 1970's has started paying out a dividends 2 years after going public, despite the fact that the company was able to generate a strong retun on investment by opening more stores.

I am not a big fan of companies that reinvest all of their profits into new projects. Some of these companies could become "growth stories" and thus its shares could require a stratospheric price earnings mutliple. On the other hand the slow growth and boring companies which distribute enough EPS as dividends to continue their operations typically sell at a more decent valuation.

As far as Mr Buffett is concerned.. He would probably need to rethink his dividend policy pretty soon. Berkshire Hathaway is so big right now, and the companies it acquires are not mom and pop stores anymore, so that I doubt he would be able to generate excessive ROI in the future.

Now, Berkshire does enjoy investing in stocks/companies which throw off enough cash flow to pay the parent company a nice enough dividend, which could be reinvested in something else.
 

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Discussion Starter #15
That's an interesting conversation. Many studies have shown that dividend payers tend to outperform non-dividend payers over large periods of time, such as the past 30-35 years.
As I mentioned in a previous post, although this is true, it isn't exactly a fair comparison. A company that is able to pay out a consistent (and increasing) dividend is generally healthy. A company that isn't able to do this may be a high ROE company (small minority), a mediocre company or a really bad business. In short, you are comparing relatively healthy companies with a mixture of businesses. It is obvious that the group of relatively healthy companies will do better over time.

I think that dividends tend to show investors that the financial picture depicted by the company is truly accurate and not based off some creative accountant's work on the US GAAP ( or choose your own accounting code). So what if you have a high ROE company. You are hoping that the managers would share the wealth with you if the earnings are continuously reinvested back into the business. what managers are mostly concerned about is raising the stock price enough so that they could cash their options at the expense of the shareholders.
I would agree that this is true in the majority of cases. The question then becomes, how do you find the low debt high ROE companies where the managers have similar interests as the shareholders?

I am a fan of a balanced approach where you have a company with a strong competitive advantage, such as MCD, JNJ, PG,KO and many others, which grows revenues, earnings, cash flows and then pays out a growing stream of dividend payments. Even Wal-Mart, which was growing its business since the learly 1970's has started paying out a dividends 2 years after going public, despite the fact that the company was able to generate a strong retun on investment by opening more stores.
Aside from my dislike of ultra large companies, what you mention about Walmart paying a dividend while generating a strong return on investor capital is exactly what Mr. Buffett was referring to. Walmart would have far better served their shareholders if they retained the dividend capital and compounding at that incredible rate.

I am not a big fan of companies that reinvest all of their profits into new projects. Some of these companies could become "growth stories" and thus its shares could require a stratospheric price earnings mutliple. On the other hand the slow growth and boring companies which distribute enough EPS as dividends to continue their operations typically sell at a more decent valuation.
Again, this may be true in a majority of cases. But then the question becomes how do you enjoy the healthy returns of a low debt high ROE business while paying a low P/E or P/B?

As far as Mr Buffett is concerned.. He would probably need to rethink his dividend policy pretty soon. Berkshire Hathaway is so big right now, and the companies it acquires are not mom and pop stores anymore, so that I doubt he would be able to generate excessive ROI in the future.
I agree. Large healthy companies have almost no choice but to pay a dividend. There is no way a large company can maintain double digit returns on shareholder capital.

If you found a way to address your objections (ie managers that don't share the shareholder's interest, and expensive high ROE business), you would be on your way to finding quite amazing businesses.
 

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Discussion Starter #16 (Edited)
I'm having troubles connecting the dots together. On your site, you mentioned that you added more K-Swiss which stood at 28.9% of your overall portfolio.

Between 2004 to 2008, K-Swiss was erroding their ROE from 48% to less than 7%, and while in 2008, they issued a one-time $70M worth of special dividend. To put that into perspective, K-Swiss' net income was only $21M, while sales was $340M.

I don't see how the stock aligns with your dividend/ROE philosophy.
This business was (for better or worse) initially purchased a few years ago when it was generating double digit ROEs.

http://quicktake.morningstar.com/StockNet/Profitability10.aspx?Country=USA&Symbol=KSWS

As the business continued to errode I had to make a decision. Do I purchase the stock at the cheaper price in hopes that they return to their high ROE ways, or sell. I made a bet one way. Only time will tell if this was the correct decision.

Does that help clarify why the stock is still in the portfolio?

PS: My timing has always been flawless :rolleyes:
 

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Discussion Starter #17 (Edited)
This needn't be a dilemma. Why not invest in companies with both characteristics, since yield and ROE are unrelated attributes in a company's overall profile? Before investing in any stock, it'd be prudent to look at all attributes including sales, profits, dividends, debt, cashflow, margins and etc. Investing based on yield alone is futile unless we know the dividends aren't funded by debts and new equities. Investing based on ROE is equally futile unless we can ascertain the quality of the "R", ensuring that it's no smoke and mirror.
If you read Mr. Buffett's writings in the second post, he explains this. I could repeat it, but I wouldn't be able to do it justice.

Again I am not advocating for or against investing for dividends. I'm just throwing it out there that I find no benefit in investing for dividends.
 

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This business was (for better or worse) initially purchased a few years ago when it was generating double digit ROEs.

http://quicktake.morningstar.com/StockNet/Profitability10.aspx?Country=USA&Symbol=KSWS

As the business continued to errode I had to make a decision. Do I purchase the stock at the cheaper price in hopes that they return to their high ROE ways, or sell. I made a bet one way. Only time will tell if this was the correct decision.

Does that help clarify why the stock is still in the portfolio?
That actually raises even more questions, but I don't want to dwell on K-Swiss any further. I'm just grateful on a couple of good picks from you. i.e. BKE and FOSL.
 

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I got to hand it to you Rickson, you have a lot of b:)lls. If you purchased K-Swiss a few years ago when times were good, then you are now seriously underwater. What you are doing now, is effectively doubling down. I don't know how "Buffet" this is but it takes guts. In fact, when I checked your link, you have approx. 70% in US consumer discretionaries. The US is now in virtual ruins, after years of over-indulgence and now faced with debt up to their ears.

My suspicion is that you have the bulk of your capital tied to assets outside of the market. You don't need to disclose this...as you don't owe anyone anything, and certainly nothing to me. But if most of your money is tied to stocks, with no cushion of dividends, bonds or diversification then I have my fingers crossed for you. You have the track record to back your actions, but if it were anyone else, I would say he/she would be either a fool or a clairvoyant to try this without a safety net.
 

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Discussion Starter #20
I got to hand it to you Rickson, you have a lot of b:)lls. If you purchased K-Swiss a few years ago when times were good, then you are now seriously underwater. What you are doing now, is effectively doubling down. I don't know how "Buffet" this is but it takes guts. In fact, when I checked your link, you have approx. 70% in US consumer discretionaries. The US is now in virtual ruins, after years of over-indulgence and now faced with debt up to their ears.

My suspicion is that you have the bulk of your capital tied to assets outside of the market. You don't need to disclose this...as you don't owe anyone anything, and certainly nothing to me. But if most of your money is tied to stocks, with no cushion of dividends, bonds or diversification then I have my fingers crossed for you. You have the track record to back your actions, but if it were anyone else, I would say he/she would be either a fool or a clairvoyant to try this without a safety net.
Whoo hoo! If the U.S. recovers within the next decade we'll be making a tidy sum. Either way, life is good!
 
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