A Possibly Interesting Graph and Post

[adios]

Inflation Adjusted DJIA Over Time

Again the DJIA isn't the best way to show how the market has faired and I'm not sure how long the DJIA has been around as this graph goes back a long way but the DJIA does correlate fairly well to the S&P 500 which is a better way to measure overall market performance.


Here's a post which I thought was good. BTW James_R_White played poker for a living at one time.

Re: reaching for yield
by: James_R_White (56/M/Islamorada, FL) 05/06/03 06:00 pm
Msg: 72089 of 72147

> James do you have a guess as how long this continues. (I'm up 1.8% today) What would you look for to give you a clue as to when things are going to turn the other way. Thanks Cranskin <

I expect dividend-paying stocks, especially those with growth potential to outperform the major market averages for several years.

The major market averages are still way too high relative to earnings . . . look at the plot at http://home.earthlink.net/~bettyorbob/TEI/djia.gif very carefully. The average inflation-adjusted gain on the Dow is about 3%/year, and it is WAY over the mean.

I believe the following quote sums it up:

-=-

Jim Grant also throws cold water on the notion that The Bottom has arrived by citing the superb work of Andrew Smithers. "As a quant, Smithers believes that certain things are exactly true and others are exactly not. Among the true things are these: Stock prices are mean-reverting; when they diverge too far from the average return, they go back to it. The long-term real return on equities averages around 7%. The long-term P/E ratio averages around 14.And the long-term real return to investors on their shares must be the same as the real return to corporations on their equity. It's a mathematical truism."

-=-

I think the major market averages need to either move sideways for a long time or go down a lot for the major market averages to be where they should be. Considering the valuations of the mREITs, CanRoys, and such, they need to go up a lot to be fairly valued in relation to the major market averages. I don't see any reason why an AHR, for instance, couldn't appreciate in price to yield 8 to 10% - that would be a 20% to 40% gain. I don't see why NFI, for instance, given its high rate of growth, couldn't go up in price such that it yields in the 12 to 14% range.

Given a long period of low interest rates and low growth, I think we could see the trickle of yield-hungry investors turn into a flood, especially as more and more boomers start thinking income rather than growth.

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Here's something I came up with:

I started keep some stats around the beginning of February of stocks that looked like buys to me. The following is a breakdown of sectors and how many are up vs. how many are down. Some I started in March but I started keeping track of them as they looked like buys.

Muni CEF’s – 26 up and 1 down. The one that’s down is actually up if you count divis.

MREITs – 11 up 0 down.

EREITs – 18 up 1 down (the one that’s down is about 2%).

CEFs – (high yielding mostly) – 11 up 0 down

CanRoys – 4 up 2 down

Various Low BV – High yielding securities – 8 up 2 down


78 ups 6 downs. I’ve never witnessed anything like it. It seems to me that Mr. Market is making a huge statement.

We'll see how long it lasts.

[scalf]

[img]/forums/images/icons/tongue.gif[/img] invest in what you see; not what you believe....gl...gr8 posy [img]/forums/images/icons/heart.gif[/img]

[AceHigh]

So you think REITS should be priced based on about a 15% yield? Sounds reasonable to me. That would make NFI, potentially a $60 stock.

Have you checked out TOLL Brothers(TOL) lately? That a stock you and I were talking about in the beginning of the year, it's been doing well lately.

[adios]

"So you think REITS should be priced based on about a 15% yield? Sounds reasonable to me. That would make NFI, potentially a $60 stock."

The 15% is right although I would avoid certain ones right now like ANH, NLY, AXM, and MFA because of the re-financing boom going on as they are subject to pre-pay risk. For instance AHR has Zero pre-pay risk. NFI should do really well in this environment. They did a small follow on today but trading at over 2 times BV, it's monsterously accretive to earnings. I know more than a few who have made some big bucks on this one and will lighten up around $50 but IMO it's a $60 stock waiting to happen.

"Have you checked out TOLL Brothers(TOL) lately? That a stock you and I were talking about in the beginning of the year, it's been doing well lately."

Still a cheap stock by all metrics that I know of. I started checking out Pre-Paid Legal Services. I haven't gotten through all of the 10-K yet but it seems reasonably priced from what I can tell. Revenues seem to be growing at a good clip.

[adios]

Just as we're talking about NFI at $60 a share this article hits today after the close so we'll see what happens:

Supernovas Don't Last


The article has nothing new in it. Gain-on-sale accounting has been misused by other companies in the past but all evidence points to the fact that NFI is being quite coservative in it's use. As one poster put it regarding the delinquencies:

look at it this way , if 1% of 1bln was delinquint in Q4 and 1% of 1.81bln was delinquint in Q1 od 2003 , technically speaking , the absolute number of delinquint loans has increased 81% .......... the reality is that the % delinquint is unchanged ......

The bottom line is that there are risks in NFI but the company is paying all of it's earnings to shareholders since it's a REIT (it only has to pay 90%). The NFI 10K has an excellent breakdown of their loans, their characteristics and their securitization process.

[scalf]

[img]/forums/images/icons/smirk.gif[/img] my gut feeling is that a forbes slam will yeld a better buying opportunity...and more long term profits for longs....you do not get rich following forbes recs...jmho...gl..fade em [img]/forums/images/icons/crazy.gif[/img] [img]/forums/images/icons/cool.gif[/img] [img]/forums/images/icons/diamond.gif[/img]

[adios]

Good points. It seems like being overconfident is the kiss of death though. Based on that graph another crash isn't so far fetched I suppose.

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[img]/forums/images/icons/shocked.gif[/img] just wondered if anyone you know/knew at case got hurt , tom...gl [img]/forums/images/icons/confused.gif[/img]

[adios]

Nobody that I knew. The building is fairly new from what I understand so it didn't exist when I attended. I did notice the gunman was 52 and I'm 52 though but I have no idea who it is.