Wednesday, July 23, 2014

The First Tycoon: The Epic Life of Cornelius Vanderbilt - Book Review

The First Tycoon is the definitive biography on Cornelius "Commodore" Vanderbilt. It took T.J. Stiles 7 years to research and write this biography and he did a incredible job. He found material not covered in other biographies and also put to rest rumors that seem to be far fetched from other authors.  The Commodore lived a long life he was born May 27, 1794 and died on January 4, 1877 at the age of 82 years old. It was especially long when you consider during his generation most people lived to be 40 years old. T.J. Stiles does a great job shaping the story of not only Vanderbilt but America, politics, and capitalism. 

Building a Dynasty:
When most people think of The Commodore they think of his vast railroad empire because it was the railroad empire he created during the last quarter of his life. Majority of Vanderbilt's life was rising from a boatman to Captain and then builder of the nation's largest fleet of steamships. His transportation revolution changed the world like the modern day internet in he made transportation cheap to the masses and changed the way people communicated and traveled. Vanderbilt propelled the Gold Rush making an alternative sea route and bringing the gold from California back to New York. This helped build New York into the financial center of the world over London. Vanderbilt was the first to really understand how to play politics and how a corporation could be set up to represent individuals. The modern corporation and financial engineering all started with Vanderbilt and his ideas how to maneuver himself on to different boards and takeover companies and run them for the shareholders. Vanderbilt didn't take salaries he got paid through dividends and when he took over a company he had skin in the game! His final stage in life was moving from the sea to land through railroads the biggest industry of the day. In the crises of 1863 he used a stock market corner to become president of the Harlem Railroad. The railroad which was losing money and considered to be worthless Vanderbilt built it into a valuable company. He was on boards of many railroads including the New York. After battles in the following years which Vanderbilt won he bought control of the Hudson River (1864), New Your Central Railroad (1867), Lake Shore and Michigan Southern (1869), and Canada Southern. Making one of the first giant corporations in America he combined the New York Central and Hudson River Railroad together. Vanderbilt also made a historical monument with the Grand Central Depot in 1869 today its been remodeled and moved and is known as the Grand Central Terminal but Vanderbilt's statue reminds out front.  As every dynasty is created and passed on the Vanderbilt children basically squandered the fortune in future generations. The Company was eventually sold off into the market. 

Vanderbilt during a Crisis: 
During his time of reaching the richest man in the nation he had to deal with many different crisis. There were stock market and economical crises but also the Civil War. His battle with Jay Gould and Big Jim Fisk is fascinating. Known as the Erie War over the company Erie Railway. This is when the term "watering down stock" came from and is a great story in itself. He also single handily played huge roles in the panics of 1863, 1869, and 1873. In 1863 he took advantage of the Harlem Short taking control in the railroad. In 1869 after pushing the markets to thier brink, Vanderbilt stepped in with his confidence and his cash to save the market. Jay Gould and Jim Fisk also created black Friday, September 24, 1869 when they tried to corner the gold market on the New York Gold Exchange. The Panic of 1873 as T.J. Stiles points out Vanderbilt new the situation was asset inflation a speculative bubble in railroads it most resembles the housing bubble of 2008. Vanderbilt was wary of over-expansion by the railroads in the West. He also was skeptical of loose credit and economic weakness abroad. The Civil War was a huge crisis and Vanderbilt donated his fastest, largest and best ship to the Union to help defeat the South. Later he donated to launch Vanderbilt University which cost the same as his donation to the Union during the war. 

The lessons learned from Cornelius Vanderbilt:

Before Vanderbilt the value of a company was considered limited to its underlying assets. Companies were split into $100 shares equalling the total amount of physical goods of the company. The money expected by investors for investing in the company came from dividends, not a rising share price. Vanderbilt had the foresight to understand earnings and the worth of a company outside just its physical objects of value. 

When running his transportation business Vanderbilt didn't care how he got paid. It didn't matter if it was gold, silver, or paper. The only thing important to Vanderbilt was a producing productive asset. An productive asset will allows be able to raise capital. 

Vanderbilt understood how the modern economy worked how issuing bonds or stock raising capital at key times can be used to gain an advantage and amass huge wealth. 

Understanding doing what is best for ones-self is doing what is best for the country. This is a key lesson bettering your own situation gives opportunity to others through success. It allows you to give back with means you have created. 

I rate this book 5 of 5 and recommend highly!

Thanks 

DSF

Friday, July 11, 2014

Risky Assets: Captain of the Titanic


I am not calling for a crash or a correction but the wording Vice Chairman of the Fed Stan Fischer used is a stock market going down is not necessarily a worry. Not a worry? Sounds like something the Captain of the Titanic would say.

Today after watching CNBC and listening to Stan Fischer he commented about a term "mopping up" coined by former Fed Chairman Alan Greenspan after 2001 when stocks went down and dealing with the aftermath.  Fischer said, "At present we don't face a very serious macro--any serious asset price problems. I think there is a general concern about how strongly the equity markets are but, I don't think when you're dealing with equity, the stock market can go down without producing a financial crisis."  He goes on to say an equity price bubble is easier to deal with.

Steve Liesman a CNBC made a good point that Fischer or the Fed's idea of an equity bubble and our idea of an equity bubble are a little different.

This reminds me of Jeremy Siegel's book "Stocks for the Long Run Fifth edition" in chapter 2 The Great Financial Crisis of 2008 there is a sub-heading Over leverage by Financial Institutions in Risky Assets. The main point is the fall in real estate prices or the related mortgage-backed securities by itself would have caused the financial crisis or a severe recession if not for key financial firms having built up these assets on their balance sheets. The total value of subprime, alt-A and jumbo mortgages reached $2.8 trillion in the second qtr of 2007. Stated in his book Siegel says even if the price of all these securities went to zero, the value of technology stocks obtained a larger decline during the crash of the dot-com boom seven years earlier.

So the big difference is the brokerage houses and investment banks did not hold the speculative stocks in 2001 time period and they did hold the risky assets in 2008 because they weren't rated to be risky.

If you invest in the stock market also called the equity market always be cognizant that you are buying parts of businesses and there is no guarantee of success. If you make a wrong decision buying a company for to high a price the market is unkind. I think I heard it from Warren Buffett that every investor over long periods will experience a 50% drop in value of his portfolio from peak-to-trough. Of course like Buffett keeping cash on hand to take advantage is a way to combat any decline along with buying protection with options or other hedging alternatives. Most of us investing since 2008 or 2001 or longer have experienced severe market corrections and crashes. The goal is to take advantage of them... Captain your own Ship and always be a little worried!

Thanks for reading

DSF

Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.

Wednesday, July 2, 2014

Target Corporation (TGT) Addition to Stocksnowball Portfolio


This is my third time writing or making a video about Target Corporation (TGT). Last time was on December 18, 2013. 

My transaction history:

Bought on January 2, 2012 for $58.04
Sold on March 4, 2013 for $65.85

Bought on December 17, 2013 for $61.55
Sold on March 7, 2014 for $60.68       (updated real-time on Stocktwits follow me

Bought on July 2, 2014 for $58.70




Company: Target Corporation
Symbol: (TGT)
Industry: General Merchandise Store
My Opinion: Dividend, Value, Dividend Growth

Where did I come up with the idea to invest in TGT? This is a multi-year analysts of mine. I find that this company has untapped value. It just needs a good management team in place like any company. The new CEO may not be the longterm answer. The company is doing reasonably good with weak management because of the brand and business model.

Stock performance has been terrible compared to the S&P500 this can be positive or negative depending on your outlook. I tend to look at it in a positive light because your dividends are working harder when using DRIP to accumulate shares and potential to outperform if the company improves.

The price has followed some of the high profile negative media coverage the company has received from the data breach and Canadian expansion efforts. This is in a market where all companies have been given the benefit of the doubt TGT has managed to lose trust.

The first main issue was the data breach. Target has insurance for this but losing goodwill of the customers is hard to calculate but they are teaming with MasterCard and started the chip-enabled card readers to help boost security. They are also spending $5 million on cyber security upgrades.

The second issue is the Canadian expansion has been down right terrible the man in charge of Canadian operations was let go. This is a drag on shares as margins are not even close to U.S. stores.

Dividend:
Dividend $2.08 (.52 qtr)
Current Yield 3.5%
Next Ex-dividend date is 8/18/2014
Pay date 9/10/2014

The best part of company execution right now is their dividend policy. The company has consistently raised dividends for 46 straight years and is a Dividend Champion! Most recent raise just announced from .43 qtr to .52 qtr. If you compare that to Wal-Mart (WMT) and its 2% raise TGT is far superior. AMZN and COST are also competition but not when it comes to dividends.

Price and Valuation:
As of the July 1 2014 market close $58.37
52 week Range $54.66-$73.50
Last 7 years
Normal P/E Ratio 14.3
Current P/E Ratio 17

Over a longer time horizon TGT has had a P/E around 19. The last 7 years it has slowly come down. It is slightly overvalued to the GDF or earnings line currently on fastgraphs.com.

Conclusion:
This is another company that is paying you to wait while the expansion in to Canada is fine tuned. Is there still value? Yes, the company makes a good amount cash-flow and has a dividend coverage ratio of 2.3x. I think when compared to its peers and competitors the current price gives value moving forward. We are long today at $58.70

Thanks for reading and feel free to comment!

DSF


Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.

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