Sunday, September 24

Week 325 - Sans Artifice Is The Preferred Look

Situation: Objective reality is mercenary. Business deals are largely about “transferring risk to a less knowledgeable party.” We know better than to take these things personally, but we tire of the rat race and look forward to drinking with friends on the weekend. 

We often take risks ourselves, to recover from our mistakes (divorce, buying a “fixer-upper” in a changing neighborhood, not kicking adult children out to face the world, etc.). 

To avoid becoming alcoholics or gamblers, we must tend better to our personal relationships and try not to be an avatar of money. How does one do that? Three ways: One is about the way we invest, making wise choices. That would include having a large cash position, and a nest egg of stocks and bonds that aren’t gambles. Another is in the messages we give off, the optics and emojis we emanate. Finally, we must place a high value on family life, loyalty.

We all know how to give the impression that we’re about money, which is to “dress for the job you want”. At the opposite end of the spectrum, you’ll find people who are sans artifice but steady and reliable. They don’t armor themselves in upscale clothing, makeup, or scents. Men would then find themselves leaving the suit jacket, the sport coat, the tie, the permanent-press shirt, and the shiny shoes in the closet. And maybe think about replacing that expensive ride with a Prius Two or small Tesla. 

For women, it would mean falling out of bed in the morning to compose her ensemble, which may include clothing that doesn’t cover up tattoos, no makeup, and Skechers as the default choice in footwear. Once so-attired, openness toward whomever comes naturally, without giving a thought to talking up or down to that person. 

Let’s look at the money side. What does “having a large cash position” mean? It means you either hold Treasury Bills at (and dollar-average into 2-Yr Treasury Notes as well as Savings Bonds), or you hold a large cash balance at an FDIC-insured bank. 

Why is cash important? A recent Wall Street Journal article titled “Longer CFO Tenure is Good for Companies” has a good explanation. When faced with the Lehman Panic in 2008, the CFOs who kept their jobs used good people skills to hold on with successive CEOs but also went into the crisis with large cash positions on the company ledger. Not surprisingly, the companies that have these long-tenured CFOs tend to have unusually good stock performance. Simple message, isn’t it? Good people skills combined with a propensity to hold large cash positions. And, it doesn't depend on a lot of experience. Some of those CFOs were barely 30 years old when the Lehman Panic hit. It's a matter of values.

Mission: Assemble a list of A-rated Dividend Achievers that have Tangible Book Value and also have shown less volatility than the S&P 500 Index over the past 20 years.

Execution: see Table.

Bottom Line: This is a “tortoise and hare” blog, the Central Thought being to “live long and prosper.” Use little debt and maintain a large cash position, that’s the easy part. You just need to say “no” a few times, and walk the talk (meaning no artifice or excess in your habits). The hard part is hewing to family life. Believe it or not, that’s the best way to prevent high blood pressure. I know. I’m a doctor. (Try getting through a divorce without high blood pressure.) 

For equities, the 10 stocks in the Table have returned almost 12%/yr since the S&P 500 peak on 7/19/07 vs. ~7%/yr for the S&P 500 Index ETF (SPY). For cash, the iShares 1-3 Year Treasury Bond Index ETN (SHY) has returned 2.0%/yr (vs. inflation of 1.7%/yr).

Risk Rating: 4 (where 10-Yr US Treasury Note = 1, S&P 500 Index = 5, gold = 10)

Full Disclosure: For equities, I dollar-average into JNJ, PG and NEE, and also own shares of HRL, TRV, MMM, and WMT. For cash, I dollar-average into ISBs (Inflation-Protected Savings Bonds).

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