Situation: The premise of our weekly blogs is that all of us are planning ahead in order to enjoy a healthy, productive retirement. That said, each of us needs financial resources that are adequate to fund our planned retirement. In other words, this blog is focused on Classical Economics, not Behavioral Economics. But for this week, we want to step “out of frame” and examine some issues that are better examined through the eyes of the Behavioral Economists. The key point is that retirees conduct their business while living with two problems that likely received insufficient attention prior to retirement. The first problem is that exiting from your day job can create a crisis related to identity. Second, retiring means we must face the illusion that we are immortal . . . and recognize that we are not.
If you didn’t know it prior to retiring, certainly afterwards most people will admit that their day job was a complicated mixture of being “just a job” or livelihood, and being their personhood. In retirement (and job loss), we frequently have to construct another “personhood” to replace what has been lost. As a medical doctor, I know that patients with good mental health tend to beat the odds, e.g. after treatment for cancer. I also know that depression makes one more vulnerable to illness and injury, and that losing one’s job is at the top of the list for creating Reactive Depression (along with divorce and death of a family member). Being hit with any one of those three life events is considered by most doctors to be reason enough to seek counseling. Personally, I believe that beginning retirement is the kind of loss that should also be added to the above list. (You've lost your job!)
Why is that? Well, because fundamentally, having a satisfactory retirement isn’t really about finding enough money. It’s about freedom . . . peace of mind. We’ve “slain our dragons” and now it’s time to find a sense of accomplishment, peace of mind. How do we make this transition? It starts by remembering who you were when you came of age. Those who have always worked will probably be interested in finding another job after they retire.
Another important point is that you need to stay healthy. Your mental attitude (optimism and energy) depends on feeling well. The basic keys to good health are easy to remember and cheap to apply: 1) Eat more fresh vegetables, fruit and nuts but less red meat (and no desserts); 2) do cardiothoracic conditioning, something equivalent to two miles of brisk walking and 10 push-ups a day; 3) gradually get back to your high school graduation weight; 4) limit yourself to one cup of coffee a day and one drink a week; 5) don’t smoke cigarettes, puff cigars, or hang out with smokers; 6) get regular dental care to make sure you’re not developing a tooth abscess; 7) get a colonoscopy every 10 years; 8) take a nap most afternoons; 9) drink more water than you think you need (this is because as you get older, you won’t feel the thirst until you’re weak from dehydration).
Your main enemy is hypertension, and it is certain to afflict you if you aren’t aggressive about getting daily exercise, minimizing caffeine intake, staying away from smokers, avoiding contentious people, and getting your BMI (body mass index) under 22. Buy a blood pressure measuring kit to use at home (and keep a daily log). And, as your age advances, gradually wean yourself from driving cars; walk instead. Don’t shovel snow (way too many people get heart attacks from doing that). If you develop any kind of sudden neurological dysfunction, call 911.
Bottom Line: Retirement isn’t what it’s cracked up to be in TV ads for ocean cruises, blood thinners and Viagra. At first you’ll be surprised when friends become disabled by old age, or just up and die. You’ll soon need to take a philosophical position on the subject of death, become more aware of who you are. By knowing your core values, you’ll be better able to make a list of who and what gives you peace of mind. Doing those activities and seeing those people will lower your blood pressure. And don’t forget to make some new friends. Your goal is to find a sense of freedom, which includes freedom from deadlines, obligations and supervision by anyone (other than your cardiologist). If people you know try to get you to march to their drummer instead of your drummer, find other people who share your values. You’ll live longer and better because you’ll have a life, and do things you want to do. Think less about return on invested capital and more about return of invested capital. As you get older, you’ll sleep better if you gradually wind down “growth” investments while maintaining “defensive” investments. So, the end result of this discussion is that we have prepared a Table for this week that has two bond examples plus 5 stocks worth preserving for the growing dividends they’ll spin off. We selected those 5 from our recent list of 10 Lifeboat Stocks (see Week 174). Our goal in presenting this Table is to provide you with a sample of sound dividend and interest paying investments that will give you a stable platform for your Golden Years.
Risk Rating: 3
Full Disclosure: I dollar-average into WMT and 10-yr inflation-protected T-Notes, and also own shares of JNJ, BDX and PEP.
Note: Metrics in the Table that underperform our benchmark (VBINX) are highlighted in red; metrics are current as of the Sunday of publication.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Sunday, March 8
Sunday, March 1
Week 191 - Key Food and Agriculture Companies in the Barron’s 500 List
Situation: Here's where your investment philosophy kicks in. At ITR, we have a vision that sees markets in shades of grey, never in black and white. You'll point out that investments would turn dark pretty quickly if there were a nuclear war or a highly lethal pandemic. Warren Buffett has said as much. A wave of bankruptcies would occur and some markets would undoubtedly freeze up for a while, years maybe. But some companies would do well: gold miners, food processors, agricultural suppliers, and farmland manager/brokers.
Survival of the human species depends of producing, processing and distributing food. Large food and agriculture companies, such as those in the Barron’s 500 List, would have to take the lead in resolving a food crisis. Which companies are best positioned to play key roles in supplying farmers & ranchers with tractors, combines, seeds, animal feed, fertilizer and herbicides? Farm products have to be processed, and packaged foodstuffs have to be distributed to grocery stores, hotels, restaurants and institutions. Bear in mind that the year-over-year value of these companies is determined as much by the weather cycle as the economic cycle. So, their stock prices are “non-correlated” relative to the price of the S&P 500 Index. That “non-correlation” and the "essential" nature of food explains why Omaha out-performed all other US cities during the 2007-2009 recession.
In constructing this week’s Table, we’ve looked first to companies that have high credit ratings and stable stock performance, as indicators of companies that can weather a crisis. To evaluate long-term performance, we’ve looked for companies that have less variance than the S&P 500 Index in share appreciation, as measured from the log-linear trendline of stock prices over the past 20 yrs, as shown in Column L of the Table. We came up with 14 companies, 9 of which are Dividend Achievers with at least 10 consecutive yrs of dividend increases (see Column Q in the Table). None of the companies are overpriced on every one of the 3 metrics that we use (see Columns J, K and L in the Table).
Bottom Line: Large food and agriculture companies underpin farmland values, and farmland has historically been the most productive investment to have (see Line 19 in the Table), in terms of Finance Value (Reward minus Risk). By various estimates covering over 100 yrs of data, after-inflation returns on farmland are ~9%/yr. Large food and agriculture companies have approximately the same returns but at much greater risk of loss in value during recessions and depressions (see Column D in the Table). But they’re the next best thing to owning farmland. The source of all that value is our dependence on food for survival.
Risk Rating: 5
Full Disclosure: I have no plans to buy or sell shares of companies in the Table, but own shares in half of them (MON, HRL, GIS, KO, PEP, DE, DD).
Note: Metrics that underperform our key benchmark (VBINX at Line 24 in the Table) are highlighted in red. All metrics are current as of the Sunday of publication.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
Survival of the human species depends of producing, processing and distributing food. Large food and agriculture companies, such as those in the Barron’s 500 List, would have to take the lead in resolving a food crisis. Which companies are best positioned to play key roles in supplying farmers & ranchers with tractors, combines, seeds, animal feed, fertilizer and herbicides? Farm products have to be processed, and packaged foodstuffs have to be distributed to grocery stores, hotels, restaurants and institutions. Bear in mind that the year-over-year value of these companies is determined as much by the weather cycle as the economic cycle. So, their stock prices are “non-correlated” relative to the price of the S&P 500 Index. That “non-correlation” and the "essential" nature of food explains why Omaha out-performed all other US cities during the 2007-2009 recession.
In constructing this week’s Table, we’ve looked first to companies that have high credit ratings and stable stock performance, as indicators of companies that can weather a crisis. To evaluate long-term performance, we’ve looked for companies that have less variance than the S&P 500 Index in share appreciation, as measured from the log-linear trendline of stock prices over the past 20 yrs, as shown in Column L of the Table. We came up with 14 companies, 9 of which are Dividend Achievers with at least 10 consecutive yrs of dividend increases (see Column Q in the Table). None of the companies are overpriced on every one of the 3 metrics that we use (see Columns J, K and L in the Table).
Bottom Line: Large food and agriculture companies underpin farmland values, and farmland has historically been the most productive investment to have (see Line 19 in the Table), in terms of Finance Value (Reward minus Risk). By various estimates covering over 100 yrs of data, after-inflation returns on farmland are ~9%/yr. Large food and agriculture companies have approximately the same returns but at much greater risk of loss in value during recessions and depressions (see Column D in the Table). But they’re the next best thing to owning farmland. The source of all that value is our dependence on food for survival.
Risk Rating: 5
Full Disclosure: I have no plans to buy or sell shares of companies in the Table, but own shares in half of them (MON, HRL, GIS, KO, PEP, DE, DD).
Note: Metrics that underperform our key benchmark (VBINX at Line 24 in the Table) are highlighted in red. All metrics are current as of the Sunday of publication.
Post questions and comments in the box below or send email to: irv.mcquarrie@InvestTuneRetire.com
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