Like many companies nowadays, they are managed for the benefit of executives and employees, not shareholders.
They buy back stock to give their employees and to boost the price for the benefit of their executives' options. If the shareholders' money wasted on overpriced buybacks does not suffice to boost their options, they re-price underwater options, like Google just had the gall to do!
Meanwhile, shareholders get diluted and receive no dividends, just wait for the "greater fool" to pay them a higher price.
Boards are mostly stuffed with "good-ol-guys-and-gals", all they want is to stay on the board for the pay and perks, without regard to shareholders' interests. Most real shareholders do not vote or even know which companies they "own" because their mutual fund managers do it for them.
If the administration wants to reinstate a healthy stock market, they need to place restrictions on the governance of publicly traded companies to prevent management's abuse of their shareholders. The SEC, or perhaps the retirement oversight agencies, have this duty because much of the public have no option but to put their retirement savings in publicly traded stocks via their 401K's, and most don't even know what stocks they indirectly own, so they are being unwittingly fleeced. Companies that don't like such restrictions should either go private, or, at least, should be banned from ownership by "Joe the plumber's" 401K, and only be traded by individual investors who actually get to vote on corporate governance.
On Apr 08 05:43 PM Asif Suria wrote:
> Could not agree more on the dividends. Oracle finally found dividend > religion just like Intel and Microsoft did and the stock appreciated > sharply after the announcement. It is ironic that Oracle's dividend > yield even at the time of announcement was just 1.25% and is probably > under 1% now. > > Cisco did announce a huge $10 billion stock buyback in late 2007 > (talk about timing) but buybacks have not even been sufficient to > offset dilution from options granted to employees.
Cisco is a great company. I bought some after the dot.com crash at $11, but when it got to $30 I could not resist unloading them. Recently, I again got in @$14, but it climbed quickly, so just sold it when it hit $18. I think thecompany is well run, makes necessary products, has a solid balance sheet, etc, but because it pays no dividends, I find it easy to sell whenever I see a good appreciation rate. If it drops to $14 I'll be in again for a trade, if not I'll stay with buying dividend payers.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
Thanks for an informative analysis. When the market was near its lows I had argued that sound stocks were by no means "cheap"; and that the low SP500 was more due to some of its constituents being demolished, rather than due to its good companies becoming "cheap". This was just an observation, now bolstered by your excellent analysis, which says that the demolished ones have stirred back to life in the ER, boosting the SP500.
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
I am glad you have turned optimistic because your opportunity range of 6500-6800 on the dow has arrived. I certainly agree that there are good values in many stocks, but many still are overvalued, and I suspect that the current general levels of the markets (+/-25%) will be with us for some years, as they are closer to normal levels than the irrational exuberance that began in the mid-90's.
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
13 Safe Stocks in a Return to the 1970s [View article]
Great article.
I suspect I may be a bit younger than your Dad, but I do remember the notion of "risk premium" that has been rendered quaint in the era of the Great Bubbles. This states that since stocks had higher risk than bonds, their return based on their earnings, of which a reasonable proportion was expected to be paid out as dividends, should exceed that of bonds.
In the era of the Great Bubbles, the notion of "risk premium" was replaced by the notion of the "greater fool", i.e., that someone will always be willing to pay you more for a stock, even if its earnings are miniscule and its dividend is nil. After all they say that "a sucker is born every day".
I agree that quaint notions like "risk premium" are back in vogue, as we are running out of "greater fools".
Cisco: Compelling at These Levels [View article]
Like many companies nowadays, they are managed for the benefit of executives and employees, not shareholders.
They buy back stock to give their employees and to boost the price for the benefit of their executives' options. If the shareholders' money wasted on overpriced buybacks does not suffice to boost their options, they re-price underwater options, like Google just had the gall to do!
Meanwhile, shareholders get diluted and receive no dividends, just wait for the "greater fool" to pay them a higher price.
Boards are mostly stuffed with "good-ol-guys-and-gals", all they want is to stay on the board for the pay and perks, without regard to shareholders' interests. Most real shareholders do not vote or even know which companies they "own" because their mutual fund managers do it for them.
If the administration wants to reinstate a healthy stock market, they need to place restrictions on the governance of publicly traded companies to prevent management's abuse of their shareholders. The SEC, or perhaps the retirement oversight agencies, have this duty because much of the public have no option but to put their retirement savings in publicly traded stocks via their 401K's, and most don't even know what stocks they indirectly own, so they are being unwittingly fleeced. Companies that don't like such restrictions should either go private, or, at least, should be banned from ownership by "Joe the plumber's" 401K, and only be traded by individual investors who actually get to vote on corporate governance.
On Apr 08 05:43 PM Asif Suria wrote:
> Could not agree more on the dividends. Oracle finally found dividend
> religion just like Intel and Microsoft did and the stock appreciated
> sharply after the announcement. It is ironic that Oracle's dividend
> yield even at the time of announcement was just 1.25% and is probably
> under 1% now.
>
> Cisco did announce a huge $10 billion stock buyback in late 2007
> (talk about timing) but buybacks have not even been sufficient to
> offset dilution from options granted to employees.
Cisco: Compelling at These Levels [View article]
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
Five Predictions for This Market [View article]
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
13 Safe Stocks in a Return to the 1970s [View article]
I suspect I may be a bit younger than your Dad, but I do remember the notion of "risk premium" that has been rendered quaint in the era of the Great Bubbles. This states that since stocks had higher risk than bonds, their return based on their earnings, of which a reasonable proportion was expected to be paid out as dividends, should exceed that of bonds.
In the era of the Great Bubbles, the notion of "risk premium" was replaced by the notion of the "greater fool", i.e., that someone will always be willing to pay you more for a stock, even if its earnings are miniscule and its dividend is nil. After all they say that "a sucker is born every day".
I agree that quaint notions like "risk premium" are back in vogue, as we are running out of "greater fools".
Cisco Beats EPS Estimates [View article]