General Opinions on Property VS Shares

I had a good laugh reading this as I could not agree more with you @austing !

The emotion was running high that afternoon choosing the entry price to buy, and that sense of excitement to execute the trade, as if I was in some sort of flow, strange feeling I know

Funny thing is that i was kind of disappointed that the market recovered the last few days. I still have dry powder waiting to deploy so a bit itchy

The Coke purchase was really due to @The Falcon credit. I remember he mentioned it a while back but I did not check and have been only tracking the LICs.

I have learned few basic checking process: long term price, long term dividend history if trending up, any special event etc, and really enjoy reading WHF's annual report. I think I have caught the LICs bug from you Austing it is a good addiction

But I still don't know yet how to identify other shares like CCL.

 

Not a fan of Coke, but great story here

How Quincy, Florida Became a Town of Secret Coca-Cola Millionaires

In the 1920’s and 1930’s, a banker named Pat Munroe in the small town of Quincy, Florida noticed that even during the depths of the Great Depression, otherwise impoverished people would spend their last nickel to buy a glass of Coca-Cola. With good returns on capital and a once-in-a-century valuation where the business was trading for less than the cash in the bank, “Mr. Pat”, as he was called, encouraged everyone he knew to buy an ownership stake in the firm. He would even underwrite bank loans, backed by Coca-Cola stock, for his responsible depositors to encourage people to acquire equity.

Coca-Cola had gone public at $40 per share but a conflict with the sugar industry and its bottlers resulted in a 50% crash shortly thereafter, when it reached $19 per share. Focusing on the bottom-line profits, and the power of the brand, Pat Munroe kept buying. And he kept telling everyone else to buy, too.

That one observation, and Mr. Pat’s business skills in convincing others to buy assets that produced cash irrespective of short-term market fluctuations, not only changed lives, it saved the farm town during the Great Depression as the local economy was supported by Coca-Cola dividends. It has also supported the town in “every recession since”, according to the man who now runs the trust department in the bank that was once headed by Munroe.

Cont...

 

@austing Are we talking about Coke as in KO (NYSE) or Coca-Cola Amatil CCL?

The share price for CCL in 1991 was about 800 cps after a 2:1 share split with a dividend for the FY of around 22cps. Current price is 825 cps.
Many brokers around the GFC had this stock in their defensive income model portfolios.

I could be wrong but full leaded Coke has limited life span IMO, at least in the first world. Maybe not in the immediate future but eventually excess sugar will be viewed in a similar way to cigarettes.
Consumer staples aren't going anywhere though.

 

Just on CCL, there have been 4 splits since 1991, and is a 6x excluding dividends (typically around 4.5% on annual - no desire to calculate that!) from Jan 1991 to current c. 825cps. This is the one of the problems, people look at a stock price chart and say price was X at XX vs current price, without knowing what has happened to capital structure in the form of stock splits or consolidations. Hugely important.

Re CCL's business; there will always be a market for leaded (driveway cleaner) but Zero, Diet, Water, Flavoured water, beer, juices are all growing segments. Indo/PNG is where future growth will come from (driveway cleaner). Viz. excess sugar being viewed similar to cigarettes, yes I can see that happening. Hasn't hurt tobacco's earning power however

Another thing, the smaller serving sizes are a boon to CCL, will take a little while to see that however.

 

Who cares? a load of waffle..... there are negatives and positives, its about the person/investor their knowledge, skill will determine which is best, there will always be poor, average and brilliant... nothing to do with the asset class all about the person.

 

And the reality is that nowadays I'm really not much of a stock picker either and DON'T wish to be. Fun at first but too much work when the novelty wears off for me anyway.

Other than the rare more obvious huge brand name, boring stock like CCL I mostly buy ASX TOP 20 Industrial's, which are the least likely to go bust, when they're on special. Better for my SANF and closer to set and forget maintenance wise which is important for me and my wife.

Buying these safer high yielders cheaply helps give an IMMEDIATE boost to the lower LIC yield. AND importantly given I often use borrowed funds to purchase these, the high yield with franking most times not only covers interest expense and tax but there is also some left over to pay down the debt and / or spend on home brew supplies. Talk about POSITIVE GEARING on steroids.

Others are often raving on about the potential lower growth of most of the ASX Top 20 stocks and that we should be going for dividend growth stocks. I agree in part (in that you need both) but given the greater risk and difficulty in picking these stocks I outsource the job to the likes of QVE and MIR WHEN the time is right. And don't forget that the older LICs still have reasonable exposure to mid cap stocks and some small caps that may become future leaders. Note also that initial lower yielding growth stocks often don't pay the interest expense NOW. Of course one could mix dividend payers and growers when using leverage but for me (as a retiree) it's leverage for the high yielders and cash for the growth LICs such as QVE.

If one looks at the larger OLD LICs you will note that the Top 20 stocks are a relatively large part of the portfolio. The main advantage one has buying the Top 20 stocks directly as opposed to LICs is OPPORTUNITY. Often when some of the Top 20 stocks are being heavily beaten down the damn LICs hardly budge in price. This is one of those times when I will buy the stocks directly and / or if I'm using borrowed funds.

When adding to the larger cap Industrial's or older LICs I do however ensure that, when opportunity arises, I also balance out the portfolio by increasing our exposure to mid / small cap LICs. And increasingly more so nowadays our exposure to International LICs / ETFs.

Not advice.

 

Not a stock I hold but the last share spilt for CCL was in 1998?
Defensive income stock with a nice yield IMO but it was trading around the same level post GFC in 2008.
I agree future market growth will be in developing countries like Indonesia. Re PNG, from having spent some time there that market is fairly saturated by the brand.

Dentists are thin on the ground there though.

 

Why does it always come back to the sugar issue. It's completely blown out of proportion if you ask me.

When in doubt I look to our own consumer habits and that of our friends / aquaintances and younger folk. We switched from normal Coke to diet then zero Coke Around 35 years ago. We wanted to reduce sugar intake BUT it didn't stop us buying the Coke brand. In fact we drank more of it because there was no guilt about CALORIES. Did the same with tinned fruit and the like.

Our consumption of Diet Coke has been more than I would like to admit both as a general thirst quencher and spirit mixer. It is usually the most dominant item in our grocery bags. Personally I can't stand the taste of any competing products.

As for potential growth issues well buying a company at the right price offers a margin of safety. The price you pay is just as important as what you buy!

It's nice to know that every time we throw Coke Zero into the shopping bag we're contributing to a company we own! And sleep well in the process UNLESS I have mixed just a bit too much Spirit with the Coke Zero.

 

I don't buy soft drinks ever. I'm not a bottled water buyer or drinker either.
In high school around year 1990/1991 I decided Fanta was way too orange and that cant be natural or good for you. So from then on, I never bought a can ever again. Never really been a coke fan either. I used to buy lunches and the lunch would come with a free can of coke. I didnt accept the drink. If I ever went to buy fast food I would never buy the meal deal. Even if you have shares in the company, just have a look and see how much money you are spending on carbonated water... that's money that can be spent elsewhere... we have good water coming out of our taps in a lot of this country.... why not drink it instead? Its better for you (both health and hip pocket) and the environment than bottled drinks...

Ps. Its just an alternative viewpoint I am showing... take no personal offence. Great you have a very profitable share in the company, absolutely nothing wrong with that! But it doesnt mean you have to consume the product.

 

I agree the diet variety isn't going anywhere but the full leaded version is.

Just my opinion, but over the very long term as type 2 diabetes grows into an even bigger problem government's looking for extra revenue will tax it slowly out of existence. I'm thinking alcopop tax mark 2.

What this space, I could be totally wrong but I don't see it as a 'set and forget' stock like WOW for example despite it's own problems.

The dentist comment related to PNG where, between beetle nut and coke, dental health is a unbelievable problem.

I like a mixer as well... but prefer Pepsi Max

 

This post is worth gold to me @austing! you answered the question I have in my head after reading Keithj post about leverage. At the moment, I don't use leverage but at some point when the market tanks, I will. The next question is at what price, how much. I am sure I will gradually learn from posters here.

I don't drink softdrink but I notice the people in my office consume a variety of CCL products: energy drinks, soft drink and the like. I used to work for CCL in Brisbane and they gave free drinks to staff, all you can drink, all day truck load of sugars coming into the factory.

Health impact aside, I am happy to own CCL shares.

 

I think @keithj (he can correct me if I'm wrong) like myself tend to use leverage more so when Shares are well and truely out of favour. If you stick mostly with the Top 20 Industrial's the question of price in times of severe gloom and panic won't generally require much in the way of skill. Everything is likely to be marked down savagely. That said I'm not a fan of AReits and Insurers even though they're Industrial's.

As a long term investor during market crashes, bear markets etc the biggest problem often won't be whether you paid to much for a stock but whether you could have got it even cheaper! Imagine how you would feel if you purchased a "quality" product in the thousands of dollars on a given day marked down 30% in price only to see it marked down 50% a couple of weeks later. Even if it was a bargain at 30% off it is still annoying to see it marked down a lot more. Damn greedy aren't we.

Of course one can use leverage when an individual stock is out of favour. Again sticking to the Top 20 Industrial's compare the yield of the stock against the interest rate of your loan. Allow for say a 30% cut in dividend and best guess where you think the interest rate might be heading in the medium term. Under this scenario will the dividend still cover the interest expense comfortably?

Of course it is prudent not to have too much invested in a single stock no matter how safe it might appear. Set limits and diversify.

Bear in mind that I'm a retiree. Hence I take a very conservative approach to the use of leverage. I generally won't do it unless there is a strong chance of the outcome being positively geared. Plus I also keep the LVR quite conservative.

As you can see my approach is devoid of any great skill, very much the ameteur investor. But the combination of LICs and some Industrial stocks mostly from the ASX Top 20 have served us very well in providing a wonderful tax effective income stream.

Not advice.

 

Yep that's right, post split $4 approx. As mentioned, its a matter of portfolio construction, and CCL for mine absolutely deserves a place in a low turnover income focussed portfolio. As to the whether current SP is attractive it comes down to ones views. That's what makes the market

 

I don't think the sugar issue is huge for CCL in the long run. They are drink marketing and supply chain company. Sugar tax, long term no big deal. They are great marketers who have got people to pay for water after all.........over time they will adjust products as per the market. Don't underestimate the brand and the pricing power they wield. I'd consider CCL set and forget long before WOW, just as I would consider Philip Morris and British American set and forget while the likes of Apple absolutely not. I guess it just comes down to how one looks at business. Price one pays important with these stocks however

 

The water point is a good one, 25 years ago the idea of paying for water would have been laughed at and was inconceivable.

Who knows what the future holds but for me its one to watch closely for regulatory risk to the business model.
At the right price though..

I'm also interested in people's general thoughts on Woolies vs Westfarmers as well.
I've held WOW for about 10 years and am wondering whether to add WES despite the coal business.

Oh.. I have jumped in half way through the thread, it's property vs shares.
I can't see why it shouldn't be both.

 

Please critique assumptions below. Shares can work well alongside property.

How could this strategy be improved?

A scenario here:

• Start with a $100k investment in a carefully selected range of shares/ETFs/LICs ( many here could use cash or property equity to kick that off )
• Select only low-risk stocks / ETFs that are unlikely to have serious erosion of capital value
• Assume an average 9% capital growth year on year in the portfolio
• Assume a dividend yield of 5% with all dividends reinvested
• Pitch in an additional $2000 per month ( would be realistic for many people, particularly if dual incomes )
• Continue for 11 years ( period to reach approx $1mill portfolio )

On those assumptions you would have a portfolio at approx $975k after 11 years ( see screenshot from calc below ). Calc used is DRIP (Dividend Reinvestment Plan) Calculator

Can easily execute a strategy like this alongside property, leaving any equity releases from property after the investment starts to use for deposits. Depending on your situation, a modest a approach would be one $300k property every 2 years ( assuming you can service with the banks and can accumulate cash or pull equity for deposits ).

If some of the share purchases are using IO splits, then debt-recycling strategies can be used.

Of course, could contribute extra into super but that just locks up funds and you lose flexibility. In my situation, part way into this strategy I would sell some of the shares to pay off or significantly pay down my PPOR loan ( that would allow me to free up serviceability to more aggressively accumulate IPs or undertake development ).

 

Absolutely love WES. More often than not I have preferred it to Wollies. A fantastic Aussie conglomerate. Just like with SOL the other businesses as a whole make the coal business of mimimal concern to me. A bit expensive for me at the moment however. But then I'm greedy.

@The Falcon will be able to go to town on the analysis of WES. So I will leave the detail to him time permitting.

Not advice.

 

I've had a holding in SOL since November 2014. In that time the performance I've had is:

Return (16.88%) = Capital Gain (10.9%) + Income (5.98%)

By my calcs a return of 10.13% annualised.

 

It is supposed to be a discussion of general attitudes out there about property vs shares. Around the barbecue, what are people saying? Property is safe, shares are risky?

I know in my workplace, I walk in and tell selected people I have bought another IP and they don't bat an eyelid. However, if I told those same people I just bought half a million dollars of shares, I am sure they would raise an eyebrow.

 

Calcs are all good but I think the return assumptions are too high. With risk free rate at all time lows, in the current environment 10% TSR per annum would be a good outcome over a decade using broad market ETFs