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Book review: The Outsiders – Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

Since my last post I’ve read The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. This is a book that explores the strategy of eight unconventional CEOs that significantly outperformed their peers and the S&P500 over long stretches of time. The Outsiders provides eight case studies of CEOs that operated (or still operate) in very different markets, including cable TV, newspapers, cinema, pet food, and the defense industry.

As a group, these eight exceptional CEOs stand out because they all made very rational and independent decisions, without giving in to peer pressure. They didn’t spend a lot of time on investor relations, rarely went to conferences and stayed out of the public spotlight. They ran very decentralized operations with low HQ headcounts and generally focused more on capital allocation decisions rather than day-to-day operations.

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The book argues that capital allocation is one of the areas where most CEOs are not good at and that this is exacerbated by an urge to look at what peers are doing or what Wall Street is prescribing. Capital allocation includes making decisions about reinvesting earnings in the business, acquiring companies, selling or spinning off assets, doing share buybacks, and issuing dividends.  The Outsiders offers evidence that mastery of capital allocation is what resulted in the big outperformance of the “Outsider” CEOs.

Each of these eight CEOs excelled at this game and usually did things completely different than their peers. They focused on creating long-term per-share value and largely ignored short-term metrics like quarterly revenue and earnings.

A general theme throughout the book is that many of these Outsider CEOs did not go with the flow but waited until the right time to make large and daring acquisitions. They also performed very large share buybacks, but they were not continuously buying back shares like a lot of companies are doing these days. Instead,  the Outsider CEOs waited until valuations were attractive enough to buy back huge amounts of shares.

Additionally, the Outsider CEO does not believe that bigger is better and is not afraid to sell a large part of his business for the right price. The book describes how most of these eight CEOs paid little dividends and often made no large moves for long stretches of time. But when an opportunity finally presented itself, they weren’t afraid to pounce very fast and with high determination. The manner in which these CEOs did acquisitions was interesting to read. There are several examples in the book of how these exceptional CEOs made huge deals, sometimes in mere hours or days, and with minimal help.

The Outsiders is a very interesting book as it provides a unique look at how these eight CEOs delivered outstanding performance for their shareholders by very smart allocation of the company’s capital. I wholeheartedly recommend this book to any investor.

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August 2017 dividend income report and new buy

The end of another month of dividends has arrived so here’s a brief summary of my monthly dividend income:

August 2017 dividend income:

  • Bristol-Myers Squibb: 4.49EUR
  • YUM! Brands: 2.21EUR
  • Omega Healthcare Investors: 8.04EUR
  • Kinder Morgan: 3.89EUR
  • Colgate-Palmolive: 3.19EUR
  • Novo Nordisk: 29.15EUR

Overall that’s just 50.97EUR in after-taxes dividend income this month, making it one of my lowest dividend income months of the year.

Dividend increases:

  • BHP: +7.5% sequentially
  • Warehouses De Pauw: Increased its dividend target by another 1.12%
  • Diageo: +5.19%
  • Hershey: +6.15%
  • South32: +640% year-over-year (not a typo!)

New buys

There are still several companies I’d like to own a piece of but this month I added more shares of Gilead (GILD).

One Up On Wall Street – Peter Lych

So I finally finished my copy of One Up On Wall Street. I started reading this book about a year ago, it’s one of those investing books that’s often high on everyone’s recommendation list. Overall it offers some nice insights and tips but I’m not particularly fond of it. The first edition of this book was released in 1989 and it’s really showing its age.

It could really use an update as a lot of the examples and ideas he shares are now dated. I guess the fact that I didn’t read it in one go is a good indicator that I don’t think this is a must-read book. It’s too dated, too repetitive and I feel like most of the interesting things in this book can be condensed into an article of a few thousands of words.

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July 2017 dividend income report and new buys

This afternoon I received my last dividend for the month of July so it’s time for my montly report 🙂

July 2017 dividend income:

  • Coca Cola: 9.65EUR
  • Nike: 4.23EUR
  • Philip Morris: 49.85EUR
  • GlaxoSmithKline: 22.63EUR
  • General Electric: 6.09EUR

Those who regularly read this blog probably already know this but all earnings listed above are after all applicable taxes. In total, the July 2017 income adds up to 92.45EUR so this breaks my four-month streak of +100EUR reports.

Dividend increases:

  • Omega Healthcare Investors: +1.6%
  • PZ Cussons: +2.0%

Dividend promises from Kinder Morgan!
Kinder Morgan released its earnings this month and promised investors that it aims to significantly increase its dividend the coming years. Back in 2015, pipeline company received a lot of flack as its debt situation forced it to cut its dividend by a massive 75 percent. This was a hard pill to swallow for a lot of investors as many had bought the stock for the combination of a high starting yield and the promise of high dividend growth. Instead of 10 percent yearly dividend growth through 2020, the rapidly deteriorating market situation resulted in a dividend cut from $2.00 to $0.50 per share.

Reducing debt became a priority and the firm is now projecting net-debt-to-adjusted EBITDA of  ~5.2 by year-end. That’s still pretty high but Kinder Morgan deems this is low enough to boost its dividend. Kinder Morgan promises it will raise its dividend in Q1 2018 and targets a total dividend of $0.80 per share for 2018. If things go well, this should climb to $1.0 in 2019 and $1.25 in 2020.

2018 government budget to contain nice treat for Belgian DGIs?
The Belgian government is once again reviewing policy and trying to figure out next year’s budget. The last couple of years this was bad news for Belgian investors as our government gradually increased the dividend tax from 25 percent to 30 percent. They also introduced a tax on speculation but that silly tax has already been repealed as it actually hurt the budget (because people changed their behavior which resulted in lower stock market transaction tax).

Anyway, this year there are two investing-related fiscal measures on the table. Prime minister Michel (MR) thought he could get an easy deal by giving each of the four parties in our government a treat.

First up, the Christian democrats (CD&V) still want a “fair tax” trophy and our prime minister thought he could meet this demand by proposing a tax on stock market portfolios. From what has leaked to the press, the proposal called for a tax on portfolios with more than 200,000EUR in assets. The Flemish liberals (Open VLD) fear this tax (or future iterations of it) will hurt the middle class and the Flemish nationalists (N-VA) are also against it. As such, budget talks between the four parties that make up the Belgian government are once again very tough.

Now you can hardly make this stuff up, but Michel’s deal also includes a treat for investors. Belgian is a country of savers but very few people invest in stocks. Open VLD wants to change this by encouraging people to invest their savings. At the moment, interest income of up to 1880EUR a year from regulated savings accounts is not subject to taxes. The idea here is to expand this policy to other investments like stocks.

In the current low-interest environment, this would stimulate people to invest in dividend-paying stocks. My current 2018 net dividend income projection is around 1500EUR but this fiscal measure could take it over the 2000EUR mark. It’s too early to celebrate as it may not make it into the final 2018 budget, but if it does it would be a massive dividend increase for me!

New buys
Since my last dividend income report, I’ve expanded my position in drug maker Gilead (GILD) and initiated a position in Danish wind turbine maker Vestas Wind Systems (CPH:VWS). That marks my first dedicated investment in renewable energy.

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Which stocks did you buy this month?

Book stuff: How to Fail at Almost Everything and Still Win Big

So this is a post that I was preparing for my next dividend income report. After I hit the 500 word mark I decided it was a good idea to give these ramblings a dedicated blog post 🙂

Book stuff: How to Fail at Almost Everything and Still Win Big
A couple of days ago I finished reading How to Fail at Almost Everything and Still Win Big. This book was published in 2013 by Scott Adams. I don’t think he’s well known in Belgium (or Europe) but he’s the creator of the popular Dilbert comic. It’s part biography and part a self-help book. Adams basically explains how he failed himself to success.

I came across his blog about a year ago and was captivated by how he covered the 2016 US presidential election. Shortly after Donald Trump announced his presidential run, Adams was one of the first commentators that explained why, against all odds, Trump had a much better chance of winning the election than most people in the media would give him credit for.

Adams observed Trump is a “Master Persuader”, who acknowledges that voters are irrational and that facts don’t really matter if you can appeal to people’s emotion. I don’t think it worked out as great as Adams envisioned in 2015 as the US is still divided about Trump. But Adams’ unique line of thinking and his “persuasion filter” peaked my interest in his book as I wanted to learn more about his thought process and how he views the world. I mean, just the title of the book is already alluring. Who doesn’t want to know how you can fail and still come out ahead?

The book is a witty rollercoaster ride with lots of interesting tips on helping you to become more successful. Adams started out in the corporate world, where he “failed his way to promotions”, and he eventually used his experience to become a popular cartoonist and author.

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Goals versus systems
One of the central themes of this easy-to-read book is that goals are for losers and systems are for winners. The distinction between the two isn’t always that black and white but basically, if you set yourself a goal to lose 5kg you’re likely going to fail. By implementing a system, something you do on a regular basis, your odds of achieving something become much greater. Adams also provides some great nuggets on how to influence others and the final chapters of the book deal with diet and exercise. The author believes the two are critical to maximizing your personal energy and to get yourself on your way to achieving success. There’s also some great stuff about viewing your brain as a programmable, “moist computer”.

Adams also provides some great nuggets on how to influence others and the final chapters of the book deal with diet and exercise. The author believes these two are critical to maximizing your personal energy and to get yourself on your way to achieving success. There’s also some great stuff about viewing your brain as a programmable, “moist computer”.

I think the book also helps to explain why dividend growth investing is a good match for a lot of investors. It’s a system that helps you to get comfortable with the stock market, you pick up a habit of investing regularly and most companies send you quarterly “rewards” in the form of dividends.

Cutting down on Coca Cola
Some parts of the book relate to my personal life. In particular, in 2015 I decided it was time to cut back on my Coca Cola consumption. Mostly for health reasons but the potential to save money was also a good motivator. One liter of Coca Cola costs about 1.60EUR so on a yearly basis I was probably spending over 600EUR on Coca Cola.

Before my mid-teens I rarely consumed Coca Cola but eventually that grew to 1 liter per day. And after some hard physical work that sometimes ballooned to 1.5 liter or more. I identified one of the problems was that I bought Coca Cola in bottles. Once a bottle is opened it is hard to resist the urge to drink just one more glass. Additionally, you know the carbonation is slowly escaping from the bottle so your mind is pushing you to empty the bottle as quickly as possible because flat Coca Cola is awful.

So I decided to switch from bottles to cans. Initially, I consumed three 330ml cans of Coca Cola a day so overall it didn’t make a lot of difference to my diet but it helped to make the transition smooth. After some time I cut down to two cans a day, at first this took some will power but after a week or so the need to consume three cans a days dissipates rapidly.

That was around the time Coca Cola launched its Life version in Belgium. It got a bad reputation as many critics called Coca Cola Life a “greenwashing” product but I saw it as a good fit for me. I’ve never been a fan of the calorie-free versions of Coca Cola, they taste awful and they contain aspartame. Now I know that rationally speaking, aspartame is probably OK. There’s little to no scientific evidence that this artificial sweetener is bad for humans. But human beings aren’t rational and aspartame has a “burned” reputation. People drink Coca Cola because it tastes delicious and makes you feel good. I do not want to drink something that makes me want to second-guess it every time I grab a can out of the fridge. Like Scott Adams explains in his book, you need to maximize your personal energy so I don’t think Coca Cola Zero is a good match for me.

Coca Cola Life on the other hand sounded alluring to me. If I recall correctly, Coca Cola launched the product with the promise of a taste that comes very close to the original Coca Cola but with a lot less calories. The first version of Coca Cola had 40 percent less sugar than regular Coke. In terms of taste, it came close to the real thing so I decided to switch to one regular Coke and one Coke Life a day.

After that Coca Cola reformulated Coca Cola Life and the current product contains 45 percent less sugar than regular Coke. As an added bonus, I definitely prefer the taste of the reformulated version. I switched my daily Coke consumption entirely to Life. It has the same signature taste as regular Coke but there’s a little extra “kick” in the reformulated Life version that makes it a very enjoyable drink for me.

The next step came involuntarily. Sales of Coca Cola Life aren’t doing great and Coca Cola Belgium discontinued the 330ml version in favor of 250ml cans. I didn’t like this at first and it also stings that Coca Cola is charging the same price for 250ml cans as the old 330ml version. Anyway, the 250ml cans are starting to grow on me and the end result is that instead of 1l or more of Coca Cola with 106g of sugar and 420 calories I’m now down to 33.6g sugar and 136 calories with the Coca Cola Life.

It’s probably still too much but definitely a more manageable level than before. And besides the health benefits, it also results in annual savings of at least 155EUR a year.

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Reprogramming your moist computer can take some time and everything written above happened before I read How to Fail at Almost Everything and Still Win Big. But Scott’s book definitely made me realize the power of making small changes to what you do on a daily basis. At the moment, I’m trying to replicate the Coca Cola trick in other areas of what I do on a daily or weekly basis. Small and incremental changes without hurting personal energy levels.

The book also kickstarted my desire to exercise more. After reading about a third of How to Fail at Almost Everything and Still Win Big I decided to rearrange my daily routine to incorporate exercise in my workdays. I discovered that my wife’s treadmill and my tablet computer are a good combination. Gathering knowledge from books while working out is a win-win and feels pretty rewarding.

Anyway, this post is getting way too long. I wholeheartedly recommend How to Fail at Almost Everything and Still Win Big. It’s a great, practical, and very motivating book.

 

June dividend income report and the Idorsia spin-off

It’s the end of the month so here’s my latest dividend income report!

June 2017 dividend income

  • Unilever: 17.37EUR
  • NVIDIA: 1.40EUR
  • Hershey: 5.55EUR
  • Moury Construct: 36.40EUR
  • McDonald’s: 5EUR
  • Royal Dutch Shell: 68.79EUR
  • Gilead: 4.31EUR

In total that adds up to 138.82EUR in dividend income this month. As always, the figures I list are after all taxes and applicable fees. This is the fourth month in a row this year of triple-digit dividend income.

New purchases
Since my last report I added shares of Nike as well as AB InBev.

Actelion spin-off Idorsia off to a good start
As I wrote a couple of months ago, I bought shares of Actelion as a merger play. The company got acquired by Johnson & Johnson and shareholders got $280 in cash per share plus one share of the new spin-off R&D company called Idorsia. At the time I bought the shares it seemed like a good way to earn some cash plus get some free shares of a new company.

The offer was in US dollars so unfortunately the cash part worked out less favorable than expected due to the rising euro. Instead of a minor gain of a couple of percentages, I ended up with a 35.67EUR less than my original investment in Actelion.

Fortunately, it seems the new Idorsia spin-off is worth a lot more than expected. The company went public for 10CHF per share two weeks ago and is now trading at 17CHF! That’s a 70 percent gain in less than two weeks which tips the balance to a total gain of 4.3% for my four-month investment in Actelion.

Part of the astronomical rise is attributed to some large purchases. Actelion co-founder Jean-Paul Clozel (who now leads Idorsia) started with a 15.12 percent stake on the day of the IPO and has been using the cash he received from Johnson & Johnson to steadily increase his stake. According to the latest disclosure, Clozel and his wife now own 22.84 percent of Idorsia. Talk about a great vote of confidence!

Anyway, I now own 8 shares of Idorsia which I plan to hold for a long time. They’re not worth much at the moment but hopefully the company strikes gold with its R&D pipeline.

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How much dividend income did you receive this month?

Going solar?

So  yesterday’s green post from Amber Tree Leaves inspired me to write up a little green post of my own. One of my next investments this year may be solar panels. Over the past decade,  I’ve switched my position on renewables from a critic to a believer in the long-term potential of wind and solar energy.

Technological progress and scale of economies have dramatically reduced the cost of renewables. I’ve always considered 1EUR per Watt-peak an import psychological barrier and that’s roughly where we are right now for DIY kits as prices dropped to less than a quarter of what they were a decade ago.

Unfortunately, the payback time is still a bit longer than I’d like it to be. This is primarily because the Flemish government charges a big tax on solar installations that are connected to the power grid.

The position of our government on solar energy is pretty weird to say the least. On one hand the government wants a lot more renewables because of the commitment to the EU 2020 goals but on the other hand they’re heavily taxing residential PV systems to fill holes caused by over-subsidizing solar in the past.

During the solar boom in our country new installations were extremely over-subsidized in Flanders but now we’re in the opposite situation where there are no subsidies and owners of PV systems need to pay a tax to use the grid as a “battery”.  As in many other areas, government fucked up hard and created an unstable and uncertain investment climate.

Under somewhat optimal conditions, I think it’s possible for the PV system to pay back itself within nine years. But a lot depends on the future (and constantly changing) legal framework.

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What green investments or other things do you do?

May 2017 dividend income report

Another early dividend income post as there are no dividends in the queue for the back half of this month.

May 2017 dividend income:

  • AB InBev: 40.6EUR
  • Bristol-Myers Squibb: 4.9EUR
  • Van de Velde: 57.19EUR
  • YUM! Brands: 2.41EUR
  • Omega Healthcare Investors: 8.51EUR
  • Colgate-Palmolive: 3.45EUR
  • Kinder Morgan: 4.18EUR
  • Sanofi: 25.89EUR
  • Warehouses De Pauw: 1 new share valued at 83.44EUR + 59.7EUR cash = 143.14EUR

Adding it all up gives a total of 290.27EUR for May 2017, my highest monthly dividend income to date and 27.11% more than in 2016. All figures are after all applicable taxes and fees.

Like last year, I opted for WDP’s share dividend and received one extra share plus a load of cash. This extra share should increase my 2018 after-taxes dividend income by around  3.12EUR.

So far I haven’t added any new shares this month but I did publish an article about my position in NVIDIA. Since I bought the shares in November 2016, my NVIDIA stock has delivered a total return of 66.19! This makes it the second-best performing stock in my portfolio. Surprisingly, the best stock in my portfolio is McDonald’s, which is up 94.51 percent since I bought it 2.5 years ago.

I must say I’m a fan of the new McDonald’s premium burgers, nice step up in quality. Here’s a new variety that’s offered in Belgium:

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