And the Debt cycle continues to spiral out of control...
back2basicz
5/23/2011 3:46:28 PM
Guys,
Here's a great article talking about what happens when Greece does default on its debt.By now most in the market are aware of this possibility.Just that nobody seems to have priced things in.Yet...
http://blogs.telegraph.co.uk/finance/andrewlilico/100010332/what-happens-when-greece-defaults/
Its interesting how the article ends by talking about British banks will be impacted[Primarily via exposure to the Irish Property Sector].The Biggest advantage that the British had in this situation was their own currency-Which they should either devalue or let appreciate according to the situation at hand.Greece and the rest of the PIIGS never got this chance.
Regards
Ashish.
Um... no. If you are creating financial fraud with off-balance-sheet debt, there is no reason why you could not pay dividends. In fact, I'm not positive -- will have to check -- but I'm pretty sure Enron paid a dividend at some point.
Given the history of markets Enron, Tyco, Worldcom, Lehman Brothers... e.t.c. .. isn't it safe to say that just about any company can go bankrupt? I mean all of these companies were considered "Blue Chips" by the media and general public at some point in their history.
--------
"Fortune magazine has named Enron "America's Most Innovative Company" for five consecutive years, the top company for "Quality of Management" and the second best company for "Employee Talent." In addition, Enron ranks in the top quarter of Fortune's "Best 100 Companies to Work For in America." Enron's Internet address is www.enron.com. The stock is traded under the ticker symbol ENE." -- from an Enron press release, 4 October 2000
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Re: Weekend Worrier
Broadway
5/20/2011 10:11:13 PM
Scott, if a company is offering a comfortable dividend, isn't that a good sign that the firm feels pretty comfortable in its position...in other words, they're not doing enron like smoke and mirror games?
I'm not a big fan of the "all-in" position, no.
If you are dividend-fishing why not 4-5 solid players with good dividends? There are plenty of them.
Generally I live by the 5% rule but I suppose you could do 10-20% in one position, if you feel super confident about that. But be prepared for the consequences!
Remember Enron? On the cover of several magazines as one of "America's Best Companies" just months before the collapse...
I would agree that OVER-diversification is bad too, because it can water down performance. I believe that's what Value Hike was referring to when he cited Warren Buffett. Though I think "80% in one position" and "concentrated portfolio" are two different things. I doubt Warren would go all-in on one bet.
Summer or Market Discount?
Bullseye
5/20/2011 2:40:20 PM
Probably going to see some discounted stocks this summer. Market can't maintain levels. Take money off the table I say.
Re: Weekend Worrier
Broadway
5/19/2011 11:56:46 PM
Scott, are you saying that in most all cases it's a bad play to allocate a huge chunk of a portfolio in one stock, even if you have the time and the knowhow to read and understand the proverbial company annual report? I've heard advisors suggest lumping cash in one position strictly for the dividend.
Re: Greece is a mess
Broadway
5/19/2011 11:49:57 PM
Ashish, what would happen if Greece's debt holders took that haircut? What happened when Argentina defaulted last time, or aren't the situations comparable? Perhaps some if these banks who irresponsibly loaned Greece money should take a hit, no?
Asa,
The reasons you mentioned are extremely accurate and much to the point.
Here's another great article.
http://www.economist.com/blogs/charlemagne/2011/05/greece_and_euro
But above everything else ,nobody has looked at the Past history of the Greeks(specifically their past records of defaulting on debts whenever it suits them).
Think about it,how much suffering will the Greek electorate consent to?
Not much more,we are very,very close to the tipping point which forces Greece to default on all its debt which leads to a strong Restructuring[I am looking at the possibility of a more than 50% Haircut of all Greek Debt].
What will that do to the Major Holders of Greek Debt[Especially Greek and German Banks??]
Not going to be pretty at all.Hopefully the ECB will be around to stop the contagion from getting much-much worse.
Regards
Ashish.
Greece is a mess
AskAsa
5/18/2011 1:18:23 PM
Yes, Greece is a problem. I was reading last week that Moody's is doing a review for a possible downgrade -- largely for the same reasons you outlined. Specifically, Moody's is worried about:
One, "the fact that Greece's 2010 general government deficit has come in at 10.5% of GDP, which is significantly higher than the levels estimated by government and international observers earlier this year. "
Two, "when combined with ongoing difficulties in tax revenue generation and collection, this larger 2010 deficit outcome raises further questions about the government's ability to achieve the deficit reduction target for 2011."
Three, "signs that the potential need for an additional fiscal austerity program is likely to deepen and prolong the recession and may further undermine domestic political support for the reform program."
Scott:
I agree diversification is important. But for experienced investors, the hard limitation of 5% is not always the best choice. If you are very confident about your analysis and know the company backward and forward, you shall bet more than 5%, I won't hesitate to bet 20% of my portfolio on my best idea.
If you buy stock without thorough analysis, 5% limitation will protect you from disaster. If you are totolly ignorant about stock market, index fund may be the best choice .
Warren Buffett believes that concentration will actually reduce risks. This is due to the extra care and attention we pay to an investment if we are to invest a relatively large part of our portfolio. Our comfort level needs to be higher and to do this, we need to conduct more research, due diligence and gain a greater understanding. If after all this we still invest, we were at least very well prepared. Warren Buffett once invested more than half of his portfolio in one company during the 1960s.
Claude Shannon, the father of the information technology, handled his own personal portfolio with a tracking record of around 30% annual return over 30 years. More than 90% of his portfolio is concentrated on 3 stocks (HP, Motorola, and TI).
John Maynard Keynes, famour ecomonist and successful investor, once said: "As time goes on, I get more and more convinced that the right method of investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for speacial confidence.'
Of course, most investors are aware that they do not have the skills or knowledge of Keynes, Shannon, or Buffett and so, for obvious reasons, lack some of the confidence required to operate a concentrated portfolio. For these investor, diversification is absolutely necessary.
The blogs and comments posted on Investor Uprising do not reflect the views of Investor Uprising, PRNewswire, or its sponsors. Investor Uprising, PRNewswire, and its sponsors do not assume responsibility for any comments, claims, or opinions made by authors and bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
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