Ready, Aim, TARGET!

A Path to Financial Freedom posted an article on Psychology in Crisis and Herd Investing. Worth a read.

I pretty much prefer to buy a share of a company if I have a reasonable idea why the company will likely be viable as a business for the longer term. For instance, it sells essential products (or products with a brand) that are consumed at an increasing rate as the world (its customers) develops.

One such company I was watching was Target. Wifey and I have personally visited their stores and have always preferred to shop at Target than most other retail stores. Many of the rest tends to feel messy, disorganised.

But Target was having a really bad time at one point. Its credit card business was hacked into and created a huge problem with its customers. Its expansion into Canada was running into trouble. It seems there are significant differences in the shopping habit of Canadians compares to the Americans, and likewise with the supply chain. It didn't help that Walmart had already set foot on Canadian soil much earlier and had established its presence.

I kind of felt that the credit card thing was really a transient problem. It would eventually blow over. The Canadian thing was something else. It would continue to bleed unless Target found a way to turn things around. The alternative of course was what eventually happened. They exited from the pains. That's when I decided it was the right point to buy.

Over the past months, the shares in Target has risen several tens of percentage points. It has been a good buy.

Is this a Cigar Butt situation that Warren Buffet speaks of? I don't think so. There is life beyond that one puff. Target remains as my midfielder in My US Team of Growth/Dividend Stocks.

Play ball!

A US Team of Dividend Growth/Value Stocks

Aside from investing in SGX stocks (My World Cup Team (of Dividend Value Stocks)), I also own a smaller portfolio in US stocks as part of my globally diversified investment portfolio. Other regions are held in the form of Exchange Traded Funds and Unit Trusts.

At the moment, my US team looks like this:

Goalkeeper:
  Berkshire Hathaway-B

Defense:
  Johnson & Johnson

  Proctor & Gamble

  Chevron

  Anheuser Busch

Midfield:
  Wells Fargo

  McDonalds

  Target

  Union Pacific

Forward:
  IBM 

  Philip Morris

Berkshire Hathaway is a steady goalkeeper that has proven its worth over the long history since its founding by Warren Buffet and Charlie Munger.

The defensive line of 4 is made up of various companies that are likely to float in good time or bad. Toiletries, consumer medical and household products are things that have high repeat value, regardless the market situation. Oil will always be needed, until alternatives start to make oil irrelevant. But I can't see that happening anytime soon. And beer, will continue to be guzzled, perhaps even more so when things aren't looking good.

The midfield line up is an interesting variety of a financial heavyweight, fast food, large scale retailer and nation-wide train system. Of these, perhaps the more risky one is Target as it continues to face difficulty with its troubled expansion into Canada struggling. The Canadians are really not too enthu' with them.

The forward line up of IBM and Philip Morris will take some time to pan out. It's hard for a smoker to cut a smoking habit. A rapidly growing emerging market will likely generate an increasingly higher demand for their products. Of course, there are many risks given that this is a really unhealthy business and will face regularity pressures with high taxation and domestic product alternatives. IBM ... hmm ... let's see how this IT behemoth transforms itself. It has pretty much given up everything that is a commodity - i.e. the hardware business.

Two interesting key attributes of most of the above companies: (a) many are holdings of Berkshire Hathaway, and (b) they are dividend growth champions! Ironically, Berkshire itself doesn't give out dividends. Warren Buffet has always said that his company can do a better job of capital allocation and it makes more sense for them to invest the money than to give out as dividends. Besides, US tax the dividend payouts. As a Singaporean investor, I would lose 30% from withholding tax for dividends that are paid out.

The first team with the above 11 players are doing well.  However, my bench isn't doing too well - i.e. Coach. My holding in Coach has dropped a third in value.

Coach has been suffering from competitive pressures from Kate Spade and Michael Kors. Its attempt to generate more sales via atfactory outlets has devalued its branding. But still, we see many ladies holding Coach products. The company's financials look good. Let's see if it survives the challenge from the new brands and turn things around over time.

It's an irony isn't it? The problem is the Coach. Muahahah!