Johnson & Johnson – JNJ

In typical fashion Johnson & Johnson announced that they have once again beat analyst consensus earnings estimates. Their quarterly earnings came in at $1.26/share, 6 cents above analyst estimates of $1.20/share. However, their two major businesses, pharmaceuticals and medical devices, would have experienced declines had it not been for the weak American dollar.

The recent increase in earnings due to currency is viewed as a negative by many analysts however, as an investor it helps to reaffirm one aspect of my investing strategy. One of the criteria that I used to select the U.S names in my portfolio is their international exposure. Over a year ago when I first initiated a position in JNJ I stated that one of the reason that I bought was that 44% of their sales were from outside of North America which would act as a built-in currency hedge. It works like this: JNJ reports their earnings in U.S dollars so the 44% of their revenue that was generated outside of the U.S. has to be converted back to American dollars for accounting purposes. This of course would inflate their international earnings as the U.S dollar falls and conversely shrink them as the U.S dollar rises.

Brookfield Asset Management (BAM.A)

“Brookfield is a global asset manager focused on property, power and other infrastructure assets with approximately US$90 billion of assets under management. We own and manage one of the largest portfolios of both premier office properties and hydroelectric power generation facilities as well as transmission and timberland operations, located in North and South America and Europe.”

In my opinion BAM.A is the perfect candidate for a long term hold as they are in relatively recession resistant, renewable areas that will continue to grow in the future. Their five primary areas interest are:

1. Property - $35 billion of property assets under management in North and South America, Europe and Austraila

2. Power – invested primarily in high quality, long life hydroelectric power facilities located primarily in north east North America as well as Brazil.

3. Timber - have 2.5 million acres of high quality timberlands under management

4. Infrastructure – over 11,000 kilometers in Northern Ontario and South America. Over $3 billion transmission assets under management.

5. Equities & Fixed Income - significant experience value investing in real estate and a broad range of other industries and geographic regions.

-Current PE – 17.9X
-ROE – 22.91%
-Current Yield – 1.6%
-5 Year Average Yield – 1.9%
-Current Payout Ratio – 28%
-5 Year Historical Payout Ratio – 78%
-3 year dividend growth rate – 18.95%
-5 year dividend growth rate – 11.6%

I’ve been watching this one for a while and it has finally started to come down to reasonable levels (I’m sure partly because of their 50% ownership of BPO). However, I believe that BPO is also starting to look attractive at these levels as well. I don’t currently have a position in BAM.A but it is one that I will continue to watch closely.

(Disclaimer: I’m am not a financial advisor. Please do your own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

1 Million at Forty

I recently received an inspirational e-mail from a reader who like me had the dream of accumulating $1,000,000 by age forty. Although she has not yet met that mark she has accumulated a large six figure portfolio and is on track to have a million bucks by forty. I asked her about her investing strategy and she was kind enough to give me the 9 rules that she has followed to achieve her wealth.

1. Don't invest money you can't lose.
2. Take any tax advantages you can.
3. Receive cash from dividend and reinvest.
4. Don't invest more than 50% of your money with asset managers.
5. Listen to old, rich people.
6. Put as much as you can into your kids names (tax advantage).
7. Spend some of your money to enjoy life.
8. Give some of your wealth away.
9. Bring your spouse on your journey.

She also gave me some advice on my portfolio --- hold more real estate and take more risks...

My Retirement Philosophy

Unlike most people my goal for retirement isn’t to sail around the world, discover myself, read the classics, volunteer at a worthy charity or even travel (to tell you the truth - I like where I live and would be happy if I never ventured more than 50 miles from my home (ever), and instead spent all my time visiting friends, family, cooking/eating, camping, fishing, watching movies and of course following the market). My goal is to retire early and live a typical middle class lifestyle (without having to work anymore). Globe trotting and expensive toys/dinners are not for me.

Now some of you ambitious big spenders out there must be wondering “Why on earth would you want to aim for average?” Now I’ve been asked that before, so I have a good and simple answer: well… (drum roll) the reason is that I don’t have expensive needs or hobbies and absolutely love my lifestyle (except for the working thing). I don’t want a lavish retirement and personally don’t see the point of working until 65 saving a huge pile of money and retiring in “luxury”. Instead, I have chosen to aim to retire at 40 live more modestly than the 65 year olds that have built a huge nest egg, but because of my relatively simple needs I would get more benefit from an additional 25 years of retirement than I would from annual vacations from 65 to 75 year old (health permitting). In my opinion 25 extra years of freedom/time flexibility is worth more than an extra star in the review of the hotel I stay at between 65 and 75. Now here’s where I get the “jaded” or “pessimist” accusations…I know I know many of you are saying “why do you keep saying 65 to 75? Why not 65 to 95?” well before I’m labeled as a pessimist I’d just like to say that I do fully expect to live to 95 (partly from the reduced stress of being retired early) but from observation --- after 75 most people have given up (or reduced) most of their expensive hobbies/activities as they age from their mid seventies to their eighties (ie- the need for: globe trotting, world traveling, walking in/cleaning their huge house, driving new expensive cars seems to fade with age). Now I’m not saying that old people have less fun I’m just saying that for any number of reason (health or just don’t care about keeping up with the Jones anymore) as people reach their senior years their needs seem to become simpler and therefore less expensive. I can certainly relate to this and have already been told by friends that I am “the oldest young guy they have ever met”. (which of course I take as a complement)