April has been mayhem for many retirement accounts – here’s how to pull out of the dive before it’s too late.
So, you’ve just finished your after dinner cognac and perused the movie list for your seatback entertainment. You’re just about to turn off your reading light and catch some needed shuteye – as you close the book on your successful business meetings in Brazil, and begin to think about your favorite brasseries in Paris…when it happens.
The plane seems to be hitting some crazy turbulence. Ok – this happens and you think little of it, as you know that the guys in the front of the plane are professionals who know what they’re doing.
But then you look a few seats up the aisle and see the captain (the guy with the four stripes on his shoulder boards) blissfully watching a video and enjoying a coffee.
Ok, so he’s on break. There surely must be some competent co-pilots in charge on the flight deck. But then the plane starts flailing about even more and you see the captain move to get back to the controls.
Moments later the plane seems to be pitching upward, engines roaring – and yet it seems to be slowing.
And for the next 4 minutes you and your fellow passengers experience terror beyond comprehension as you plunge into the Atlantic.
This is the story of some 228 passengers and crew of Air France flight AF447 just two years ago this June 1st en route from Rio de Janeiro to Paris.
As you’ve heard or read, after exhaustive searches – the black boxes and flight recordings have been found and examined – and it isn’t good news. The Airbus A330 crashed in seemingly tolerable weather and flight conditions. But whether it was the speed sensors supplied by Thales (THLEF) of Paris, or the autopilot or other components – Airbus (EADSF) doesn’t know what, if anything, failed.
But the flight recordings arguably demonstrate that the junior officers in charge at the time let the plane stall out, and after calling for the captain – none of the three knew or did what was needed to keep the plane flying.
As a frequent air passenger – I read through and listened to what has been released so far and it is very scary – because incompetence is what comes to mind over and over.
Where’s The Trust?
Fatal mistakes of course aren’t limited to aviation. Every trading day we see mistakes, incompetence or questionable motives resulting in injury or death for retirement portfolios.
Throughout this month, many have been eyeballing the CNBC ticker at the bottom of their television screens and asking the question – when will the plunges in the SP 500 and Dow Jones come to an end? And who really is running the show when it comes to the securities inside our retirement portfolios?
When you’re investing in a company, a fund or with a manager – you have to trust that the individuals running things are not just up to the task – but are also working for your interests and not just theirs.
Now we know that there have been, and will always be, plenty of folks running public companies who are focused on little more than their own net worth and not a smidge on shareholders’ well-being.
But perhaps the biggest issue is when CEOs just aren’t up to the task of delivering for shareholders – many of whom depend upon them for their retirement wealth.
That might be changing for at least one company. This past week there’s been a rising amount of discussion over competence of leadership at one of the largest of the world’s mega-cap companies – Microsoft (MSFT).
Bill Gates might still be Chairman of the Board. But as everyone knows, he checked out long ago and has other agendas well beyond the success of Microsoft’s shareholders. While still possessing some 5 million shares, he’s continued to dump them – including a recent trade in the amount of some 200,000 shares just a week or so ago.
He only retains some 6 percent ownership in the company – not a live or die proposition for his retirement. Yet he still pulls cash from the company – recently listed at close to a million US dollars.
Steve Ballmer is the guy in charge, and it hasn’t been a good ride for shareholders as Microsoft has been pretty much dead money for the past decade or more. MSFT is down in price by over 30 percent, and because Steve doesn’t like to pay folks to own his company – the meager 16 cents a quarter has done little to make up for the plunge in the stock value.
Even the general SP 500 index has fared better during the past decade – losing a bit less in price and paying a tad more in dividends to put investors a tick or two above breakeven.
So, folks are saying – Steve, what are you doing? Are you up to this job? Or perhaps someone else might be a better choice…
In contrast – consider how a tech company in our Pay Me Strategy portfolio works to bring real gains to your retirement portfolio.
Choi Ge-Sung is the CEO of Samsung Electronics (SSNLF). Samsung has been a holding of mine for more than a decade – and during the same trailing 10 years that Microsoft has plunged, Samsung has soared.
SSNLF’s price gains have topped 330 percent, and while the dividend is small – management just added a bit more cash on top. It all adds up to Long Hauler performance averaging nearly 18 percent annually – year after year.
Ge-Sung isn’t on CNBC regularly. He isn’t seen hob-knobbing at society or sports events. He just keeps his head down and drives his company to deliver the goods – over and over again.
And it shows up in SSNLF’s stellar returns, proving that Samsung’s management is competent to deliver retirement account performance.
But it isn’t just the big and flashy tech companies that need good managers.
How about the mundane business of running a phone utility?
Just as with Microsoft – too many retirement investors have been sucked into trusting ATT (T) for way too many years.
And the results are pretty much the same. ATT shares have plunged more than 20 percent during the past decade. And the dividend? Well, it did slightly more than offset the share price loss during the past ten years. Hardly the stuff to make for a rich retirement.
Meanwhile, the CEO of ATT, Randy Stephenson, has been paying himself millions of dollars in cash and prizes over the last several years – including the current reported compensation package in excess of 12 million dollars for the most recent fiscal year. His retirement looks pretty good.
The Pay Me Strategy approach is different. My idea of a shareholder-focused phone company is Otelco (OTT) – which I began recommending just after it came to the public market back in 2004.
The shares have risen since then by more than 20 percent – but the dividends are the real story. They’ve kept piling up at a large and consistent pace, generating an overall return in excess of 138 percent. That’s an average annual return of nearly 15 percent.
As for the CEO of Otelco – Mike Weaver – he’s paid a salary of only 345,000 dollars and has been given only modest raises since the company came to the market these past several years.
And along the way, he’s kept management zeroed-in on keeping costs down and investing in expansion as it makes sense – all the while focused on delivering value to Otelco’s individual shareholders.
That brings us to another business one might think would be pretty much a no-brainer
One of the first places one might look to cash in on for a richer retirement would bethe petrol business. Alas, for every retirement income gusher, there are far too many dry wells.
Over the past decade, oil itself has been a pretty good investment. If you had bought a barrel of crude and put it in your garage – you would have gained more than 250 percent. That’s great, but who has the space for a barrel of oil? And, it’s pretty hard to cash out when you want or need to.
Instead, many retirement investors went for Wall Street’s idea of investing in the oil business and bought ExxonMobil (XOM). Not as bad as Microsoft or ATT – but not even close to the performance of the underlying oil market.
ExxonMobil gained some 85 percent – good – but still only a fraction of oil’s gains. And as for dividends, 47 cents a quarter – that’s 2.2 percent annually – isn’t paying for a rich retirement.
Yet again, it’s the CEO who has been paid well. Rex Tillerson was paid over 28 million last year alone. His retirement is well funded, thanks to ExxonMobil’s trusting shareholders.
The Pay Me Strategy approach to oil has been the same as for technology and telephones: Go with CEOs who are looking out for shareholders’ fortunes before their own.
I’ve recommended such a petrol company since it came to the market in 2006. Linn Energy (LINE) has generated a return of about 200 percent since then – more than 4 times the gains in crude oil during those same years.
And along the way – the company has kept paying dividends currently running at just a few ticks less than 7 percent – but gaining on average for the past five years by over 52 percent.
All told, that amounts to an average annual return for retirement investors in excess of 21 percent.
Guess what the CEO and founder has been paying himself? Mike Linn got bi-weekly checks amounting to 630,000 dollars last year – a bit more than in years past – but the shareholders’ returns prove he’s been worth it.
Like the CEOs of Samsung, Otelco and other companies inside The Pay Me Strategy – Mike has earned his keep by focusing on running his business – fixating on bottom lines and not stretching beyond the core mission of the company.
And delivering cash and gains year in and year out to his shareholders.