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Learning from the Greats Access True Investment Wisdom
Third in this Series:
Geraldine Weiss Key insights: • “Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favour with the investment community.” • “What matters is what’s being said, not who’s saying it.” • “Dividends don’t lie.”
History ⚫ Experience ⚫ Foresight
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Dedication This essay is one in a series that examines the mindsets and methodologies of people who have won the approval of those for whom they have provided sound investment advice. We believe readers will find common threads that link the thinking of each subject of the essays, not the least of which will be a focus on hidden ‘intrinsic value’, when selecting securities in which to invest. Without question, none of ‘the greats’ have ever depended on luck; each has displayed patience, pragmatism, and a sound process. We hope you enjoy and gain great personal value from each essay.
Definition On dividends: I had three main reasons to believe that dividend yield is the best measure of value: 1.
Dividends result from revenue.
2.
A tendency to increase dividends is a growth notice.
3.
Repetitive dividend yield extremes establish reliable patterns of undervaluation and overvaluation. Geraldine Weiss
Researched, written and presented by Eddie Lees, a member of the Joseph Palmer & Sons Investment Committee. Sourced from the author’s private library and online resources. June, 2019.
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‘The Grande Dame of Dividends’
Geraldine Weiss
Women are better investors than men. That, at least, is what some studies convincingly show: for evidence, look up the reports in Forbes, the Financial Times (UK), Warwick Business School and Hargreaves Lansdown. It almost goes without saying that there will be quite some debate as to the verities of such a claim to female superiority in this rarefied field. Two facts, however, are beyond dispute. First, the investment scene, in population terms, has always been dominated men. Second, Geraldine Weiss, the subject of this brief narrative, was a superb investor who
outperformed many competitors, irrespective of gender.
One of the names given to her was the Queen of Blue-Chip Dividends after inventing a unique approach to outperformance. Notwithstanding stock selection criteria such as Ben Graham’s ‘10-point checklist’ and Warren Buffett’s ‘four principles of investing’, Geraldine Weiss focused on a single metric – which, by some measures, generated greater profits than either of these investment giants. Here, in brief, is her story.
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G
eraldine Weiss was born in 1926 in San Francisco with the surname Schmulowitz. Because she faced anti-Semitism at school, her father changed the family name to Small. Thereafter, Weiss was more accepted by her classmates—and she had discovered that something as superficial as a name can make a huge difference. Upon finishing high school, she pursued a degree in business and finance at the University of California, Berkeley, and graduated in 1945 (her father ran a real-estate business). She met a handsome young naval officer, married him and started a family. Being married to a service man, with frequent location changes, she was an extremely busy young mother. In 1962, she began investing experimentally and, buoyed by early success, read voraciously on investing, further supported by courses in economics. She later recalled a pivotal event that year: “I asked my husband, would you mind if I took some money and bought some stocks? We were living hand to mouth. I was so afraid to do it because I didn’t want to lose the family money.” When, in 1962, the Cuban missile
crisis erupted and the stock market tanked, Geraldine saw opportunity. She invested in 100 shares and made her first investment returns. Four years later, aged 40, she started a newsletter: Investment Quality Trends (IQT). The first issue examined a list of 100 stocks, defining 34 of them as undervalued, including Colgate Palmolive, General Motors, IBM and Kellogg’s. She funded the newsletter and profitability began in 1969. “The thing that it taught me is to persevere,” she said. “Also, I put $2,000 of my own money into it and I really didn’t want to lose my $2,000.” However, no one wanted investment advice from a woman. She kept a letter from a gentleman who refused to take advice from a woman unless he knew she had got it from a man. She then foiled discrimination by signing her name G. Weiss so that people assumed she was male—until eventually she appeared on Wall Street Walk, a popular TV show, in 1977. “By then,” she said, “I’d been in the business long enough that people were making money with my service—at that point they didn’t care whether an ape was running it.”
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M
s Weiss focused on dividend yield, buying stocks when within 10% of their highest dividend yield and unloading them when 10% of their lowest. While her beginnings in investing were heavily influenced by Ben Graham, she developed her own technique and became really successful when following her own methodology. She stands out as the supreme exponent of picking stocks by their dividend yield. Her IQT newsletter has published a list of 13 recommended stocks called “The Lucky 13” every January since 2000 and that portfolio of stocks grew at an annualised rate of 11.8pc between then and December 2016. (Over the same period, the S&P 500, America’s principal stock market index, gained 4.5pc a year, while Mr Buffett’s Berkshire Hathaway produced annual returns of 9.7pc.)
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Repetitive dividend yield extremes establish reliable patterns of undervaluation and overvaluation.
“Hanging my hat on that theory, I studied a number of stocks, going back into their history,” she told Forbes magazine in 2002. “And I realised that each of these stocks has its own individual profile of value, its own criteria for high and low dividend yield. After a great deal of research, I noticed that these high and low levels of yield were repetitive: it was the repetition of the high yield that would indicate an undervalued area (time to buy) and the repetition of a low yield that would indicate an overvalued area (time to sell). So we started tracking a total of 350 blue chip stocks, using these historical yields.”
A financial journalist indicated that her recipe for success, when others were floundering, was that she She had three reasons for believing insisted that any stocks purchased had to be of high quality and had to that dividend yield was the best represent good historic value. measure of value. These stocks tend to have much • Dividends result from earnings. lower risk of declining beyond their • A trend of rising dividends is a ‘undervalued’ area and have the greatest potential for both capital predictor of growth. gains and dividend increases.
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This ‘Grande Dame’ stated: “To yield. save time and turmoil, to pave the 2. Must have raised dividends at a way to profits and, most of all, to rate of at least 10% a year over minimise risk, the dividend yield the past 12 years. theory should be applied only to the 3. Trading for less than double the most prosperous and progressive value of net assets. corporations on the stock exchanges – the blue chips.” 4. Trading at less than 20 times earnings. In hard economic times, she would always swear by three industries: 5. Earnings are at least double utilities, pharmaceuticals, and food dividends. and drink. “I certainly wouldn’t rush 6. Debt is less than 50% of total to sell these stocks, because they market cap. are safe havens,” she said. “People must have their drugs and food, 7. Financially stable and with a even in a recession or a long enough track record to be depression.” considered a “blue chip”.* One of Weiss’s most successful tips was Coca-Cola. Between 1982 and 1992, the price rose by 1,285%. Adding in dividends, the stock returned an average of 34.6% annually compared with 18.6% for the stock market as a whole.
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* Whether it meets the six Blue Chip Criteria: (A) Dividends have been raised at least 5 times in the last 12 years, (B) has at least an "A" rating from S&P, (C) has at least 5 million shares outstanding, (D) has at least 80 institutional investors that hold the stock, (E) has at least 25 years of consistent dividends, and (F) has shown earnings improvement at least seven times in the last 12 years.
eiss's investment strategy looks closely at a dividend's yield to determine value - a repetitively When a stock met all seven of high yield would indicate an Weiss's criteria, the stock was undervalued stock and a categorized by Weiss as a "Buy". repetitively low yield would indicate an overvalued stock. Weiss t the core of Weiss’ has seven criteria through which to philosophy was simplicity screen stocks: and value. In the days before 1. Must be yielding more than its instant online analysis, Weiss hunted down and uncovered the historical average dividend
A
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best blue chip stocks that promised temporarily falls out of favour with great dividends for their prices. To the investment community.” Weiss, dividends were the ultimate Weiss was a focused investor and driver of shareholding. had no desire to distract herself “Dividends,” she said, “were what with researching every stock connected stocks to corporate available. It was better for her to profits. A clever accountant can know a fraction of the market well make earnings appear good or not than know a bit about everything. so good, depending on the season Weiss did not want her readers to or the objective. There can be no be distracted either; she subterfuge about a cash dividend. It recommended they keep only 10is either paid or it is not paid.” 20 stocks. But just because Weiss was interested in dividends, it didn’t mean she ignored share price. She was a student of Ben Graham’s books and had learned to look for value. (For our article on Ben Graham in this series, please go here.)
Weiss had noticed that most blue chip companies with consistent dividends were market fixtures. When the market got hold of something new and trendy, interest in “boring” blue chips waned and their prices dropped. As soon as a stock’s price-to-dividend ratio was low enough, Weiss advised her readers to snap it up, declaring “Never is there a better time to buy a stock than when a basically sound company, for whatever reason,
Weiss stood firmly behind her investment philosophy stating, “[Paying dividends] is perhaps the most sacred of all corporate financial components, and the measure of value we hold in the highest regard. Dividends don’t lie.” This remarkable woman, having added great wealth to those who followed her, who appeared in every prestigious financial magazine and journal throughout her career, died after a long illness on 26 June 2014, aged 88.
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