Thursday, April 26, 2012

Aztec: Just How Long Is Your...Term?

As value investors, we know we are supposed to think long-term. But just how long is that term supposed to be? Some are probably looking for price appreciation just one year out, whereas others might be looking three years, five years or even ten years out. With a company called Aztec Land and Cattle, however, you might be looking at significant appreciation about 30 years out. Oddball Stocks has an intriguing post on this company that owns a ton of acres in Arizona but trades as if each acre of that land is worth only $49. The company has a development plan that may take years or even decades to bear fruit, but where the payoff is likely to be large. Are you prepared to wait?

Disclosure: No position


Ankit Gupta said...

What's interesting is that if you buy stocks and *never* sell them, the cash payouts can take a while to have it pay itself off. That is, unless it's a liquidation. When Buffett buys though, he doesn't appear to care about what the markets offer for a sale, because he seems to be content holding long enough to realize the value through dividends. (KO, for example)

Here's a quote from an article he wrote in Fortune in 1977 where he describes equities as 100-year bonds:

"Stocks are quite properly thought of as riskier than bonds. While that equity coupon is
more or less fixed over periods of time, it does fluctuate somewhat from year to year.
Investors' attitudes about the future can be affected substantially, although frequently
erroneously, by those yearly changes. Stocks are also riskier because they come equipped
with infinite maturities. (Even your friendly broker wouldn't have the nerve to peddle a
100-year bond, if he had any available, as "safe.")"

The challenge I see is that it could take 30+ years for something to pay off entirely if you view it as something you're okay holding forever. Is my understanding correct? I actually always fear making money, but having the wrong process, because it will only lead to disaster - just because a stock rises and the market gives me an "out" does not tell me that I was right, but may have instead just pawned it off to a bigger fool. I may be overanalyzing it though.

Anonymous said...

30 years for a stock to pay off from dividends?


That sounds crazy to me.

If you are looking for income, stocks can TOTALLY pay themselves off MUCH, MUCH sooner than that.

A good example is National Beverage (FIZZ). I actually owned it (400 shares) for a couple of years. I wish I had held onto it. The stock has split to 7680 shares and paid out $27,178 in cash dividends.

The original investment was about $1,700.

Another example is Apple. Another example are the REITS that cratered in 2008 but are still paying dividends.

I suspect small community banks are another possibility today. It will be interesting to see where their dividends are in 10 to 15 years.

If your time line is 10-15 years, you can eventually get 50% cash dividends every year, or more.