Author Topic: Blending Dividend Investing and Index Investing  (Read 41907 times)

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #100 on: May 02, 2015, 04:55:31 PM »
Actually I had a 3.8 in college thanks. Look up Ad Hominem. Thanks. Strong interest in philosophy here. Thousands of hours of audiobooks consumed in a long commute because I bought my house at the wrong time and refused to sell.

I will post my gains next year. For the record:
DIS @ 92.54
AAPL @ 125
ESCA @ 15.55
PAH @ 26.63
F @ 15.80

For the last time. I have an employee discount through my mom. No sales load for me.
I will let the numbers speak next April. You have the floor. I'm done here

milesdividendmd

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Re: Blending Dividend Investing and Index Investing
« Reply #101 on: May 02, 2015, 05:08:37 PM »
I'm no proponent of this particular approach to investing. But this piling on on a particular poster who disagrees with the group's favored investment philosophy is cliquish, mean spirited and unhelpful.

Poke holes in his arguments, if you disagree with them, but don't speculate about his intelligence, his ethics or his college GPA. These are all things that you obviously have no knowledge about.

waltworks

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Re: Blending Dividend Investing and Index Investing
« Reply #102 on: May 02, 2015, 11:51:55 PM »
What arguments? What philosophy? Did you read the thread? What small semblance of coherent thought *was* presented was completely and thoroughly annihilated a while ago. You are defending someone who is (maybe was?) unclear on the idea of dividend investing vs reinvesting dividends!

Best case scenario is OP is a troll. Worst case...

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milesdividendmd

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Blending Dividend Investing and Index Investing
« Reply #103 on: May 03, 2015, 12:09:50 AM »
I'm actually not defending anyone. I'm attacking the ad hominum feeding frenzy sensibilities of the mob.

A careful reading of my brief post should tell you as much.


waltworks

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Re: Blending Dividend Investing and Index Investing
« Reply #104 on: May 03, 2015, 12:23:24 AM »
Oh, I read it carefully. And it still makes no sense for you to jump in. The thread descended into farce long ago, you're wasting your time.

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milesdividendmd

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Re: Blending Dividend Investing and Index Investing
« Reply #105 on: May 03, 2015, 01:02:59 AM »
If you read it carefully then what "philosophy" were you referring to? Are you denying that you and your co-assailants have a philosophy?

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Re: Blending Dividend Investing and Index Investing
« Reply #106 on: May 03, 2015, 06:56:15 AM »
If you read it carefully then what "philosophy" were you referring to? Are you denying that you and your co-assailants have a philosophy?

Miles, he has yet to articulate any coherent logic to investing. He's just shouting out names of successful stock or mutual funds. How is that a philosophy?

I'm more than willing to listen to challenges to conventional wisdom, particularly of this forum. If you check my post history I do that pretty often.

All I want is a 30,000 foot view of the OP's philosophy. He responded to this by talking about his GPA or the actual discipline of philosophy. He also said "Cash mutual funds and stock for me." The first and last are asset classes. The middle one can mean a million things. That's not a strategy.

If the strategy is indeed listening to Cramer, picking whatever the hottest company is, or Morning-"star chasing," then so be it. He should own it and be ready to hear the multitude of reasons that is an extremely poor choice.

Right now it is like we're talking to Faulkner without the brilliant themes.

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #107 on: May 03, 2015, 07:57:22 AM »
I don't think anything I say will make a difference really. You don't have to agree with my way of making a lot of money. It's in other posts but since you asked (take it a face value I'm not debating it)

Intuition supported by rules that restrain impulsiveness and knee jerk fear selling. I don't like to invest in something I'm not willing to buy because if they can't sell it to me why would I assume success elsewhere. Perfect example is Bank of America. I fired them years ago for screwing me. Now they are screwing their share holders because they are hung up from screwing other people. You see it is a limiting factor. If you can, I recommend actually visiting a place you want to invest in. Then you might actually have a clue what it is about instead of looking at an abstract chart.

It doesn't take a genius to figure out Disney will be worth more to in 30 years. Everyone is just so fucking greedy they aren't willing to go through a few valleys. They would rather pay high taxes and throw money at a digit on the screen because a chart told them to do it.
I don't even think you deserve to know such a money making secret Mr my name is an oxymoron. Somebody else deserves to know it though. There just might be a janitor who has the balls to let money ride on a company he actually knows is good. He will have much more money than you some day. I'm sure of it.
« Last Edit: May 03, 2015, 08:03:41 AM by mrpercentage »

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Re: Blending Dividend Investing and Index Investing
« Reply #108 on: May 03, 2015, 08:55:25 AM »
I don't think anything I say will make a difference really. You don't have to agree with my way of making a lot of money. It's in other posts but since you asked (take it a face value I'm not debating it)

Whether or not you've made a lot of money is actually not germane to the discussion. We're asking about your philosophy and strategy so we can see whether it is replicable.

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Intuition supported by rules that restrain impulsiveness and knee jerk fear selling. I don't like to invest in something I'm not willing to buy because if they can't sell it to me why would I assume success elsewhere. Perfect example is Bank of America. I fired them years ago for screwing me. Now they are screwing their share holders because they are hung up from screwing other people. You see it is a limiting factor. If you can, I recommend actually visiting a place you want to invest in. Then you might actually have a clue what it is about instead of looking at an abstract chart.

Great, what your rules that constrain knee-jerk selling?

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I fired them years ago for screwing me. Now they are screwing their share holders because they are hung up from screwing other people. You see it is a limiting factor. If you can, I recommend actually visiting a place you want to invest in.

How exactly did they screw you? This sounds like a political statement and not investing analysis. What about the fundamentals? Earnings, p/e ratio, dividend, management?

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If you can, I recommend actually visiting a place you want to invest in. Then you might actually have a clue what it is about instead of looking at an abstract chart.

What abstract chart?

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It doesn't take a genius to figure out Disney will be worth more to in 30 years. Everyone is just so fucking greedy they aren't willing to go through a few valleys. They would rather pay high taxes and throw money at a digit on the screen because a chart told them to do it.

You just said you did what Cramer said. And for the record, I don't think there are many people in this forum that advocate technical investing. People here are generally about fundamentals.

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I don't even think you deserve to know such a money making secret Mr my name is an oxymoron. Somebody else deserves to know it though. There just might be a janitor who has the balls to let money ride on a company he actually knows is good. He will have much more money than you some day. I'm sure of it.

I feel like I'm talking to Charlie in Always Sunny.

And I'm also willing to be there will be one janitor with more money than me. I have no clue why this is relevant.

My Own Advisor

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Re: Blending Dividend Investing and Index Investing
« Reply #109 on: May 03, 2015, 02:53:49 PM »
I'm a hybrid investor....own 30-40 dividend stocks and the rest is in indexed products.

Working well so far, about $10,500 each year in passive income from stocks alone. 

I hope to retire on $30,000 per year in dividends.

"I would be interested in hearing from those who have looked into this."  Been doing this for 5-7 years with no intention of stopping since the dividend income keeps going up and up every year.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #110 on: May 03, 2015, 03:27:31 PM »
I'm a hybrid investor....own 30-40 dividend stocks and the rest is in indexed products.

Working well so far, about $10,500 each year in passive income from stocks alone. 

I hope to retire on $30,000 per year in dividends.

"I would be interested in hearing from those who have looked into this."  Been doing this for 5-7 years with no intention of stopping since the dividend income keeps going up and up every year.

So you've been doing it during one of the biggest bull markets in history, where the market went from a 50% decline, to breaking new record highs, and you have no intention on stopping since the stocks keep going up.

Does this mean you intend on stopping during the next crash, when dividend income declines?

milesdividendmd

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Re: Blending Dividend Investing and Index Investing
« Reply #111 on: May 03, 2015, 04:26:18 PM »
Excellent point, Dodge, though not at all specific to this strategy.

IE Your question is equally germane to buy and holders over allocated to equities. 

scottish

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Re: Blending Dividend Investing and Index Investing
« Reply #112 on: May 03, 2015, 05:14:36 PM »
He said the dividends keep going up, not the stocks.   I can relate to that, increasing dividends make me feel good too.   I've been doing this for 14 years, through 2 stock market slumps.

I didn't outperform the index though.   And it was a heck of a lot of work to figure that out.   So i'm slowly converting to an index strategy.

theoverlook

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Re: Blending Dividend Investing and Index Investing
« Reply #113 on: May 04, 2015, 08:14:21 AM »
Hat is off to you Dodge. You are persistent. I don't believe that shows reinvested dividends though. Im only showing you what I do. I have to show you tools that I know. Your way may be better. Your way may be wiser.   Look, I know you can lose money on individual stocks. That just happens to be where the biggest gains are. You can fish with a net. I prefer a harpoon-- its more sporty. I prefer to hunt with a bow-- more sporty.


We're not talking sports here, we're talking wealth building and retirement.  If your job was to feed yourself for the rest of your life on what you catch now, would you really choose a harpoon over a drift net?  Because it's "sporty?"  Regardless, analogy tends to be a refuge or dodge when someone doesn't want to debate or can't support their position at hand.  Investing is not fishing.  It's investing.

Milesdividendmd, I think some post must have been deleted because I've not seen anything about GPAs other than what looks like a non-sequitur from mrpercentage.

And it's frustrating to try to have a conversation with someone that can't actually articulate a position and when asked specific questions about it rambles on about TV personalities and audio books.  Asking for them to actually support their claims is not an attack.

brooklynguy

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Re: Blending Dividend Investing and Index Investing
« Reply #114 on: May 04, 2015, 08:32:55 AM »

analogy tends to be a refuge or dodge when someone doesn't want to debate or can't support their position at hand.

Given that this thread long ago descended into farce (as pointed out above), I won't hesitate to go off on a minor tangent in response to the quoted statement, which (to use an anology!) I think paints with too broad a brush.  Analogies, when used properly, can be a fine argumentative and/or explanatory tool.  Some of my favorite writers on this forum (and on investment topics generally, like Warren Buffet) make dexterous use of analogies, and I would hate to see anyone discouraged from using such a fine tool simply because it happens to sometimes also be employed by the evasive debater.

theoverlook

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Re: Blending Dividend Investing and Index Investing
« Reply #115 on: May 04, 2015, 08:36:18 AM »

analogy tends to be a refuge or dodge when someone doesn't want to debate or can't support their position at hand.

Given that this thread long ago descended into farce (as pointed out above), I won't hesitate to go off on a minor tangent in response to the quoted statement, which (to use an anology!) I think paints with too broad a brush.  Analogies, when used properly, can be a fine argumentative and/or explanatory tool.  Some of my favorite writers on this forum (and on investment topics generally, like Warren Buffet) make dexterous use of analogies, and I would hate to see anyone discouraged from using such a fine tool simply because it happens to sometimes also be employed by the evasive debater.

Fair enough, and point conceded.  But I would still argue that in most hands it's a rather crude implement.

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Re: Blending Dividend Investing and Index Investing
« Reply #116 on: May 04, 2015, 01:22:55 PM »
We're not talking sports here, we're talking wealth building and retirement.  If your job was to feed yourself for the rest of your life on what you catch now, would you really choose a harpoon over a drift net?  Because it's "sporty?"  Regardless, analogy tends to be a refuge or dodge when someone doesn't want to debate or can't support their position at hand.  Investing is not fishing.  It's investing.

Milesdividendmd, I think some post must have been deleted because I've not seen anything about GPAs other than what looks like a non-sequitur from mrpercentage.

And it's frustrating to try to have a conversation with someone that can't actually articulate a position and when asked specific questions about it rambles on about TV personalities and audio books.  Asking for them to actually support their claims is not an attack.

Thank you for this, overlook. Non-sequitur is a perfect descriptor and your point re: "sporty" is spot on.

Like I said, I'm still awaiting a description of the OP's strategy or philosophy. Maybe we're all idiots and he's on to something, but I seriously doubt it and I definitely won't believe it until I've seen a big picture view.

mrpercentage

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Re: Blending Dividend Investing and Index Investing
« Reply #117 on: May 04, 2015, 10:16:54 PM »


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what your rules that constrain knee-jerk selling?
No major stake (maybe greater that 2%) in a company without staying for one year (both for taxes and knee jerking). If you aren't that certain of their success you shouldn't buy that much of it. Staying greater than a year is even better. A few years. If you need the money sooner than that-- don't put it in the market. You need the patience to watch an investment grow. If you are looking for a rocket, just know, it might blow up in your face.


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This sounds like a political statement and not investing analysis. What about the fundamentals? Earnings, p/e ratio, dividend, management?

Nope, the customer is the foundation of any investment. If they have no customers or are losing customers they are no good in my book.
Model from space:
(1) cutomers/good business practices ----> (2) innovation/ moving with the future ----> (3)are profitable or are highly likely of being profitable--->(4)share holders

How Bank of America fucked up:
There once was a bright eyed lad who gladly gave a bank is money. He was not concerned with finances; he was concerned with living. He made several ATM withdrawals every month at various machines and gladly paid his bank to do it. He even had a thousand dollars sitting in a non-linked savings account collecting shitty interest and was happy to do it. Then one day, he did some online small purchases while drunk forgetting a bill that would be posting that day. Those online purchases came in as ten separate $1 charges each over drafting his account. The young man made a mistake and he knew it so he called the company and escalated his mistake through management hoping that surely someone would see the injustice of paying $350 for $10. Hey can I pay $35 instead and promise not to do it again. No they said. Actually it was closer to "Fuck you, take a hike". So the young man said "Fuck me? No fuck you asshole. Im never using you again. Ever. Not for credit cards. Not your ATM machines. Not your bank. Ever." The young man went and withdrew his now $650 from his savings account and hasn't used any Bank of America services for 15 years now. That same lad was $10,000 in credit card debt a few years ago before he dug himself out-- it wasn't a Bank of America credit card.

If the order is:
(4)--->(3)--->(2)--->(1)
it is a poor investment





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You just said you did what Cramer said. And for the record, I don't think there are many people in this forum that advocate technical investing. People here are generally about fundamentals.

No. You wanted me to repost all my reasons for liking Apple. Cramer's reasoning is good enough for me. I frequently disagree with what he says, but get a lot out of watching his show. I posted my reason in "cash before the crash", but I think I told you that.

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I have no clue why this is relevant.
It doesn't take a genius or a lot of analysis to be a good investor. It helps a lot, and can turn good profits obscene-- but it is not necessary. I truly believe that.

Malaysia41

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Re: Blending Dividend Investing and Index Investing
« Reply #118 on: May 05, 2015, 06:58:09 PM »
popcorn's gone.  reaching for the jujubees.

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Re: Blending Dividend Investing and Index Investing
« Reply #119 on: May 06, 2015, 01:51:37 PM »
popcorn's gone.  reaching for the jujubees.

Can I join you? I feel like this is a lost in translation situation. I'll bring junior mints.

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Re: Blending Dividend Investing and Index Investing
« Reply #120 on: May 07, 2015, 11:11:02 AM »
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Best case scenario is OP is a troll. Worst case...

Im not a Troll...just a "Seeker/Learner" 

I started this thread because I'm trying to refine (or redefine) my personal investing strategy, and part of that process is investigating various philosophies and strategies and making a rational evaluation of fit for my specific situation.   

Many of the folks on here are using a buy and hold index / lazy portfolio strategy, and for the past 10 years or so I've been doing mainly that.  Because Im getting close to FIRE, Im re-evaluating this to see if it continues to make sense or if there is a better way or something new I should be doing as I transition from accumulation phase to 'drawdown' phase. 

So, yes we all agree index investing is good.  Also, can we agree that there are some very coherent investors that use alternative strategies.  (Dividend investing, Real Estate, etc...) 

I think we can all admit that although index investing works well for the majority, some people may have specific and individual situations that could tip the scales towards an alternative strategy....

For example, we could all agree that if someone owns a construction business and his wife has a real estate license, Real Estate investing may be more advantageous for them as opposed to the average investor.  For this fictitious couple Real Estate investing may provide a higher rate of return than index investing with a 3-fund lazy portfolio.

Some points I hoped to tease out with this thread from the rational, spreadsheet-loving engineer types on this forum, who happen to choose dividend investing (like Spoonman), what is the specific reason for that and why does it work for you and what advantages or opportunities specifically did you have that made this a reasonable choice? 

After reading all these posts (some of which made lots of sense, and some of which were very amusing) it seems to me that Free trades,  waived expenses, free access to analytical software and company data, lots of time, and a genuine interest in this kind of analysis may be what is needed to tip the scales and make dividend investing a good option.

Probably not a good option for me right now.  Im not smart enough, and Im way too lazy.   

skyrefuge

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Re: Blending Dividend Investing and Index Investing
« Reply #121 on: May 07, 2015, 01:56:44 PM »
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Best case scenario is OP is a troll. Worst case...

Im not a Troll...just a "Seeker/Learner"

I think in the diversion into silliness, waltworks simply forgot who the OP was; he was speculating that mrpercentage was a troll, not you.

Also, can we agree that there are some very coherent investors that use alternative strategies.  (Dividend investing, Real Estate, etc...)

I certainly agree that there are coherent investing strategies beyond buy-and-hold indexing, but I disagree that "dividend investing" is one of them.

I think it's telling that you gave two examples of the cases when "alternative" strategies might be preferred over buy-and-hold indexing (and I agree with those cases), but neither of them was "dividend investing". First you described a case where real-estate investing might be preferred, and then you described someone with these advantages:

Free trades,  waived expenses, free access to analytical software and company data, lots of time, and a genuine interest in this kind of analysis

What you described there is a strategy more commonly known as "value investing", or "fundamental analysis", not "dividend investing".

I maintain that "value investing" is a coherent strategy, while "dividend investing" is not. Most "dividend investors" are really just standard-issue value investors who then irrationally choose to exclude stocks that use methods besides dividends to return value to their shareholders. Selling shares is equivalent to receiving a dividend, so there is no coherent reason for a value investor to exclude a non-dividend-paying stock on that basis alone.

And thus, that focus on dividends is often a sign that a self-styled "dividend investor" has a fundamental misunderstanding of how dividends work, and such misunderstandings make me think that value investing, while more coherent, also may not be a strategy that is particularly suitable for them.

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Re: Blending Dividend Investing and Index Investing
« Reply #122 on: May 07, 2015, 04:24:42 PM »
What you described there is a strategy more commonly known as "value investing", or "fundamental analysis", not "dividend investing".

I maintain that "value investing" is a coherent strategy, while "dividend investing" is not. Most "dividend investors" are really just standard-issue value investors who then irrationally choose to exclude stocks that use methods besides dividends to return value to their shareholders. Selling shares is equivalent to receiving a dividend, so there is no coherent reason for a value investor to exclude a non-dividend-paying stock on that basis alone.

And thus, that focus on dividends is often a sign that a self-styled "dividend investor" has a fundamental misunderstanding of how dividends work, and such misunderstandings make me think that value investing, while more coherent, also may not be a strategy that is particularly suitable for them.

Very well put skyrefuge.  I spend a lot of time reading various dividend centric, especially dividend growth, blogs.  I believe in the concept but think you are hitting the nail on the head.  Just because O'shaunessy found in What Works On Wall Street a long time ago that dividend paying companies beat those that didn't (on average) you can't zero in on just one metric.  He also found that share repurchases and extinguishment of long term debt also "worked" to beat the index.

The rationale is some companies have management that is entirely self interested and is enriching themselves at shareholder expense.  Companies with management that focus strongly on returning cash to owners (via debt reduction, divs, or buybacks) are arguably better aligned with the owners than the previously mentioned self serving ones.  That doesn't mean a company that reinvests all capital back into the business can't be good too.  That may be where the highest return is available!

I think it should also be noted that companies with strong insider ownership tend to outperform (ceteris paribus) their peers.  It is a good thing when management has their interests aligned with ownership.

Personally, I find for my options income centric approach to the markets, it makes a lot of sense to narrow down my invest-able universe to the largest, most stable, cash gushing businesses around.  I thus consider dividend growth over long periods of time a good indicator the company will fit my other criteria.  It makes me oftentimes heavily tilted towards consumer staples but that isn't such a bad place to be if the options premiums are there for you. 

Also good: Indexing.  YMMV.

scottish

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Re: Blending Dividend Investing and Index Investing
« Reply #123 on: May 07, 2015, 06:11:41 PM »
Mr Velociraptor:    That is an interesting book.  "What works on Wall Street".     I'm just reading through it.   

brooklynguy

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Re: Blending Dividend Investing and Index Investing
« Reply #124 on: May 08, 2015, 07:16:59 AM »
I certainly agree that there are coherent investing strategies beyond buy-and-hold indexing, but I disagree that "dividend investing" is one of them.

I'm going to expand on something I said in this thread to challenge the notion that dividend-focused strategies necessarily make no sense:

If a company that doesn't pay dividends takes a 30% hit during a market crash, then a twin of that company, whose only difference is that they pay out dividends rather than retaining their earnings, would also take a 30% hit.

At the risk of providing fodder to proponents of dividend-focused strategies, I think this statement highlights what in my view is the only plausible potential flaw in the otherwise unassailable logic behind the argument that dividends do eat into principal to an equal extent:  that argument presupposes the efficiency of the market, which is not a logically necessary truth.

In your twin company hypothetical, the reason for the identical performance of the dividend-paying company and the earnings-retaining company is that the market recognizes the fact that the payment of the dividend leaves the company poorer by an amount equal to the total dividend payout and therefore reduces the market value of the company by a corresponding amount.  But what if the market were not efficient enough to absorb this information?  What if it were so grossly inefficient that the market completely failed to price the occurrence of the dividend payment into the share price?  In that case, the dividend would represent a free lunch, at least until the market price self-corrects to reflect the decrease in the company's intrinsic value.

The answer to this line of counter-argument, though, is that it is completely divorced from reality.  The stock market is in fact highly efficient, and certainly efficient enough to correctly reflect so obvious a change in the intrinsic value of a company as a divestment of its cash in the form of a dividend payment to its public shareholders.

Moreover, even if the market were not so efficient, the market's misvaluation could cut in either direction:  as long as we're accepting the existence of alternate reality where the market can fail to recognize the decrease in value caused by the parting of a company and a portion of its cash holdings, then that fantasyland market could just as easily undervalue the shares after the occurrence of a dividend as overvalue them, in which case the non-payment of a dividend would be providing a free lunch.

The stock market can be thought of as a Keynesian beauty contest.  If enough investors have a preference for dividends (or believe that other investors have a preference for dividends (or believe that other investors believe that other investors have a preference for dividends, and you can keep extending this idea up yet another level until this clause becomes an infinite regression of nested parentheticals)), then that becomes a self-fulfilling prophecy.  These investors with a preference for dividends (or a belief that other investors have a preference for dividends) would bid up the price of shares of dividend-paying companies, making those investors' dividend-focused performance prediction come true.

Now, I'm going to repeat the disclaimer that this should not be relied upon by would-be proponents of a dividend-focused strategy, because (1) I don't believe there is a critical mass of dividend-focused investors (or investors who believe there is a critical mass of dividend-focused investors), and (2) even if there were, in the long-run, the market would run out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the stock market in the long-term would correct the overvaluation created by the "voting machine" that is the stock market in the short-term.  But this does explain how the idea that "dividend-focused strategies make no sense," which appears to be an unassailable truth when viewed through the lens of logic and reason, is not tautologically true when you account for human irrationality (or "rational irrationality").

skyrefuge

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Re: Blending Dividend Investing and Index Investing
« Reply #125 on: May 08, 2015, 10:35:03 AM »
These investors with a preference for dividends (or a belief that other investors have a preference for dividends) would bid up the price of shares of dividend-paying companies, making those investors' dividend-focused performance prediction come true.

Sure, that's a reason why a dividend-focused approach could outperform, but no one who calls themselves a "dividend investor" has ever used that "greater fool" theory to explain their preference for dividends (except perhaps as a face-saving post-hoc explanation as they begin to accept that dividends actually provide no free lunch). In fact, such a recursive jiujitsu scheme is likely to be psychologically antithetical to investors who are attracted to dividends for their (deceptively) straightforward money-making mechanism.

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Re: Blending Dividend Investing and Index Investing
« Reply #126 on: May 08, 2015, 10:45:59 AM »
Sure, that's a reason why a dividend-focused approach could outperform, but no one who calls themselves a "dividend investor" has ever used that "greater fool" theory to explain their preference for dividends (except perhaps as a face-saving post-hoc explanation as they begin to accept that dividends actually provide no free lunch). In fact, such a recursive jiujitsu scheme is likely to be psychologically antithetical to investors who are attracted to dividends for their (deceptively) straightforward money-making mechanism.

Ha!  I completely agree, and perhaps should have festooned my disclaimers with flashing red lights.  To borrow language from some of your posts, any newbies (or even not-so-newbies) reading along should make sure to acquire the first-order understanding of why dividends do not represent a free lunch before attempting to understand (or, worse yet, try to build a strategy based upon) the high-level shit now under discussion.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #127 on: May 08, 2015, 10:57:52 AM »
Sure, that's a reason why a dividend-focused approach could outperform, but no one who calls themselves a "dividend investor" has ever used that "greater fool" theory to explain their preference for dividends (except perhaps as a face-saving post-hoc explanation as they begin to accept that dividends actually provide no free lunch). In fact, such a recursive jiujitsu scheme is likely to be psychologically antithetical to investors who are attracted to dividends for their (deceptively) straightforward money-making mechanism.

Ha!  I completely agree, and perhaps should have festooned my disclaimers with flashing red lights.  To borrow language from some of your posts, any newbies (or even not-so-newbies) reading along should make sure to acquire the first-order understanding of why dividends do not represent a free lunch before attempting to understand (or, worse yet, try to build a strategy based upon) the high-level shit now under discussion.

It would help if we could get MrMoneyMustache to stop saying things like:

-------------------------------------------
On top of this, international stocks currently pay a much higher dividend yield. For every $100,000 of VTI you own, you’ll get $1780 in annual dividends. For an equal amount of VXUS, you will get $3370, or almost twice as much. In other words, international stocks are priced at a much more attractive level than US stocks, which in my book is a time to buy.

http://www.mrmoneymustache.com/betterment-vs-vanguard/
-------------------------------------------

forummm

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Re: Blending Dividend Investing and Index Investing
« Reply #128 on: May 08, 2015, 11:31:02 AM »
Sure, that's a reason why a dividend-focused approach could outperform, but no one who calls themselves a "dividend investor" has ever used that "greater fool" theory to explain their preference for dividends (except perhaps as a face-saving post-hoc explanation as they begin to accept that dividends actually provide no free lunch). In fact, such a recursive jiujitsu scheme is likely to be psychologically antithetical to investors who are attracted to dividends for their (deceptively) straightforward money-making mechanism.

Ha!  I completely agree, and perhaps should have festooned my disclaimers with flashing red lights.  To borrow language from some of your posts, any newbies (or even not-so-newbies) reading along should make sure to acquire the first-order understanding of why dividends do not represent a free lunch before attempting to understand (or, worse yet, try to build a strategy based upon) the high-level shit now under discussion.

It would help if we could get MrMoneyMustache to stop saying things like:

-------------------------------------------
On top of this, international stocks currently pay a much higher dividend yield. For every $100,000 of VTI you own, you’ll get $1780 in annual dividends. For an equal amount of VXUS, you will get $3370, or almost twice as much. In other words, international stocks are priced at a much more attractive level than US stocks, which in my book is a time to buy.

http://www.mrmoneymustache.com/betterment-vs-vanguard/
-------------------------------------------

Maybe Beltim should start a thread on that?

Cathy

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Re: Blending Dividend Investing and Index Investing
« Reply #129 on: May 08, 2015, 11:35:32 AM »
Another difference between dividends and the proceeds of a stock sale is that dividends allow insiders to extract earnings and profit from the company without reducing their influence over the company. Consider a founder who controls, say, 35% of the voting power of the shareholders, and she makes use of that voting power to influence the affairs of the corporation. If she liquidates her shares for quarterly spending money, her power over the corporation will gradually decrease. On the other hand, if the corporation pays a dividend, she can maintain her same share of voting power while having money to spend. Insiders at companies that pay dividends might be more motivated to do a good job for the long-term because they can continue to extract earnings and profits without reducing their control. This in turn might increase the value of such dividend-paying companies.

I'm not saying this effect is real, just that it could be real, such that the irrelevancy of dividends is not a logical truth.
« Last Edit: May 08, 2015, 12:08:35 PM by Cathy »

brooklynguy

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Re: Blending Dividend Investing and Index Investing
« Reply #130 on: May 08, 2015, 12:13:12 PM »
Another difference between dividends and the proceeds of a stock stale is that dividends allow insiders to extract earnings and profit from the company without reducing their influence over the company.

This also explains another reason why an investor may (rationally) express a preference for receiving their returns in the form of dividends rather than share sale proceeds (because, of course, your statement applies equally to all investors whose shareholdings carry voting power, not just "insiders"), without even needing to reach the second step of your analysis explaining how the payment of dividends could (theoretically) increase the value of a company.

Of course, the overwhelming majority of investors (and, it's probably safe to say, every single investor who has ever come to a forum like this one to advocate the benefits of a dividend-focused investment strategy) doesn't give two shits about their voting power (which is so trivially low as to be meaningless to begin with) and instead views their investment as a strictly passive vehicle to wealth accumulation (in which case a preference for dividends makes no sense, as it leaves the timing of part of your return of capital (and any associated tax consequences) at the mercy of the company's management).

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #131 on: May 08, 2015, 12:26:03 PM »
Another difference between dividends and the proceeds of a stock sale is that dividends allow insiders to extract earnings and profit from the company without reducing their influence over the company. Consider a founder who controls, say, 35% of the voting power of the shareholders, and she makes use of that voting power to influence the affairs of the corporation. If she liquidates her shares for quarterly spending money, her power over the corporation will gradually decrease. On the other hand, if the corporation pays a dividend, she can maintain her same share of voting power while having money to spend. Insiders at companies that pay dividends might be more motivated to do a good job for the long-term because they can continue to extract earnings and profits without reducing their control. This in turn might increase the value of such dividend-paying companies.

I'm not saying this effect is real, just that it could be real, such that the irrelevancy of dividends is not a logical truth.

Agreed, while this might be a good story, we have no way of knowing how this will influence stock prices.  If you give otherwise great management an easy path to extract earnings and profit, without reducing their influence over the company, over time their monetary incentive to grow the company would diminish, as they don't have as much money invested.  In short, insiders at companies that pay dividends might be more less motivated to do a good job for the long-term because they can continue to extract earnings and profits without reducing their control.

I know you weren't advocating this line of thinking, I'm simply pointing out how the same reasoning can apply to the opposite direction, so that alone shouldn't be enough to justify a dividend strategy.

forummm

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Re: Blending Dividend Investing and Index Investing
« Reply #132 on: May 08, 2015, 12:34:31 PM »
Another difference between dividends and the proceeds of a stock sale is that dividends allow insiders to extract earnings and profit from the company without reducing their influence over the company. Consider a founder who controls, say, 35% of the voting power of the shareholders, and she makes use of that voting power to influence the affairs of the corporation. If she liquidates her shares for quarterly spending money, her power over the corporation will gradually decrease. On the other hand, if the corporation pays a dividend, she can maintain her same share of voting power while having money to spend. Insiders at companies that pay dividends might be more motivated to do a good job for the long-term because they can continue to extract earnings and profits without reducing their control. This in turn might increase the value of such dividend-paying companies.

I'm not saying this effect is real, just that it could be real, such that the irrelevancy of dividends is not a logical truth.

Could be. But you could make the opposite case and other cases. If insiders think the business is a great investment, they would want funds reinvested in the business because that maximizes their wealth (even if they have to borrow on margin against their shares or sell other holdings for spending money). If insiders think reinvesting in the business isn't valuable (because better returns are available elsewhere) they will want dividends. If insiders want to increase their position, they would want buybacks (of other's shares). If they needed some cash, they could sell a few shares and still have a larger percentage of ownership.

scottish

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Re: Blending Dividend Investing and Index Investing
« Reply #133 on: May 08, 2015, 04:09:22 PM »
Wait... are you guys saying that stocks that don't pay dividends are better than stocks that do pay dividends?

skyrefuge

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Re: Blending Dividend Investing and Index Investing
« Reply #134 on: May 08, 2015, 04:45:40 PM »
Another difference between dividends and the proceeds of a stock sale is that dividends allow insiders to extract earnings and profit from the company without reducing their influence over the company.

As forummm alluded to, that difference only exists in the case where the number of outstanding shares remains constant, which is not true when the company is doing a share buyback. In that case, if our insider simply sells an amount of shares equal to 35% of the total amount the company is buying, she will get her cash and maintain her ownership level.

So dividends are not unique in their ability to achieve that goal.

The fact that most "dividend investors" love dividends but ignore/hate buybacks is one of the clearest indicators to me that most dividend-focused strategies are birthed from an incomplete understanding of stocks and corporate finance.

skyrefuge

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Re: Blending Dividend Investing and Index Investing
« Reply #135 on: May 08, 2015, 04:51:15 PM »
Wait... are you guys saying that stocks that don't pay dividends are better than stocks that do pay dividends?

No. In general, we're saying that, all else being equal (earnings, market-share, etc.), a company that pays dividends is the same as a company that does not. And thus, it makes no sense to have a specific preference for dividend-paying companies.

Only in the case of taxation does a dividend-paying company become "worse" than a non-dividend-payer, because dividends can force you to incur taxes that you might have preferred to defer.

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Re: Blending Dividend Investing and Index Investing
« Reply #136 on: May 08, 2015, 05:09:54 PM »
Dividend stocks HAVE outperformed non nondividend paying stocks historically.  That is an empiric fact.  Not worth debating really.

But the reason for this historical outperformance is that dividend stocks have traditionally been cheap relative to non dividend stocks (ie they had more exposure to the value factor.)

The really concerning thing for dividend stocks (and their fans) going forward is that on average, they are now MORE expensive than non dividend paying stocks.  ie they have a negative exposure to the value factor.

scottish

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Re: Blending Dividend Investing and Index Investing
« Reply #137 on: May 08, 2015, 05:16:01 PM »
Ok, good.   We get very good tax treatment on dividends at low income levels, so they have a strong appeal once I stop working.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #138 on: May 08, 2015, 05:18:16 PM »
Dividend stocks HAVE outperformed non nondividend paying stocks historically.  That is an empiric fact.  Not worth debating really.

But the reason for this historical outperformance is that dividend stocks have traditionally been cheap relative to non dividend stocks (ie they had more exposure to the value factor.)

The really concerning thing for dividend stocks (and their fans) going forward is that on average, they are now MORE expensive than non dividend paying stocks.  ie they have a negative exposure to the value factor.

If you look at stocks which continually paid dividends over a long period of time, of course they will have beaten the market.  Because when companies are doing well...they continue to pay their dividends.  It's the fact that the companies did well which caused them to outperform.  This is true even during decades where value underperformed.

milesdividendmd

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Re: Blending Dividend Investing and Index Investing
« Reply #139 on: May 08, 2015, 05:25:07 PM »
Dividend stocks HAVE outperformed non nondividend paying stocks historically.  That is an empiric fact.  Not worth debating really.

But the reason for this historical outperformance is that dividend stocks have traditionally been cheap relative to non dividend stocks (ie they had more exposure to the value factor.)

The really concerning thing for dividend stocks (and their fans) going forward is that on average, they are now MORE expensive than non dividend paying stocks.  ie they have a negative exposure to the value factor.

If you look at stocks which continually paid dividends over a long period of time, of course they will have beaten the market.  Because when companies are doing well...they continue to pay their dividends.  It's the fact that the companies did well which caused them to outperform.  This is true even during decades where value underperformed.

You can spin it that way Dodge.  You seem to attribute everything to survivorship bias.  That's your thing.  I get it.

But the fact remains that dividend stocks' historical outperformance is largely explained by exposure to the value factor.  An exposure that is currently negative.  To me that constitutes actionable intelligence.  (Of course admitting this requires one to come to terms with the three factor model, harder for some than for others.)

Playing the old saw of survivorship bias:  not so much.

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #140 on: May 08, 2015, 05:38:32 PM »
But the fact remains that dividend stocks' historical outperformance is largely explained by exposure to the value factor.

Source?  Looking at the last crash, it looks like Dividend's (Orange line) out-performance is more attributed to the Growth factor (Green line) than the Value factor (Blue line)



¯\_(ツ)_/¯

forummm

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Re: Blending Dividend Investing and Index Investing
« Reply #141 on: May 08, 2015, 06:24:14 PM »
Ok, good.   We get very good tax treatment on dividends at low income levels, so they have a strong appeal once I stop working.

Is the tax treatment on long term capital gains any different than dividends? If not, then you shouldn't care whether you're paying bills by using dividends or selling shares. It's the same thing.

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Re: Blending Dividend Investing and Index Investing
« Reply #142 on: May 08, 2015, 07:00:27 PM »
Ok, good.   We get very good tax treatment on dividends at low income levels, so they have a strong appeal once I stop working.

Is the tax treatment on long term capital gains any different than dividends? If not, then you shouldn't care whether you're paying bills by using dividends or selling shares. It's the same thing.

Dividends can be converted directly to Molson and poutine without incurring a tax penalty.  Or so I've heard.

forummm

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Re: Blending Dividend Investing and Index Investing
« Reply #143 on: May 08, 2015, 07:37:59 PM »
Ok, good.   We get very good tax treatment on dividends at low income levels, so they have a strong appeal once I stop working.

Is the tax treatment on long term capital gains any different than dividends? If not, then you shouldn't care whether you're paying bills by using dividends or selling shares. It's the same thing.

Dividends can be converted directly to Molson and poutine without incurring a tax penalty.  Or so I've heard.

First the free healthcare, then the medical cannabis, and now this! I have got to move to Canada.

milesdividendmd

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Re: Blending Dividend Investing and Index Investing
« Reply #144 on: May 08, 2015, 08:29:19 PM »
But the fact remains that dividend stocks' historical outperformance is largely explained by exposure to the value factor.

Source?  Looking at the last crash, it looks like Dividend's (Orange line) out-performance is more attributed to the Growth factor (Green line) than the Value factor (Blue line)



¯\_(ツ)_/¯


Great analysis!  What's next Rorschach blots?

"Hmm it looks like a butterfly therefore the three factor model is utter crap because....Bogle!"



http://www.onefpa.org/journal/Pages/Dividend%20Investing%20A%20Value%20Tilt%20in%20Disguise.aspx

http://www.forbes.com/sites/greggfisher/2012/09/13/the-mystery-behind-dividend-yield-investing/

Plenty of research to back up my claim. Yours....????

[MOD NOTE: Forum rule #1. Don't be a jerk.]
« Last Edit: May 08, 2015, 09:32:48 PM by arebelspy »

waltworks

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Re: Blending Dividend Investing and Index Investing
« Reply #145 on: May 08, 2015, 10:19:19 PM »
Either you believe there's one simple trick, or you believe TANSTAAFL. It seems like we have this conversation over and over. If you want to do a dividend strategy, fine. It's probably not optimal but you're not costing yourself much as long as you're not picking individual stocks, jumping in/out or market timing, or otherwise being dumb.

The number of people who don't "get" dividends vs. "eating into your principle" does make me wonder if dividend paying stocks in general are usually overvalued. I'm not convinced enough of that to actually act on it and go 100% BRK or whatever, though.

-W

Dodge

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Re: Blending Dividend Investing and Index Investing
« Reply #146 on: May 08, 2015, 11:09:17 PM »
But the fact remains that dividend stocks' historical outperformance is largely explained by exposure to the value factor.

Source?  Looking at the last crash, it looks like Dividend's (Orange line) out-performance is more attributed to the Growth factor (Green line) than the Value factor (Blue line)



¯\_(ツ)_/¯


Great analysis!  What's next Rorschach blots?

"Hmm it looks like a butterfly therefore the three factor model is utter crap because....Bogle!"



http://www.onefpa.org/journal/Pages/Dividend%20Investing%20A%20Value%20Tilt%20in%20Disguise.aspx

http://www.forbes.com/sites/greggfisher/2012/09/13/the-mystery-behind-dividend-yield-investing/

Plenty of research to back up my claim. Yours....????

[MOD NOTE: Forum rule #1. Don't be a jerk.]

What would I provide research for?  What is it you think I'm claiming?

scottish

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Re: Blending Dividend Investing and Index Investing
« Reply #147 on: May 09, 2015, 09:56:13 AM »
Quote
Dividends can be converted directly to Molson and poutine without incurring a tax penalty.  Or so I've heard.

Please.  Muskoka and Salmon.   Or Big Rock and strip loin.    Allow me my indulgences.

arebelspy

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Re: Blending Dividend Investing and Index Investing
« Reply #148 on: May 09, 2015, 10:39:52 AM »
The number of people who don't "get" dividends vs. "eating into your principle"

Even people who write blogs about investing in dividends!  And people listen to them. Interview them on podcasts, like they know what they're talking about. Drives me crazy.
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Re: Blending Dividend Investing and Index Investing
« Reply #149 on: May 11, 2015, 06:19:57 PM »
@Dodge,

"So you've been doing it during one of the biggest bull markets in history, where the market went from a 50% decline, to breaking new record highs, and you have no intention on stopping since the stocks keep going up."

I have no intention of changing my approach, to be more specific.  Buy and hold some quality companies and index everything else. 

"Does this mean you intend on stopping during the next crash, when dividend income declines?"

No, I won't be changing my approach when the next crash happens.  In the recent oil market slide, I bought stocks, I didn't sell them.

Thanks for your questions.