Author Topic: Dividend Mantra Sells Out (Literally)  (Read 41604 times)

Seppia

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Re: Dividend Mantra Sells Out (Literally)
« Reply #50 on: October 04, 2015, 12:50:30 PM »
If one were to focus only on dividend aristocrats I would guess the risk of the dividend being cut in bad times could be smaller.
Most of them are expensive because of that, but some (Exxon or Walmart for example) are currently selling at great P/E ratios.

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #51 on: October 04, 2015, 02:21:33 PM »

Careful, you are treading dangerously close to fallacious thinking.  AFAICT, Indexmantra did not criticize strategy, he pointed out the need for measuring performance.   Your bank account has absolutely no idea if the deposit came from selling an appreciated stock or accepting a dividend.  It is still income, or as you put it, cash flow, either way.  Although dividend growth investors might not care net worth or portfolio value, they should be caring about return on investment.  That's true for real estate investing, investing in gold, or what have you.

That doesn't mean you must beat the index, mind you.  One might be perfectly comfortable with a lower rate of return in exchange for lower volatility.  Nothing wrong with that if that's what you want.   But if you don't know how you are performing, then you could be taking a blow torch to your money and not even know it. 



The great William Bernstein suggests (maybe a bit tongue in cheek) that a great investing strategy is to look at what is popular and do the exact opposite.  Dividend investing is red hot right now.  I'm just old enough that I've seen a few red hot strategies come and go, and when they go, it usually ends badly.  Dividend investing is a little different in that even the gurus haven't shown red hot results, despite the red hot interest.  This whole thing has every sign of not ending well.  Personal opinion, that.

Full disclosure:  I do use dividend strategies, and I have a separate account at Fidelity where I manage those trades.  I use a separate account so I can easily track performance.  I use a dividend strategy for a small portion of my portfolio as a hedge.  It probably drags down overall performance, but I'm fine with that.  Point is, I'm not bagging on dividend strategies per se, my main points are that it is foolish not to track performance and to keep all the eggs in one strategy basket.   


Thanks for your thoughtful post!  I really appreciate all the great information. 

You are right, I shouldn't go as far as DGIs don't care about their net worth or portfolio value.  We do care to an extent but what I'm saying is that, that is not our main concern.  Main concern is cash flow from the stocks we purchase and how reliably they can sustain the dividend AND increase over time that beats inflation. 

As far as dividend investing being the hot topic now, isn't index investing the same?  DGI has been around longer! 

Quote from: Telecaster
Changing the subject slightly, I certainly agree it doesn't matter how you get to FIRE, but I've never seen any evidence that dividend strategies get you there faster than simply indexing, and a good amount of evidence that it is actually slower. 

The wonderful thing about the stock market is that there is no one way invest to achieve your goals.  You invest your money to what you are comfortable with and what you know. 

Quote from: Telecaster
JNJ might have been great, but previous sure-fire dividend bets like GE and GM evaporated in 2009.

Quote from: Jags4186
More than half of dividend stocks cut or eliminated their dividends during the 2008-2009 crash.

Jags, in my opinion , dividend growth stocks should not be bundled with stocks that just pay a dividend.  DGI strategy is mostly looking at blue chip stocks who have a history of paying a dividend and increasing them each and every year.  David Fish's CCC list pretty much screens out the weak dividend paying stocks.  Many DGIs will not even look at stocks that haven't increased their dividends for 10 years in a row. 

Out of the 61 stocks I own, only 2 stocks cut their dividend during the crash: WFC and GE.  I have 7 stocks that either doesn't pay a dividend or didn't pay a dividend in 2008-2009. So out of my possible 54 stocks that paid a dividend during the crash, only 2 cut their dividend.  I like those chances :) for a long term investor.  If you know your stocks can maintain and even increase their dividend during the great recession, I'm confident that a DGI strategy is very robust one. 

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #52 on: October 04, 2015, 03:59:42 PM »
Ridonkulous,

Say I accept your premise that dividends are superior to total return from a spending perspective once retired. That doesn't change the fact that in the accumulation phase you should be focused on total return vs. DGI.  You could always shift your allocation at that point to dividend stocks AND you would have hindsight of knowing which companies are fairing well in the now.

If you don't actually need the income, what is the draw of DGI?

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #53 on: October 04, 2015, 05:09:13 PM »
Ridonkulous,

Say I accept your premise that dividends are superior to total return from a spending perspective once retired. That doesn't change the fact that in the accumulation phase you should be focused on total return vs. DGI.  You could always shift your allocation at that point to dividend stocks AND you would have hindsight of knowing which companies are fairing well in the now.

If you don't actually need the income, what is the draw of DGI?

I have chosen DGI because I feel it is slightly better than index investing.   You have the opportunity to purchase stocks that are undervalued, you can't simply do this with index investing.  Granted, I think DGI will not trounce the S&P ever, but it will at minimum, be slighly worse than market returns.  At best, beat it soundly.  I was confident that if I didn't beat the S&P 500, I would be close to it because well, VTI owns A LOT of dividend growth stocks that are a staple of any DGI'er portfolio: AAPL, MSFT, XOM, JNJ, GE, WFC, T, DIS, etc.  Why is that?  In addition, DGI has an upside of slightly higher dividend yield.  S&P yields roughly ~2.0% while a typically DGI portfolio yields roughly around ~3%.  I felt that there was a higher upside and not much downside to going with DGI. 
« Last Edit: October 04, 2015, 05:12:24 PM by ridonkulous52 »

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #54 on: October 05, 2015, 08:41:10 AM »
http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2014/02/04/7-myths-about-dividend-paying-stocks

Also, if you look at the dividend payout of VTI over the time period you will see the payout was down each quarter compared to the previous year. Since VTI owns all of the dividend paying US stocks, you an surmise that dividends on a whole were cut. Same goes for VT which covers all of the dividend paying stocks in the world.

1) If you go looking for confirmation bias from a website touting mutual funds, you will get it
2) He pointed out the NUMBER of dividend payers, but is there data on the AMOUNT of dividends cut? To my knowledge, the majority of dividend cuts happened to banks, whereas pretty much all of the other sectors were perfectly fine (for example, you can probably point out dividend cuts occuring now to the oil industry, but the companies cutting dividends are the ones who are smaller players or had terrible capital structure, tons of debt, etc., Exxon, Chevron, et al have not cut any dividends and they're paying out tens of billions of dollars)
3) I don't understand the logic in your payout statement. Any number of factors could contribute to the decrease in yield of VTI, including dividend cuts, an increase in the market cap of non dividend payers (weighing), exits of dividend payers, increase in small companies (who usually don't pay a dividend)

Look, a strict focus on yield is dangerous, but the academic evidence is pretty clear over a long period of time (and not the cherry picking 1991-2012 period your article states - the article was written in 2014, do you wonder why he didn't extend the period to 2014 and just decided to stop after 11 years?) that the 4th quintile of dividend payers outperform the rest of the quintiles handily on a total return basis (the top quintile of yield are normally due to companies' prices going down as the underlying business operations suffer, resulting in artificially high yields for a very short term period) - http://www.suredividend.com/wp-content/uploads/2014/03/Dividends-A-Review-of-Historical-Returns.pdf - the study goes back to 1928 and uses the reliable and often cited French and CRSP data set

I assume you already know why indexing works (keeping costs low, diversifying holdings), so let me describe to you why the DGI philosophy works (although I don't personally practice it, I think it is pretty closely reflective of a value investing strategy). DGI actually has a lot in common with indexing, except instead of taking the market, a investor is taking a backdoor approach towards the valuation of a company.
1) You can't fake cash. A company that is able to consistently send out cash to its investors shows a great sign of health. What you need to watch out for is a rising payout ratio and financing of long term assets with short term, callable debt (this is what happened to banks in 2009). Even amongst banks, WFC and USB did not HAVE to cut their dividend, but was forced to by new capital regulation requirements. Index investors have a time advantage here because they don't need to bother with valuation of companies
2) DGI tells the investor to focus on the increasing stream of cash that's coming to them. Put another way, the strategy tells the investor to IGNORE STOCK PRICE. This is a huge advantage over most investing strategies because it helps prevent panicking. Just as an index investing strategy carried out the right way - writing an IPS, contributing each month, and forgetting about it (I mean, just look at all the posts popping up about switching allocations in this forum amongst indexers) will result in capturing actual market returns, a properly executed DGI strategy results in the same long term wealth building power, as long as you buy at a good price, and don't sell (I'm not a fan of DGI's mantra that dividend cuts and freezes must be sold immediately, this results in strong companies like Hersheys, Chevron, Wells, etc. being sold when there's no reason to)
3) Diversification is enjoyed by BOTH indexers and DGI - DGI spans the sectors including energy, financials, consumer staples, healthcare, etc. There are a lot of different diversification studies out there, showing that when you don't give any regard to quality, even 1000 different stocks is not enough, whereas if you focus only on blue chip (remember point #1, you can't fake cash), you only need 25-50 companies to be properly diversified. Brainlessly adding additional companies isn't diversification, it's copycatting an investing strategy without learning about it
EDIT: I forgot to talk about costs 4) A DGI portfolio carried out correctly will result in even less expenses than indexing. Provided there's no turnover, an investor only pays purchasing commissions, which is less than 5 basis points over long periods of time

Lastly, your suggestion to focus on total return during accumulation then switching to a preferred strategy at retirement would only work in a tax sheltered account (and the number one tax shelter, your 401K, is unlikely to allow individual stock investing anyways). When you are dealing with a taxable, the deferred taxes hurdle contributes quite a lot to capital allocation decisions and requires planning years in advance (think of it as an interest free loan from the government)
« Last Edit: October 05, 2015, 09:05:22 AM by Aphalite »

Telecaster

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Re: Dividend Mantra Sells Out (Literally)
« Reply #55 on: October 05, 2015, 10:02:40 AM »
As an aside, there are indicies of dividend paying stocks.   The S&P High-Yield Dividend Aristocrats Index for example, which is tracked by SDY.  So you technically can index and have a dividend strategy too.   

I suspect DividendMantra would have been vastly better off simply doing something like that.  I see he has something like 70 positions.   The spreads and commissions on that much trading is significant for a small-ish portfolio.   

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #56 on: October 05, 2015, 10:14:40 AM »
As an aside, there are indicies of dividend paying stocks.   The S&P High-Yield Dividend Aristocrats Index for example, which is tracked by SDY.  So you technically can index and have a dividend strategy too.   

I suspect DividendMantra would have been vastly better off simply doing something like that.  I see he has something like 70 positions.   The spreads and commissions on that much trading is significant for a small-ish portfolio.

I slightly disagree because you have no control over allocation/weighting in a scenario like that. If you're going to allocate capitol yourself, why use an index at all? If you think an index will perform better for your needs, just index. It makes no sense to me to pick a niche index strategy, that's basically chasing returns at its finest

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #57 on: October 05, 2015, 10:22:38 AM »
http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2014/02/04/7-myths-about-dividend-paying-stocks

Also, if you look at the dividend payout of VTI over the time period you will see the payout was down each quarter compared to the previous year. Since VTI owns all of the dividend paying US stocks, you an surmise that dividends on a whole were cut. Same goes for VT which covers all of the dividend paying stocks in the world.

1) If you go looking for confirmation bias from a website touting mutual funds, you will get it
2) He pointed out the NUMBER of dividend payers, but is there data on the AMOUNT of dividends cut? To my knowledge, the majority of dividend cuts happened to banks, whereas pretty much all of the other sectors were perfectly fine (for example, you can probably point out dividend cuts occuring now to the oil industry, but the companies cutting dividends are the ones who are smaller players or had terrible capital structure, tons of debt, etc., Exxon, Chevron, et al have not cut any dividends and they're paying out tens of billions of dollars)
3) I don't understand the logic in your payout statement. Any number of factors could contribute to the decrease in yield of VTI, including dividend cuts, an increase in the market cap of non dividend payers (weighing), exits of dividend payers, increase in small companies (who usually don't pay a dividend)

Look, a strict focus on yield is dangerous, but the academic evidence is pretty clear over a long period of time (and not the cherry picking 1991-2012 period your article states - the article was written in 2014, do you wonder why he didn't extend the period to 2014 and just decided to stop after 11 years?) that the 4th quintile of dividend payers outperform the rest of the quintiles handily on a total return basis (the top quintile of yield are normally due to companies' prices going down as the underlying business operations suffer, resulting in artificially high yields for a very short term period) - http://www.suredividend.com/wp-content/uploads/2014/03/Dividends-A-Review-of-Historical-Returns.pdf - the study goes back to 1928 and uses the reliable and often cited French and CRSP data set

I assume you already know why indexing works (keeping costs low, diversifying holdings), so let me describe to you why the DGI philosophy works (although I don't personally practice it, I think it is pretty closely reflective of a value investing strategy). DGI actually has a lot in common with indexing, except instead of taking the market, a investor is taking a backdoor approach towards the valuation of a company.
1) You can't fake cash. A company that is able to consistently send out cash to its investors shows a great sign of health. What you need to watch out for is a rising payout ratio and financing of long term assets with short term, callable debt (this is what happened to banks in 2009). Even amongst banks, WFC and USB did not HAVE to cut their dividend, but was forced to by new capital regulation requirements. Index investors have a time advantage here because they don't need to bother with valuation of companies
2) DGI tells the investor to focus on the increasing stream of cash that's coming to them. Put another way, the strategy tells the investor to IGNORE STOCK PRICE. This is a huge advantage over most investing strategies because it helps prevent panicking. Just as an index investing strategy carried out the right way - writing an IPS, contributing each month, and forgetting about it (I mean, just look at all the posts popping up about switching allocations in this forum amongst indexers) will result in capturing actual market returns, a properly executed DGI strategy results in the same long term wealth building power, as long as you buy at a good price, and don't sell (I'm not a fan of DGI's mantra that dividend cuts and freezes must be sold immediately, this results in strong companies like Hersheys, Chevron, Wells, etc. being sold when there's no reason to)
3) Diversification is enjoyed by BOTH indexers and DGI - DGI spans the sectors including energy, financials, consumer staples, healthcare, etc. There are a lot of different diversification studies out there, showing that when you don't give any regard to quality, even 1000 different stocks is not enough, whereas if you focus only on blue chip (remember point #1, you can't fake cash), you only need 25-50 companies to be properly diversified. Brainlessly adding additional companies isn't diversification, it's copycatting an investing strategy without learning about it
EDIT: I forgot to talk about costs 4) A DGI portfolio carried out correctly will result in even less expenses than indexing. Provided there's no turnover, an investor only pays purchasing commissions, which is less than 5 basis points over long periods of time

Lastly, your suggestion to focus on total return during accumulation then switching to a preferred strategy at retirement would only work in a tax sheltered account (and the number one tax shelter, your 401K, is unlikely to allow individual stock investing anyways). When you are dealing with a taxable, the deferred taxes hurdle contributes quite a lot to capital allocation decisions and requires planning years in advance (think of it as an interest free loan from the government)

1) I wasn't looking for confirmation bias, I was just showing where I found the statistic.  It could be made up, but I doubt it.
2) Sounds like stock picking to me (I know which dividend stocks to pick!! I never pick a loser!)
3) You answered your question.  Dividends were cut, companies stopped paying dividends, smaller companies that don't pay dividends grew faster (or didn't decline as much) than dividend paying companies.  Remember, even though VTI holds all stocks, 80+% is in the S&P 500 which contains pretty much all of the dividend paying blue chip stocks one might own. 

People DGI because they think they can beat the market.  There is no other reason to do it.  Saying it's cashflow over portfolio value is hogwash to me.  Don't believe me?  Ask yourself this question: would you rather have a portfolio that has $1,000,000 in assets that generates $50,000/yr in income or $2,000,000 in assets that generates $10,000 in income?

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #58 on: October 05, 2015, 10:38:32 AM »
3) You answered your question.  Dividends were cut, companies stopped paying dividends, smaller companies that don't pay dividends grew faster (or didn't decline as much) than dividend paying companies.  Remember, even though VTI holds all stocks, 80+% is in the S&P 500 which contains pretty much all of the dividend paying blue chip stocks one might own. 

No, again, you're extrapolating based on a macro view of things. My point is VTI IS hodling all of the dividend paying blue chip stocks one might own, and that besides banking stocks, the big players ALL kept or even increased their dividends! I mean christ, look at the data, from 2001 to 2015, VTI's dividend yield has consistently increased from 1% to around the 2% mark except in 2009 when yield spiked because prices were falling irrationally, and that 2% has held WITH a raging bull market, driving prices up. You're drawing a conclusion that dividends have been cut, when the opposite is happening!
http://www.dividend.com/dividend-stocks/uncategorized/other/vti-vanguard-total-stock-market-etf/
Go look at Yield history, click on the "VTI Yield" line to see

EDIT: Here's another source that plots out actual payment - http://longrundata.com/
Look up VTI from 2001-2015, payout increased until 2007 to $1.2975 per year (for a $1000 investment in 2001), then dropped to $1.107 per year in 2009 before starting to increase again. That's a 17% drop, despite a 57% reduction in the NUMBER of dividend payers as your article pointed out

People DGI because they think they can beat the market.  There is no other reason to do it.  Saying it's cashflow over portfolio value is hogwash to me.  Don't believe me?  Ask yourself this question: would you rather have a portfolio that has $1,000,000 in assets that generates $50,000/yr in income or $2,000,000 in assets that generates $10,000 in income?

If you're talking about yield, my answer is I don't have enough information. It could be that the $1m is Johnson and Johnson, and that for some reason it's yielding 5%, I would take that in a heartbeat and never let go. It could also be that the $1m is AT&T, which has almost no growth prospects. I would also need to know if I have the ability to get out immediately, what the deferred tax consequences are of liquidiating the $2m portfolio, etc.

If you're talking about actual corporate earnings, then definitely the $1m that generates 50k. Or if I had the option, the $2m in assets that I would then turn around and sell immediately.
« Last Edit: October 05, 2015, 10:48:51 AM by Aphalite »

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #59 on: October 05, 2015, 11:07:52 AM »
3) You answered your question.  Dividends were cut, companies stopped paying dividends, smaller companies that don't pay dividends grew faster (or didn't decline as much) than dividend paying companies.  Remember, even though VTI holds all stocks, 80+% is in the S&P 500 which contains pretty much all of the dividend paying blue chip stocks one might own. 

No, again, you're extrapolating based on a macro view of things. My point is VTI IS hodling all of the dividend paying blue chip stocks one might own, and that besides banking stocks, the big players ALL kept or even increased their dividends! I mean christ, look at the data, from 2001 to 2015, VTI's dividend yield has consistently increased from 1% to around the 2% mark except in 2009 when yield spiked because prices were falling irrationally, and that 2% has held WITH a raging bull market, driving prices up. You're drawing a conclusion that dividends have been cut, when the opposite is happening!
http://www.dividend.com/dividend-stocks/uncategorized/other/vti-vanguard-total-stock-market-etf/
Go look at Yield history, click on the "VTI Yield" line to see

EDIT: Here's another source that plots out actual payment - http://longrundata.com/
Look up VTI from 2001-2015, payout increased until 2007 to $1.2975 per year (for a $1000 investment in 2001), then dropped to $1.107 per year in 2009 before starting to increase again. That's a 17% drop, despite a 57% reduction in the NUMBER of dividend payers as your article pointed out

People DGI because they think they can beat the market.  There is no other reason to do it.  Saying it's cashflow over portfolio value is hogwash to me.  Don't believe me?  Ask yourself this question: would you rather have a portfolio that has $1,000,000 in assets that generates $50,000/yr in income or $2,000,000 in assets that generates $10,000 in income?

If you're talking about yield, my answer is I don't have enough information. It could be that the $1m is Johnson and Johnson, and that for some reason it's yielding 5%, I would take that in a heartbeat and never let go. It could also be that the $1m is AT&T, which has almost no growth prospects. I would also need to know if I have the ability to get out immediately, what the deferred tax consequences are of liquidiating the $2m portfolio, etc.

If you're talking about actual corporate earnings, then definitely the $1m that generates 50k. Or if I had the option, the $2m in assets that I would then turn around and sell immediately.

It's stock picking.   I don't get why this is so hard to understand. 

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #60 on: October 05, 2015, 11:12:28 AM »
It's stock picking.   I don't get why this is so hard to understand.

If you automatically default to stock picking = bad and indexing = good, then I don't think we have anything left to discuss, fundamentally different beliefs, and a much, much longer discussion that's been rehashed in these forums many times over. Frankly, your disagreement isn't with "DGI", it's with stock picking itself

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #61 on: October 05, 2015, 11:24:51 AM »
It's stock picking.   I don't get why this is so hard to understand.

If you automatically default to stock picking = bad and indexing = good, then I don't think we have anything left to discuss, fundamentally different beliefs, and a much, much longer discussion that's been rehashed in these forums many times over. Frankly, your disagreement isn't with "DGI", it's with stock picking itself

My disagreement is twofold:

1) Total return is the true measure of success of a portfolio.  Of course this is within the confines of your IPS.
2) There is no "system" which can beat the market.

DGI is a system.  You wouldn't practice a system which you believe would underperform the market, otherwise you would just invest in the market.  Therefore you believe you can outperform the market.  You cannot outperform he market reliably over the long term.

Seppia

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Re: Dividend Mantra Sells Out (Literally)
« Reply #62 on: October 05, 2015, 11:34:53 AM »
Why do we always take it to the extreme?
Asset allocation is a "system" as well.
Most of the times you give up some long term return in exchange for less volatility (for example).

 If someone decides to add say a 25% of  safe, individual stocks to its portfolio (Exxon, P&G, GE, IBM, etc) that's not the same as day trading with penny stocks.


ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #63 on: October 05, 2015, 11:40:55 AM »
People DGI because they think they can beat the market.  There is no other reason to do it.  Saying it's cashflow over portfolio value is hogwash to me.  Don't believe me?  Ask yourself this question: would you rather have a portfolio that has $1,000,000 in assets that generates $50,000/yr in income or $2,000,000 in assets that generates $10,000 in income?

We will just agree to disagree.  I just think index investors and DGIs think different and some of your statements have helped that statement.  Yes, we think we can beat the market but as I stated above, there is very little downside to going with DGI over index investing, IMO. 

To answer your last question - The whole point I'm investing my money is to reach FIRE.  That is my only goal.  I don't care how I get there.  The goals of each investor are different.  I don't plan on ever selling any assets (this is key to a DGI strategy) unless fundamentals of a company has changed over time.  I live a simple life.  I save as much as I can and invest the money saved each month.  I don't go out and buy the latest and greatest things. I drive a prius.  So the only question that I care about is: When will my dividend income (cash flow) enable me to leave the rat race?  $10,000 in dividend income will not get me to FIRE.  Not even close!  If we are talking $1M DGI portfolio generating $50,000 in income (generating that much income on a portfolio that size, in general, is not feasible) and I'm confident that the cash flow will be raised each year by 5-8% (beating inflation!), then the answer is VERY EASY.  I'd pick the portfolio that generates $50,000 a year because $50,000 of dividend income will get me to FIRE.  What if in your $2M portfolio generating $10,000 in income gets hit like 2007-2008?  You'll most likely like see half of your portfolio down the drain and still generating that $10,000 which doesn't get me to FIRE.  If my $1M DGI portfolio gets hit like 2007-2008, guess what?  More than likely (as I've stated in my previous posts) it is still generating $50,000 income and would have probably increased. 

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #64 on: October 05, 2015, 11:52:20 AM »
DGI is a system.  You wouldn't practice a system which you believe would underperform the market, otherwise you would just invest in the market.  Therefore you believe you can outperform the market.  You cannot outperform he market reliably over the long term.

Is your statement of a "system" never beating the market based on ALL investors who pick individual stocks?  If yes, that group probably includes day traders and people who pick stocks that are hot right now such as Tesla, ShakeShack and Amazon and people who trade in and out because they can't sit on a stock for more than 6 months.  I wouldn't touch any of those stocks with a 10 foot pole.  Or does your research speak of an index fund beating a traditional dividend growth portfolio?  I'm talking a true DGI portfolio made up of true Dividend Champions like JNJ, XOM, MMM, EMR, KO, PG, WMT, CVX, GE, TGT, AFL, PEP, HCP, MCD, etc? 

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #65 on: October 05, 2015, 12:20:59 PM »
DGI is a system.  You wouldn't practice a system which you believe would underperform the market, otherwise you would just invest in the market.  Therefore you believe you can outperform the market.  You cannot outperform he market reliably over the long term.

Is your statement of a "system" never beating the market based on ALL investors who pick individual stocks?  If yes, that group probably includes day traders and people who pick stocks that are hot right now such as Tesla, ShakeShack and Amazon and people who trade in and out because they can't sit on a stock for more than 6 months.  I wouldn't touch any of those stocks with a 10 foot pole.  Or does your research speak of an index fund beating a traditional dividend growth portfolio?  I'm talking a true DGI portfolio made up of true Dividend Champions like JNJ, XOM, MMM, EMR, KO, PG, WMT, CVX, GE, TGT, AFL, PEP, HCP, MCD, etc?

If a "system" was proven to reliably work, everyone would do it negating its advantage.  It's easy to name stocks today which have done well, but not every "dividend champion" has always done well.  What about former "dividend champions" like EK, GM, JCP, WaMu, BP, AIG, F, etc.?

You still have to pick the right stocks for it to work out.

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Re: Dividend Mantra Sells Out (Literally)
« Reply #66 on: October 05, 2015, 12:34:17 PM »
So essentially what you are getting at is that you are a superior stock picker.  You are able to selectively pick stocks with large dividends that will essentially give you a higher SWR.  If this was possible, why would a 4% SWR exist in the first place?  Why wouldn't FIRE advice change from "save 25X your expenses then you are FIRE!" to something like "save 15X your annual expenses, invest using a dividend growth strategy, then FIRE!"?  Why is no one partaking in this massive free lunch with you?

MoonShadow

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Re: Dividend Mantra Sells Out (Literally)
« Reply #67 on: October 05, 2015, 12:54:54 PM »
One of the advantages of dividend investing is that, once those stocks are identified and bought, no further fees are necessary.  So it is possible to reduce one's fees to less than .01% annual average over the course of a lifetime of investing.  Possible, but not particularly likely.  I like dividend investing, myself; it's fun.  My version of buying lottery tickets.  But I do it with only a small portion of my total portfolio, because I'm not so stupid as to think I'm smarter than the market.  Even professional investors rarely beat index funds over their lifetime; and we know those people by name, and they don't share details on their methods.  Well, sometimes they do; but they are often vague and difficult for most people to understand anyway.

frugalnacho

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Re: Dividend Mantra Sells Out (Literally)
« Reply #68 on: October 05, 2015, 12:55:54 PM »
VTSAX is already down to 0.05%.  That seems like a fair price for the diversification it offers.

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #69 on: October 05, 2015, 01:11:31 PM »
Again,  my point that simply DGI and index investors fundamentally think differently and that is absolute fine!  I actually think index investing is a great product and would definitely recommend to the person who is looking to invest their money and would love a hands off approach! I'm just trying to explain the benefits of DGI and the people whom I'm conversing with in this thread are simply discounting DGI because it simply picks individual stocks?  Again, fundamentally we think differently!


If a "system" was proven to reliably work, everyone would do it negating its advantage.  It's easy to name stocks today which have done well, but not every "dividend champion" has always done well.  What about former "dividend champions" like EK, GM, JCP, WaMu, BP, AIG, F, etc.?

You still have to pick the right stocks for it to work out.

That is why you have a diversified portfolio.  Also, company fundamentals simply deteriorate over a long period of time and it is pretty easy to see.  Earnings and revenue aren't growing.  Debt is rising.  Dividend growth is stale.  P/E ratio is too high.  When you see that, I will not invest further in that company.  Think PG right now. 

So essentially what you are getting at is that you are a superior stock picker.  You are able to selectively pick stocks with large dividends that will essentially give you a higher SWR.  If this was possible, why would a 4% SWR exist in the first place?  Why wouldn't FIRE advice change from "save 25X your expenses then you are FIRE!" to something like "save 15X your annual expenses, invest using a dividend growth strategy, then FIRE!"?  Why is no one partaking in this massive free lunch with you?

Wow!  You do know there is a HUGE DGI community?  Check seeking alpha for all the comments and articles regarding dividend growth investing.  See David Fish and his CCC list.  There was a huge viral article earlier this year about Ronald Read and his $8 million portfolio and how he did it?  He did it by investing in dividend growth stocks.  http://www.wsj.com/articles/route-to-an-8-million-portfolio-started-with-frugal-living-1426780320

I think i've explained enough that DGI strategy doesn't follow a 25x rule or 4% withdrawal rate.  Once my dividend income is equal to my expenses, I'm financially independent.  I can say with high confidence that once I reach FI, that those dividends will be sustainable and grow over time, beating inflation.  The one thing I believe index investors do not understand about DGI is that dividends get raised each and every year.  Averaged out, dividends companies should raise it between 5-8% per year.  I would LOVE to get a 5-8% raise each year at my job.  Portfolio/net worth at the point of FI, doesn't mean as much to me as maybe other out there. 

frugalnacho

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Re: Dividend Mantra Sells Out (Literally)
« Reply #70 on: October 05, 2015, 01:47:48 PM »
Again,  my point that simply DGI and index investors fundamentally think differently and that is absolute fine!  I actually think index investing is a great product and would definitely recommend to the person who is looking to invest their money and would love a hands off approach! I'm just trying to explain the benefits of DGI and the people whom I'm conversing with in this thread are simply discounting DGI because it simply picks individual stocks?  Again, fundamentally we think differently!


If a "system" was proven to reliably work, everyone would do it negating its advantage.  It's easy to name stocks today which have done well, but not every "dividend champion" has always done well.  What about former "dividend champions" like EK, GM, JCP, WaMu, BP, AIG, F, etc.?

You still have to pick the right stocks for it to work out.

That is why you have a diversified portfolio.  Also, company fundamentals simply deteriorate over a long period of time and it is pretty easy to see.  Earnings and revenue aren't growing.  Debt is rising.  Dividend growth is stale.  P/E ratio is too high.  When you see that, I will not invest further in that company.  Think PG right now. 

So essentially what you are getting at is that you are a superior stock picker.  You are able to selectively pick stocks with large dividends that will essentially give you a higher SWR.  If this was possible, why would a 4% SWR exist in the first place?  Why wouldn't FIRE advice change from "save 25X your expenses then you are FIRE!" to something like "save 15X your annual expenses, invest using a dividend growth strategy, then FIRE!"?  Why is no one partaking in this massive free lunch with you?

Wow!  You do know there is a HUGE DGI community?  Check seeking alpha for all the comments and articles regarding dividend growth investing.  See David Fish and his CCC list.  There was a huge viral article earlier this year about Ronald Read and his $8 million portfolio and how he did it?  He did it by investing in dividend growth stocks.  http://www.wsj.com/articles/route-to-an-8-million-portfolio-started-with-frugal-living-1426780320

I think i've explained enough that DGI strategy doesn't follow a 25x rule or 4% withdrawal rate.  Once my dividend income is equal to my expenses, I'm financially independent.  I can say with high confidence that once I reach FI, that those dividends will be sustainable and grow over time, beating inflation.  The one thing I believe index investors do not understand about DGI is that dividends get raised each and every year.  Averaged out, dividends companies should raise it between 5-8% per year.  I would LOVE to get a 5-8% raise each year at my job.  Portfolio/net worth at the point of FI, doesn't mean as much to me as maybe other out there.

You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals.  Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

I have a hard time believing there is a free lunch just sitting out that you are taking advantage of, but the vast majority of investors are passing over.

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #71 on: October 05, 2015, 02:17:08 PM »
You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals.  Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

I have a hard time believing there is a free lunch just sitting out that you are taking advantage of, but the vast majority of investors are passing over.

It is not a free lunch.  I'm not blindly picking stocks here.  It seems to me that index investors are more concerned with total return, while DGIs (especially those who are looking FIRE) want dividend income.  Again, there is fundamental difference between index investors and DGI.  I like DGI because I'm not touching any shares of stock to pay for my retirement.  I'm not cutting branches off of my tree to pay my mortgage.  Index investors in general follow the 4% SWR, which is fine.  But to me, I don't like the idea that I will need to sell assets to fund my retirement.  Again, I go back to what if you retired at in 2006 and you are an index investor.  Then 2007-2008 hit.  Your portfolio is down 50%, but you need to sell shares to pay for that mortgage.  Geez, now you are selling assets at the bottom.  I guess the new thing is to sell low??  All of us are here to get FIRE.  We are all looking at 40-50 year retirements.  I'm positive we will hit a bear market or two or three or four or five in that span.  I want to know that once I reach FIRE, that I know my assets can reliably spit out income and increase over time.  I don't want to go back to the rat race ever after reaching FIRE.

Buy and hold investing isn't for everyone.  People have a tough time holding onto their investments.  People don't have time to research stocks.  DGI does take sometime due to analyzing companies but I enjoy it personally so I don't mind.  I would say some people have the perception that DGI is very boring to invest it.  "Really, who wants to invest in Colgate Palmotive? Toothpaste?  Boring!  I want to invest in Tesla!!"  That is pretty common thought.  I LOVE BORING. 

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #72 on: October 05, 2015, 02:33:16 PM »
You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals.  Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

I have a hard time believing there is a free lunch just sitting out that you are taking advantage of, but the vast majority of investors are passing over.

It is not a free lunch.  I'm not blindly picking stocks here.  It seems to me that index investors are more concerned with total return, while DGIs (especially those who are looking FIRE) want dividend income.  Again, there is fundamental difference between index investors and DGI.  I like DGI because I'm not touching any shares of stock to pay for my retirement.  I'm not cutting branches off of my tree to pay my mortgage.  Index investors in general follow the 4% SWR, which is fine.  But to me, I don't like the idea that I will need to sell assets to fund my retirement.  Again, I go back to what if you retired at in 2006 and you are an index investor.  Then 2007-2008 hit.  Your portfolio is down 50%, but you need to sell shares to pay for that mortgage.  Geez, now you are selling assets at the bottom.  I guess the new thing is to sell low??  All of us are here to get FIRE.  We are all looking at 40-50 year retirements.  I'm positive we will hit a bear market or two or three or four or five in that span.  I want to know that once I reach FIRE, that I know my assets can reliably spit out income and increase over time.  I don't want to go back to the rat race ever after reaching FIRE.

Buy and hold investing isn't for everyone.  People have a tough time holding onto their investments.  People don't have time to research stocks.  DGI does take sometime due to analyzing companies but I enjoy it personally so I don't mind.  I would say some people have the perception that DGI is very boring to invest it.  "Really, who wants to invest in Colgate Palmotive? Toothpaste?  Boring!  I want to invest in Tesla!!"  That is pretty common thought.  I LOVE BORING.

Lets see:

Say you retired with $1,000,000 January 1, 2007 and did $40,000/yr withdrawal inflation adjusted:

If you had a 50/50 VTSAX/VBTLX portfolio today you'd have $1,178,400
If you had a 65/35 VTSAX/VBTLX portfolio today you'd have $1,179,483
If you had a 100/0 VTSAX/VBTLX portfolio today you'd have $1,113,403

No issue and your spending would have held up.

If you had retired with 40k in dividend income you'd have to scramble to deal with 17% or more dividend cuts.  Since you won't invade principal you will need to either go back to work or cut your spending.  Doesn't seem that great to me :-/

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #73 on: October 05, 2015, 02:37:16 PM »
You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals.  Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

I have a hard time believing there is a free lunch just sitting out that you are taking advantage of, but the vast majority of investors are passing over.

I don't understand the hostility/accusatory tone from you frugalnacho. It's like we're attacking a sacred cow or something, when all ridonkulous and I have said is that you don't HAVE to index to achieve good investing results (why is that an unfair statement?). It reeks of brainwashing. You and Jag seem to believe that if we choose to pick individual stocks, we're doomed to underperform the market and never reach financial independence.

To respond to your question, as you said there's no secret free lunch, DGI can require higher than a 25x rule because dividend yield of 4% is hard to find on most reliable blue chips. JnJ is paying 3.17% while Hershey's is paying 2.44%, for example. It's only if the interest rate is much higher do you start seeing the 25x rule being lower for DGI. Let's say you find a blend of multiple stocks with higher yield like Chevron or PM to balance out these lower yielding companies, and get to 4%, well then, you're still at 25x expenses, no different than blind diversification over the entire US or global equity market. The reason you are able to generate more returns and income in the long run is because you picked companies that produce actual cash, and risk adjusted, will last far longer than the typical company in an index fund. When you invest in an index fund, you are vulnerable to the given VALUATION of the market at the time, because sequencing of returns matter to you during the draw down phase. If you are focusing on cash flow, choosing companies that constantly increase their payouts to you, you don't care about valuation. It doesn't matter if your portfolio is 25x or 33x or even 10x in the event of a market crash - as long as your dividends cover your expenses.

The reason why it's less risky is because the companies you choose has healthy and strong balance sheets (lack of debt), wide competitive moat (large market share), and diversified income streams. Johnson and Johnson has a pharmaceutical division, medical device division, and consumer products divison, all with varying rates of growth and free cash flow. Of course, all of these characteristics can erode over time, as Jag has pointed out, so you must monitor the companies you choose. THIS TAKES MUCH MORE WORK AND TIME THAN INDEXING. But it's not impossible - one thing about investing is that you can only become a better investor because you learn more and more about businesses. If it's not your cup of tea, then you should index. But just because you don't find learning about businesses fun doesn't mean other people can't.

The reason why everyone doesn't do this is because 1) it takes time 2) they might not have a choice if investing through a 401k or similar vehicle that doesn't offer individual stock investing and 3) every investor's needs and situation (especially tax and estate needs) are different. You can't just take your own life and financial situation and try to fit everyone else in there. Someone who has $20m portfolio and just wants a quiet life has already won, and does not need to invest in anything besides tax free municipal bonds for the rest of his life if he chooses (besides saving himself a boatload in taxes). Someone who has very little capital but wants to gamble could invest based on quantitative measures, just check the dual momentum thread. There are also day traders - every person's goal is different. You can also ask the inverse question for index investors - if indexing is so simple and everyone makes money, what is preventing the indices from becoming overvalued? How do we know it's already not overvalued and doomed to crash? Well it's because there's a multitude of other investors as well as "investors" out there who are trying to do something different than get rich slowly.

To sum it up - a vast majority of investors pass over safe boring strategies like dividend growth investing AS WELL AS INDEXING because humans have a terrible time when making long term judgments and decisions - you know this intuitively since you're on this forum, don't let the zealotry of index investing blind you to other roads to get to financial independence.

Jags4186

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Re: Dividend Mantra Sells Out (Literally)
« Reply #74 on: October 05, 2015, 02:41:53 PM »
You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals.  Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

I have a hard time believing there is a free lunch just sitting out that you are taking advantage of, but the vast majority of investors are passing over.

I don't understand the hostility/accusatory tone from you frugalnacho. It's like we're attacking a sacred cow or something, when all ridonkulous and I have said is that you don't HAVE to index to achieve good investing results (why is that an unfair statement?). It reeks of brainwashing. You and Jag seem to believe that if we choose to pick individual stocks, we're doomed to underperform the market and never reach financial independence.

To respond to your question, as you said there's no secret free lunch, DGI can require higher than a 25x rule because dividend yield of 4% is hard to find on most reliable blue chips. JnJ is paying 3.17% while Hershey's is paying 2.44%, for example. It's only if the interest rate is much higher do you start seeing the 25x rule being lower for DGI. Let's say you find a blend of multiple stocks with higher yield like Chevron or PM to balance out these lower yielding companies, and get to 4%, well then, you're still at 25x expenses, no different than blind diversification over the entire US or global equity market. The reason you are able to generate more returns and income in the long run is because you picked companies that produce actual cash, and risk adjusted, will last far longer than the typical company in an index fund. When you invest in an index fund, you are vulnerable to the given VALUATION of the market at the time, because sequencing of returns matter to you during the draw down phase. If you are focusing on cash flow, choosing companies that constantly increase their payouts to you, you don't care about valuation. It doesn't matter if your portfolio is 25x or 33x or even 10x in the event of a market crash - as long as your dividends cover your expenses.

The reason why it's less risky is because the companies you choose has healthy and strong balance sheets (lack of debt), wide competitive moat (large market share), and diversified income streams. Johnson and Johnson has a pharmaceutical division, medical device division, and consumer products divison, all with varying rates of growth and free cash flow. Of course, all of these characteristics can erode over time, as Jag has pointed out, so you must monitor the companies you choose. THIS TAKES MUCH MORE WORK AND TIME THAN INDEXING. But it's not impossible - one thing about investing is that you can only become a better investor because you learn more and more about businesses. If it's not your cup of tea, then you should index. But just because you don't find learning about businesses fun doesn't mean other people can't.

The reason why everyone doesn't do this is because 1) it takes time 2) they might not have a choice if investing through a 401k or similar vehicle that doesn't offer individual stock investing and 3) every investor's needs and situation (especially tax and estate needs) are different. You can't just take your own life and financial situation and try to fit everyone else in there. Someone who has $20m portfolio and just wants a quiet life has already won, and does not need to invest in anything besides tax free municipal bonds for the rest of his life if he chooses (besides saving himself a boatload in taxes). Someone who has very little capital but wants to gamble could invest based on quantitative measures, just check the dual momentum thread. There are also day traders - every person's goal is different. You can also ask the inverse question for index investors - if indexing is so simple and everyone makes money, what is preventing the indices from becoming overvalued? How do we know it's already not overvalued and doomed to crash? Well it's because there's a multitude of other investors as well as "investors" out there who are trying to do something different than get rich slowly.

To sum it up - a vast majority of investors pass over safe boring strategies like dividend growth investing AS WELL AS INDEXING because humans have a terrible time when making long term judgments and decisions - you know this intuitively since you're on this forum, don't let the zealotry of index investing blind you to other roads to get to financial independence.

I don't think frugal nacho or I are being hostile.  We are just trying to challenge your thinking as almost every study shows it is almost impossible for someone to outperform the market long term. Are there worse investment strategies than DGI?  Of course.  I don't think you're going to go bankrupt investing in JNJ, MCD, or MMM.  I just don't think you'll do as well as someone who is index investing, long term. 

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #75 on: October 05, 2015, 03:09:54 PM »
I don't think frugal nacho or I are being hostile.  We are just trying to challenge your thinking as almost every study shows it is almost impossible for someone to outperform the market long term. Are there worse investment strategies than DGI?  Of course.  I don't think you're going to go bankrupt investing in JNJ, MCD, or MMM.  I just don't think you'll do as well as someone who is index investing, long term.

I don't think you're being hostile Jag - and of course, we're also in turn challenging your thinking as the studies you are citing feature a broad spectrum of investors and not specifically value investing, which is more or less what DGI ends up being. Beltim has provided several different studies in these forums on how the top two quintiles of individual investors actually outperform the market by a significant amount and over long periods of time. But you don't hear about the results because of stealth wealth. It's information asymmetry. Because you hear all the time about people who go after high flying stocks and then crash and burn. But you can easily check results - take something that's hardly optimal, like the DGI listing at http://www.suredividend.com/25-year-review-of-dividend-aristocrats-why-companies-fell-off-the-list/ - this is a listing of "dividend aristocrats" in 1989, and the article talks about how each of them either stayed on or why it fell off the list, so we're avoiding survivorship bias. If you did a calculation of $1000 investment for each stock with dividends reinvested from Jan 1989 to Dec 2014, and assumed that for firms that were acquired or no longer exist, total loss of principal even though this isn't what actually happened, you get the following:

Symbol   Return    Ending Value
K   8.41%    $7,543
PH   13.99%    $26,465
BAX   11.12%    $13,986
FPL/NEE   12.04%    $17,179
IFF   8.95%    $8,536
DOV   11.36%    $14,746
EMR   10.41%    $11,914
JNJ   13.58%    $24,179
KO   11.26%    $14,407
LOW   20.06%    $96,736
MMM   11.83%    $16,404
PG   12.34%    $18,376
CL   14.46%    $29,310
GPC   10.82%    $13,052
MAS   5.46%    $3,782
TMK   10.03%    $10,929
CSR   0.00%    $-   
HI   0.00%    $-   
RBD   0.00%    $-   
WLA   0.00%    $-   
AMP   0.00%    $-   
AHP   0.00%    $-   
LDG   0.00%    $-   
WIN   0.00%    $-   
TXU   0.00%    $-   
NSI   0.00%    $-   
Total    $26,000     $327,543
   11.13%   

That's 11.13% while assuming total principal loss on 10 of the 26 stocks, which again didn't actually occur, while the SP500 from 1989 to 2014 returned about 10% with dividends reinvested. If you look at the actual data, you might start to realize just how much junk is actually in the indices you're touting so highly - things like airlines, ship builders, car manufacturers, paper, textiles, steel - anything that has high capital requirements and are commodity like items. Whereas when you stick with the consumer staple, tobacco, energy, and healthcare industries, you will have realized an extremely good result over the long haul even if you overpay for companies here and there

frugalnacho

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Re: Dividend Mantra Sells Out (Literally)
« Reply #76 on: October 05, 2015, 03:29:36 PM »
You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals.  Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

I have a hard time believing there is a free lunch just sitting out that you are taking advantage of, but the vast majority of investors are passing over.

I don't understand the hostility/accusatory tone from you frugalnacho. It's like we're attacking a sacred cow or something, when all ridonkulous and I have said is that you don't HAVE to index to achieve good investing results (why is that an unfair statement?). It reeks of brainwashing. You and Jag seem to believe that if we choose to pick individual stocks, we're doomed to underperform the market and never reach financial independence.

To respond to your question, as you said there's no secret free lunch, DGI can require higher than a 25x rule because dividend yield of 4% is hard to find on most reliable blue chips. JnJ is paying 3.17% while Hershey's is paying 2.44%, for example. It's only if the interest rate is much higher do you start seeing the 25x rule being lower for DGI. Let's say you find a blend of multiple stocks with higher yield like Chevron or PM to balance out these lower yielding companies, and get to 4%, well then, you're still at 25x expenses, no different than blind diversification over the entire US or global equity market. The reason you are able to generate more returns and income in the long run is because you picked companies that produce actual cash, and risk adjusted, will last far longer than the typical company in an index fund. When you invest in an index fund, you are vulnerable to the given VALUATION of the market at the time, because sequencing of returns matter to you during the draw down phase. If you are focusing on cash flow, choosing companies that constantly increase their payouts to you, you don't care about valuation. It doesn't matter if your portfolio is 25x or 33x or even 10x in the event of a market crash - as long as your dividends cover your expenses.

The reason why it's less risky is because the companies you choose has healthy and strong balance sheets (lack of debt), wide competitive moat (large market share), and diversified income streams. Johnson and Johnson has a pharmaceutical division, medical device division, and consumer products divison, all with varying rates of growth and free cash flow. Of course, all of these characteristics can erode over time, as Jag has pointed out, so you must monitor the companies you choose. THIS TAKES MUCH MORE WORK AND TIME THAN INDEXING. But it's not impossible - one thing about investing is that you can only become a better investor because you learn more and more about businesses. If it's not your cup of tea, then you should index. But just because you don't find learning about businesses fun doesn't mean other people can't.

The reason why everyone doesn't do this is because 1) it takes time 2) they might not have a choice if investing through a 401k or similar vehicle that doesn't offer individual stock investing and 3) every investor's needs and situation (especially tax and estate needs) are different. You can't just take your own life and financial situation and try to fit everyone else in there. Someone who has $20m portfolio and just wants a quiet life has already won, and does not need to invest in anything besides tax free municipal bonds for the rest of his life if he chooses (besides saving himself a boatload in taxes). Someone who has very little capital but wants to gamble could invest based on quantitative measures, just check the dual momentum thread. There are also day traders - every person's goal is different. You can also ask the inverse question for index investors - if indexing is so simple and everyone makes money, what is preventing the indices from becoming overvalued? How do we know it's already not overvalued and doomed to crash? Well it's because there's a multitude of other investors as well as "investors" out there who are trying to do something different than get rich slowly.

To sum it up - a vast majority of investors pass over safe boring strategies like dividend growth investing AS WELL AS INDEXING because humans have a terrible time when making long term judgments and decisions - you know this intuitively since you're on this forum, don't let the zealotry of index investing blind you to other roads to get to financial independence.

I wouldn't say I have a hostile tone.  I've been through this discussion a hundred times on this site, and every single time it boils down to a fundamental misunderstanding of how dividends work and where the money actually comes from.  The responses above with examples of "cutting branches" off your investment tree exemplify that misunderstanding.  I'm not "cutting branches" off of my investment tree to pay my mortgage anymore than company xyz is "cutting branches" off of my investment tree in order to pay me dividends. 

What you are essentially saying is that you are better at investing the companies excess funds (the money they pay you dividends with) than they are.  Not only are you better, but so much so that you will be able to achieve FIRE and steady income with significantly less funds that indexers because you will achieve better returns than the company could. 

If you think that, then I think you are fooling yourself.

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #77 on: October 05, 2015, 04:01:33 PM »
I wouldn't say I have a hostile tone.  I've been through this discussion a hundred times on this site, and every single time it boils down to a fundamental misunderstanding of how dividends work and where the money actually comes from.  The responses above with examples of "cutting branches" off your investment tree exemplify that misunderstanding.  I'm not "cutting branches" off of my investment tree to pay my mortgage anymore than company xyz is "cutting branches" off of my investment tree in order to pay me dividends. 
I think the frustration in miscommunication comes from this: You're positing that the market is completely efficient, and that the value you see on a screen is the true value of companies. A lot of times that's pretty close to the truth. For example, right now, if you happened to collect 25x your expenses in a total market index and you decided to retire, you probably wouldn't have a big shock in market value of your portfolio over the next 2-3 years. You are selling 2% of your portfolio and getting 2% yield on your total market index each year to pay for living expenses, that's fine. My point is that the market has a habit of consistently broadcasting a value that's different from its actual intrinsic value, and as an index investor, you have no idea whether your holdings are going to do in the future, you're assuming that it will go up because it historically has, and because the trinity study gives a 4% number when running scenarios against historical outputs.

My argument is that when you acquire the necessary temperament and financial statement literacy to select stocks, you're REDUCING the risk that your capital will end up not providing you the income you need to achieve financial independence. Even using a suboptimal list that someone ran quantitative measures on (the 1989 dividend aristocrats listing) resulted in minimum total returns of 11.13%. If the SP500 ended up beating that number, SO WHAT?! Collecting and holding the best companies in the world, with tons of diversified cash streams, paying out cash to me that can't be faked (as opposed to market values that could collapse tomorrow - I've given many examples already in this thread), and ignoring actual market value (which again, can go off kilter from time to time) to me is the definition of higher risk adjusted returns, even if the SP500 won on a nominal basis. If your measurement period had an ending date of 1/1/2000, your index would be crushing my personal portfolio in terms of total return, but that would be too much risk for me to handle, I'd be happy to let someone else make that money, even if the insanity in valuation continues for five years. That's a personal choice based on studying academic studies and actual events occurring over the course of investing history.

What you are essentially saying is that you are better at investing the companies excess funds (the money they pay you dividends with) than they are.  Not only are you better, but so much so that you will be able to achieve FIRE and steady income with significantly less funds that indexers because you will achieve better returns than the company could. 

If you think that, then I think you are fooling yourself.

No, what I'm saying is that, as a basket of stocks, dividend paying companies provide a better risk adjusted chance of lifestyle maintenance - I already linked the 1928-2013 study on total return based on yield quintiles. There are a multitude of possible reasons for that result, including the limitation of the study that the numbers could be skewed because smaller companies are typically not dividend payers and are also more likely to result in complete loss of principal, but the number one reason I believe this is true is because dividend paying companies have to focus on generating actual cash versus hope and promises of increasing GAAP/accounting "profits". Dividend payers are forced to choose best efforts investments with their excess cash because they have to pay out some of the free cash flow they generate. As far as your mocking "Not only are you better, but so much so that you will be able to achieve FIRE and steady income with significantly less funds that indexers because you will achieve better returns than the company could.", neither I nor ridonk has done anything in this thread to deserve your condescension, but in the interest of continuing to share actual ideas, I already responded above:

To respond to your question, as you said there's no secret free lunch, DGI can require higher than a 25x rule because dividend yield of 4% is hard to find on most reliable blue chips. JnJ is paying 3.17% while Hershey's is paying 2.44%, for example. It's only if the interest rate is much higher do you start seeing the 25x rule being lower for DGI.
« Last Edit: October 05, 2015, 04:06:46 PM by Aphalite »

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #78 on: October 05, 2015, 04:22:43 PM »
I wouldn't say I have a hostile tone.  I've been through this discussion a hundred times on this site, and every single time it boils down to a fundamental misunderstanding of how dividends work and where the money actually comes from.  The responses above with examples of "cutting branches" off your investment tree exemplify that misunderstanding.  I'm not "cutting branches" off of my investment tree to pay my mortgage anymore than company xyz is "cutting branches" off of my investment tree in order to pay me dividends. 

What you are essentially saying is that you are better at investing the companies excess funds (the money they pay you dividends with) than they are.  Not only are you better, but so much so that you will be able to achieve FIRE and steady income with significantly less funds that indexers because you will achieve better returns than the company could. 

If you think that, then I think you are fooling yourself.

When a company generates free cash flow, they can do whatever they want to that money.  Some choose to reinvest in the company.  Some choose to reward shareholders.  Some companies do both!  To a DGI, dividends are proof in the pudding that they are generating free cash flow and are dedicated and able to reward shareholders with cold hard cash each and every year.  Dividend Champions/Aristocrats have made it a priority to reward shareholders.  They are not making up money from thin air to pay shareholders.  This is real money from real profits.  We are talking about companies that are dividend aristocrats, not the small company who decided to pay a 10% dividend and can't cover the dividend each quarter. 

Telecaster

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Re: Dividend Mantra Sells Out (Literally)
« Reply #79 on: October 05, 2015, 04:27:23 PM »
As an aside, there are indicies of dividend paying stocks.   The S&P High-Yield Dividend Aristocrats Index for example, which is tracked by SDY.  So you technically can index and have a dividend strategy too.   

I suspect DividendMantra would have been vastly better off simply doing something like that.  I see he has something like 70 positions.   The spreads and commissions on that much trading is significant for a small-ish portfolio.

I slightly disagree because you have no control over allocation/weighting in a scenario like that. If you're going to allocate capitol yourself, why use an index at all? If you think an index will perform better for your needs, just index. It makes no sense to me to pick a niche index strategy, that's basically chasing returns at its finest

A couple reasons, one is that the more stocks you pick from a single universe, the more your portfolio will perform exactly that like that universe.  That's why the Dow tracks the S&P500 pretty closely.   They are the same kind of thing, and that's only 30 stocks tracking 500.   DividendMantra has 70 stocks, that's as many as some mutual funds.   I dunno how he defines his initial universe to make selections from, but I'll wager his performance is pretty close to the performance of that universe overall.   Especially as an individual investor he will have high transaction costs in the form of spread and commissions.   I doubt his performance his high enough to overcome the transactional headwind.     In short, if you are going to own that many stocks, you need to be genius to beat a given index (and you might have to be a genius anyway).    Edit:  The other reason that is important to bring up is the opportunity cost.   DM says he spends like 1000 hours a year or something.   That a huge chunk of his life and there is no evidence he's any wealthier for giving it up.   

Note, I'm not saying you should use a dividend index.  I'm saying it is possible to do so.   People seem to be saying "index" when they mean "broad market index" or something like that.   There are lots of indices.   

Another reason is diversification.   When people say "index" they usually mean the S&P500 or something similar.   The S&P500 is of course cap-weighted, so it very much over represents big companies.  Yet small companies tend to have higher returns, so it might make sense to have another fund that tracks, say, the Russell 2000.   You may to further slice into growth and value segments, which can behavior different from one another for long periods of time.  Similarly, REITs are a good way to diversity.   I don't own any REITs, I chose to invest in real estate directly, by owning a rental property.  And real estate is definitely owning more than just a single index fund.   

Most people recommend owning at last some bonds, for similar reasons.   You can also make a rational case that diversification overseas is a good idea. 

I mentioned above that I do follow a dividend strategy in a single-account.  If my math is correct, owning high-paying dividend stocks should help balance out performance in the learn years, and improve performance overall.   I'll get back to you in ten or 15 years and let you know if that was the case or not.   One of my holdings is a preferred stock ETF which is commission free from Fidelity.

And a final reason, I have long personally believed the medical/pharmaceutical sector will outperform the general economy over time.  Reasons include growth of the population, aging of the population, and expansion of insurance to people not currently covered.    So I have a couple funds  in those fields.   Over the last ten-15 years they've gone great.  Personal opinion that, but it is working well so far. 



« Last Edit: October 05, 2015, 04:33:47 PM by Telecaster »

Aphalite

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Re: Dividend Mantra Sells Out (Literally)
« Reply #80 on: October 05, 2015, 04:44:50 PM »
A couple reasons, one is that the more stocks you pick from a single universe, the more your portfolio will perform exactly that like that universe.  That's why the Dow tracks the S&P500 pretty closely.   They are the same kind of thing, and that's only 30 stocks tracking 500.   DividendMantra has 70 stocks, that's as many as some mutual funds.   I dunno how he defines his initial universe to make selections from, but I'll wager his performance is pretty close to the performance of that universe overall.   Especially as an individual investor he will have high transaction costs in the form of spread and commissions.   I doubt his performance his high enough to overcome the transactional headwind.     In short, if you are going to own that many stocks, you need to be genius to beat a given index (and you might have to be a genius anyway).    Edit:  The other reason that is important to bring up is the opportunity cost.   DM says he spends like 1000 hours a year or something.   That a huge chunk of his life and there is no evidence he's any wealthier for giving it up.
 

I get that, but I also think that if you're making purchases yourself, you have more control over the price you pay - whereas with an index you're stuck with the prices on the day the fund decides to make a purchase. You're probably correct that his performance doesn't outperform SDY, I'm not sure as I don't follow his writings too much - unsure if he sets a price he is willing or unwilling to pay. I think you've said before that following companies and reading annual reports is fun for you, perhaps it's fun for him as well - otherwise you'd be 100% correct when you say the 1000 hours is a waste if he isn't getting much outside utility (in terms of outperformance) from it.

And a final reason, I have long personally believed the medical/pharmaceutical sector will outperform the general economy over time.  Reasons include growth of the population, aging of the population, and expansion of insurance to people not currently covered.    So I have a couple funds  in those fields.   Over the last ten-15 years they've gone great.  Personal opinion that, but it is working well so far.

I 100% agree. Even historically, pharms have crushed the broad market, as with consumer staples, energy over the long term, and tobacco (even made a point about it in my response to Jag). It's hard to evaluate individual companies because you have to know how to value patents/pipelines. Buying a sector index would be intelligent in this case. As an aside, it's the same with oil ETFs, it's hard to bottom fish but you can probably compare current yield to historical yield or something to get an idea on when the bottoms/peaks are hitting - buying a basket would be intelligent if you can't interpret the financial statements of energy companies easily

If you look at the actual data, you might start to realize just how much junk is actually in the indices you're touting so highly - things like airlines, ship builders, car manufacturers, paper, textiles, steel - anything that has high capital requirements and are commodity like items. Whereas when you stick with the consumer staple, tobacco, energy, and healthcare industries, you will have realized an extremely good result over the long haul even if you overpay for companies here and there
« Last Edit: October 05, 2015, 04:46:59 PM by Aphalite »

ridonkulous52

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Re: Dividend Mantra Sells Out (Literally)
« Reply #81 on: October 05, 2015, 05:23:40 PM »
I don't think you're being hostile Jag - and of course, we're also in turn challenging your thinking as the studies you are citing feature a broad spectrum of investors and not specifically value investing, which is more or less what DGI ends up being. Beltim has provided several different studies in these forums on how the top two quintiles of individual investors actually outperform the market by a significant amount and over long periods of time. But you don't hear about the results because of stealth wealth. It's information asymmetry. Because you hear all the time about people who go after high flying stocks and then crash and burn. But you can easily check results - take something that's hardly optimal, like the DGI listing at http://www.suredividend.com/25-year-review-of-dividend-aristocrats-why-companies-fell-off-the-list/ - this is a listing of "dividend aristocrats" in 1989, and the article talks about how each of them either stayed on or why it fell off the list, so we're avoiding survivorship bias. If you did a calculation of $1000 investment for each stock with dividends reinvested from Jan 1989 to Dec 2014, and assumed that for firms that were acquired or no longer exist, total loss of principal even though this isn't what actually happened, you get the following:

Symbol   Return    Ending Value
K   8.41%    $7,543
PH   13.99%    $26,465
BAX   11.12%    $13,986
FPL/NEE   12.04%    $17,179
IFF   8.95%    $8,536
DOV   11.36%    $14,746
EMR   10.41%    $11,914
JNJ   13.58%    $24,179
KO   11.26%    $14,407
LOW   20.06%    $96,736
MMM   11.83%    $16,404
PG   12.34%    $18,376
CL   14.46%    $29,310
GPC   10.82%    $13,052
MAS   5.46%    $3,782
TMK   10.03%    $10,929
CSR   0.00%    $-   
HI   0.00%    $-   
RBD   0.00%    $-   
WLA   0.00%    $-   
AMP   0.00%    $-   
AHP   0.00%    $-   
LDG   0.00%    $-   
WIN   0.00%    $-   
TXU   0.00%    $-   
NSI   0.00%    $-   
Total    $26,000     $327,543
   11.13%   

That's 11.13% while assuming total principal loss on 10 of the 26 stocks, which again didn't actually occur, while the SP500 from 1989 to 2014 returned about 10% with dividends reinvested. If you look at the actual data, you might start to realize just how much junk is actually in the indices you're touting so highly - things like airlines, ship builders, car manufacturers, paper, textiles, steel - anything that has high capital requirements and are commodity like items. Whereas when you stick with the consumer staple, tobacco, energy, and healthcare industries, you will have realized an extremely good result over the long haul even if you overpay for companies here and there

Wow great analysis!  In this portfolio the DGI'er was wrong 10/26 times and still beat the S&P 500.  Good stuff!  I would equate 25 years as "long term" :). 

MoonShadow

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Re: Dividend Mantra Sells Out (Literally)
« Reply #82 on: October 05, 2015, 05:42:16 PM »

You've explained that you don't follow a 25x or 4% rule, but really haven't explained the underlying fundamentals. Why are you able to generate more income from your investments than everyone else? And somehow at even less risk than everyone else? If it's so simple and dividend paying stocks really do measurably out perform the index, then why does everyone not just put their money there?  Why do the prices not reflect the apparent risk/reward?

He isn't.  The average earnings of a major stock in a mature industry, the very kind that are typical targets of long term dividend investors, is 6.5% (at a P/E ratio of 15) or less; but since most mature companies don't pay out all their earnings as dividends, but keep some earnings back for research, bond payments, etc.; the long term average for dividends is something closer to 4% anyway.  Often even lower than 4%, as the hardcore dividend investor is actually shooting for the "sustainable SWR", and would end up dying with approximately as much (in real, level purchasing power dollars) as he would have had at retirement; in an "average" situation.  Dividend investing is just another rules based method; not automatically better than index investing, but nor is it necessarily worse than index investing.  Dividend investing requires quite a bit more self-education about the particular stocks being chosen, and is not appropriate for low information or hands-off investing.  But a well informed dividend investor can do better than the index, even if not well diversified.  The root goal of the dividend investor isn't to pick the next Apple on rise, so he is not a speculator.  The goal of the informed dividend investor is to not pick stocks that are overvalued and/or with declining fundamentals, which an index cannot avoid.  Do this well (and that is no easy statement) and you will beat the index on average.  This can be dangerously similar to trying to time the market, if done incorrectly.

Think of dividend investing like this...
Take whatever index you favor, then research each of the companies in that index, starting with the highest market cap.  Your goal is to determine if that largest company is at or below it's real value or not; by whatever method you choose to do that.  If the first company is valued correctly, you put in a conditional order (buy limit, maybe? I can't remember anymore) for something slightly less than the market price, so that if it get's into value territory, you end up buying it.  If it's overvalued, you reject it altogether and move on.  If it's undervalued by any significant percentage (by your chosen valuation method) you just buy it with a market order, no conditions.

As you move down the list of companies, assuming you have enough money, you will end up approximating the index.  And if your valuation method is accurate, you will have avoided buying the (near term) losers in that index.  A hardcore dividend investor might 'rebalance' annually by redoing this process each year, and selling overvalued stocks in order to buy more undervalued stocks; or he might not.  All of this should make sense, but the trick is the method of valuations.  Every method that I've ever seen has it's fans and critics, and any method that one might choose might have great backtesting, yet turn out to be BS in the 10+ years that you have been using it.

Sharpy

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Re: Dividend Mantra Sells Out (Literally)
« Reply #83 on: October 11, 2015, 11:17:36 AM »
Not sure what people are arguing here.  You have 2 strategies called "A" and "B"   The only thing that matters at the end of the day is  your total risk adjusted returns.  Everything else is noise.

innerscorecard

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Re: Dividend Mantra Sells Out (Literally)
« Reply #84 on: October 12, 2015, 12:38:32 PM »
Not sure what people are arguing here.  You have 2 strategies called "A" and "B"   The only thing that matters at the end of the day is  your total risk adjusted returns.  Everything else is noise.

There is also the volatility on the journey, which matters a lot to human beings.

ThriftyD

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Re: Dividend Mantra Sells Out (Literally)
« Reply #85 on: October 15, 2015, 04:43:53 PM »
Man, DGI vs. index fund investing is always such a contentious issue around here and I don't understand why.  At the end of the day, we're all here to achieve FIRE.  However you choose to get there and whatever approach allows you to sleep soundly at night, then go for it!  And don't we often hear/read around here about not worrying about things out of your circle of control?  Who cares if your neighbor takes a different investing approach than you?  Does his/her approach negatively impact your approach?  If he makes a stupid investing mistake, only he and those within his influence circle will be affected.  In fact, I think a few years ago, DividendMantra did a guest posting here and things got so contentious that the comments section was locked.  There's really no need for that and it's very unproductive and it just pits people against each other who otherwise have very similar goals/interests.  At what point can people just politely agree to disagree, respect that others take a different view, and move on?     

In regards to Dividend Mantra/Jason F., I've enjoyed his blog for the personal stories/lifestyle posts he writes.  I check in on his portfolio from time to time but don't spend too much time reading his stock analyses.  That's the same thing I enjoy about a lot of financial independence blogs.  I enjoy reading about different journeys to FI, different writing styles, etc.  I'm a little disheartened that since the sale, he has not made a single blog post like that.  Just two or three with his dividend and portfolio updates.  Hopefully he'll come back soon or I may slowly tune out. 

Anyway, this MMM community has opened me up to the amazing world of FIRE and I've grown so much mentally in terms of money/finance and have read so many great stories in the forums and other blogs in the two years since I've been here and not one time was I turned off b/c someone had an investment approach I didn't agree with.

clifp

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Re: Dividend Mantra Sells Out (Literally)
« Reply #86 on: October 15, 2015, 07:16:59 PM »
His rationale for selling seems very similar to what Nords went through when he sold http://the-military-guide.com/.  There are number of people who make a living taking over the administration of blogs forum websites.  These people generally are more experienced about maximizing the revenue for web properties.

Nords

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Re: Dividend Mantra Sells Out (Literally)
« Reply #87 on: October 18, 2015, 01:36:01 AM »


     


His rationale for selling seems very similar to what Nords went through when he sold http://the-military-guide.com/.  There are number of people who make a living taking over the administration of blogs forum websites.  These people generally are more experienced about maximizing the revenue for web properties.
You're absolutely right, Clif, this is exactly how I felt and it's exactly what I did, and it's exactly what my blog's new owner has done.

Holy cow, even by MMM standards a few of you folks are harsh. 

How about a little vicarious high-five for a guy who managed to offload a burden so that he can keep writing?  It's a sign that he's doing well and progressing toward financial independence... and it's confusing to see some of you think that he's selling out or losing credibility.

Here's the deal:  running a blog takes a couple of hours per week.  If you're growing the business by  expanding your e-mail list and boosting affiliate income and tweaking Google Analytics and updating WordPress and fixing plugin conflicts and running A/B tests on your ads and working on an eBook and... well, you could spend a few hours a day on it if you get into it.  (You're running a business.)  If you're posting three times per week then you quickly realize that you're workin' too hard.

Yes, J.D. Roth sold Get Rich Slowly and the site spiraled down in quality.  He was a trailblazer in that aspect of site monetization, he posted every day for six years, back then nobody really understood how readers felt about selling blogs, and frankly QuinStreet sounds like a tough bunch to work with.  However I think the real reason that the site's not the same is because J.D. has moved on to other projects and the site is now a group project at the lowest common denominator of its writers.  Same with Jim Wang selling Bargaineering and going on to new projects-- Bargaineering ain't the same without Jim but I've enjoyed following his other sites like Wallet Hacks.

Do you guys think that Pat Flynn is a sellout because he nets over $75K/month on SmartPassiveIncome.com?  He's giving away most of his advice, and people are showing their appreciation by clicking his affiliate links for the products he endorses.  He's earned our trust and I think it's fair for him to earn some income without making it more expensive for us.

Gee, maybe these guys are successful in the practices they've been preaching.  When I chatted with them at FinCon last month they (and dozens more) seemed pretty happy and fulfilled.

Personal recap:  two years ago I sold The-Military-Guide.com.  I was spending a couple of hours per week on site maintenance but I didn't enjoy it.  I was not exactly enthused about the labor required to grow the e-mail list or other aspects of building a business.  I'd learned how to do it, and I'd seen enough, and I'd rather write.  The buyer "paid" a large donation to Wounded Warrior Project, and now he gets to keep all the revenue.  We just started the third year of my three-year earnout, and when I reach each annual milestone then he makes another large donation to WWP. 

In that two years he's turned The-Military-Guide.com into a cash-spewing machine which has paid him a living wage for more than a year.  (And now he only devotes an hour or two a week to it.  He's still on military active duty.)  He's put the time and effort into realizing the blog's full potential, and I enjoy providing the content.  (Every post I write also gives me a book ad for the readers.)  When he retires from active duty next year, I can't wait to see how he keeps growing the traffic and the revenue.  I've been telling people for years how much income a blog can generate, and he's living proof.

At the time I sold the site, I was a little concerned that a blogging gold rush had turned into an unsustainable bubble.  I was surprised at how much value I'd created and I decided to cash out for charity.  However in retrospect I "sold" way too cheap. 

Blogging is no more and no less sustainable or bubblicious than any other entrepreneurial model.  By bringing in professional help, DM has outsourced the things he doesn't want to do (and maybe can't do as well as the professional) so that he can focus on the things he does better.

It looks like Dividend Mantra still owns the blog but is doing a revenue share.  Very smart-- his partner is totally motivated to grow the revenue instead of just putting in the time for an hourly wage.  DM also created a new "dividend" stream by retaining a share of the revenue.  I can understand why they want to keep the numbers private, especially if his partner is using the same rev share agreement with other blog owners.  But maybe someday the partner will realize that they could attract even more business by publicizing the revenue that they'r bringing in for DM.  We have this discussion all the time on the FinCon Facebook group.

Although DM has offloaded some of his labor, I see no reason why DM's investing advice gains or loses credibility.  If anything it might get better because he's not so pressed for time when he writes the next post.  Ideally he'd post just as much about his dividend income and show how that's reaching his new retirement spending target. 

Or you cynics could just shift over to Dividend Growth Investor's blog.  He has a different perspective and he spends a lot of time (and effort) on the analysis.

Here's an exercise that I haven't made the time for:  do DM's or DGI's investments replicate an index fund?  If they share their portfolio allocations (as DGI has occasionally done via e-mail) then you could enter the tickers into a Morningstar Portfolio X-Ray to see what other funds they overlap. 

I'd hate to think that they've invested all these hours of stockpicking time & effort only to replicate a Vanguard dividend fund or (even worse) the S&P500 or DJIA.  But if that's the case then I'd certainly want to share the analysis with readers.

kyith

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Re: Dividend Mantra Sells Out (Literally)
« Reply #88 on: November 12, 2015, 02:33:55 PM »
I came over after reading much negative comments on his blog and someone who followed him for quite a while

1) i think not many understands the job of managing a blog . there are much side shows that takes you away from true writing. that is, if you want to operate it like a business. that said you can always ignore the side show and focus on what you really love: write. don't care so much above the endorsements and advertisers. but he operates that like a business

2) I think there could be an alternative in that he gets people to screen that part and not sell out. this seems a more lucrative route. now that he has made his name, the blog is not so important

3) Much haters from the indexing community over here snickering at his poor record in the face of indexing. I would tamper with that in the face of some great reversion to the mean, which is not my words, but many of the great investors including Bogle recently

4) Much think he is looking for 4% yield only, but dividend growth entails growth and that is total returns. He have indicated that his past history the dividend growth rate is 7%, so it is not just 4%

5) Indexing, especially cap weighted is prone to buying into an overvalued market.his dividend growth approach entails the search for value. quantitatively, AQR have shown 2 approaches do work, value and momentum based investing over time and to some degree companies with consistently good earnings. there are also research that show if you choose an alphabet and purchase that basket of alphabet stocks they do outperform the sp500. this is from what i understand listening to some of Barry Ritholtz's shows interviewing Vanguards 2 top guys and the Fundamental indexers as well as AQR's main guy.

6) much of this passive indexing drowns out the voice that it is low cost that matters more. Vanguards low cost active manage funds do quite well. philosophically if you are adjusting an allocation, you are actively managing it. a truly all encompassing passive portfolio by market cap should result in you owning more global bonds than equities considering there are more bonds out there

just some thoughts

patrickza

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Re: Dividend Mantra Sells Out (Literally)
« Reply #89 on: November 16, 2015, 06:16:16 AM »
I'm just upset that he sold his blog out, and likely quite cheaply. One of my longtime dreams has been to earn an income from the web. Be it through blogs/apps whatever. Here's a guy who makes more from his blog than I do working my butt off, and it was too much "work" for him. While I know it's his site and he can do whatever he likes with it, I was kind of hoping he'd keep running it, and keep raking in the cash.

hops

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Re: Dividend Mantra Sells Out (Literally)
« Reply #90 on: November 16, 2015, 09:48:56 AM »
Things have gone downhill there very quickly and it will be interesting to see if the new buyers can find a way to salvage the site. So far there's scant indication that they understood what DM was about or what made it successful. The knee-jerk reaction to Jason selling out was over-the-top, but it's starting to look like he could've cut a much better deal.

mizzourah2006

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Re: Dividend Mantra Sells Out (Literally)
« Reply #91 on: November 16, 2015, 09:52:39 AM »
Things have gone downhill there very quickly and it will be interesting to see if the new buyers can find a way to salvage the site. So far there's scant indication that they understood what DM was about or what made it successful. The knee-jerk reaction to Jason selling out was over-the-top, but it's starting to look like he could've cut a much better deal.

Yeah just read the most recent post by the new group. It seems like they want to turn it into a personal finance blog. People went there to follow an individual's journey to financial freedom, using a somewhat unique methodology (dividend growth investing).

It also appears that when he sold it he thought he was still going to be the main contributor and would have an easier time just writing about his story, but it looks like they gave Jason the boot.

EscapeVelocity2020

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Re: Dividend Mantra Sells Out (Literally)
« Reply #92 on: November 17, 2015, 08:00:27 AM »
I didn't go to DividendMantra very often, but I do love reading and speculating about 'the story behind the story'.  After reading the latest 'new management' post I got in to the 335 (and counting) comments.  Holy cow, even if there is lots of misinformation there, it sounds like the site was gutted and Jason's voice is no longer 'valued'.  I guess in the investor's mind, the value of the site is in monetizing the contact lists and existing content, why trouble yourself too much with trying to work with the original owner? 

Lets just hope Pete never sells out, even though he did mention a seven figure payday a few times...  I guess the moral of these stories (like JD Roth and Get Rich Slowly) is that we should never be too 'emotionally invested' in a site on the internet.  It kinda sucks though - like I know I shouldn't let emotions into real estate decisions, but it sure is nice to call a place 'home'... 

grettman

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Re: Dividend Mantra Sells Out (Literally)
« Reply #93 on: November 17, 2015, 11:18:13 AM »
We don't know the entire story of what is going on but it is crazy to think that Jason essentially "locked in" his profit and sold the site for what will seem only pennies when he looks back years from now.  That site had a lot of growth potential.

lhamo

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Re: Dividend Mantra Sells Out (Literally)
« Reply #94 on: November 17, 2015, 08:58:09 PM »
Ugh -- that got ugly fast!  How can FOUR GUYS mess up in two months what it took one guy many months (years?) to build?  At least at GRS it took them a long time to totally mess things up after JD sold, during which time many loyal readers were able to migrate to ERE and then here.  And although the news of the sale and JD's stepped down role came as a shock, he at least kept his hand in things for awhile to ease the transition. 

BTW Nords, thank you for the detailed post on how to manage a blog transition properly.  Wish you had gotten more money for your charity, though!  You are a class act.

Nords

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Re: Dividend Mantra Sells Out (Literally)
« Reply #95 on: November 17, 2015, 09:29:27 PM »
BTW Nords, thank you for the detailed post on how to manage a blog transition properly.  Wish you had gotten more money for your charity, though!  You are a class act.
Thanks!  I would've wanted a million-dollar donation too, but I sold to the right guy at the right time for the right reasons.

I'd rather write, and it's great to have the financial independence to afford those choices, but it's also nice to verify that you could do it again if you needed to.

Indexmantra

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Re: Dividend Mantra Sells Out (Literally)
« Reply #96 on: November 25, 2015, 10:11:52 AM »
What a train wreck...

http://www.dividendmantra.com/2015/11/the-past-two-months-in-review/

I am convinced that Jason Fieber should not be trusted  - he was there only for the money from the very beginning. Whoever believed him, and was "inspired" to pick their own stocks will be very sorry that they didn't index from the beginning. I am just so sorry for all those newbies...

arebelspy

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Dividend Mantra Sells Out (Literally)
« Reply #97 on: November 25, 2015, 10:30:49 AM »
I lol'd at your screen name
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

Nords

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Re: Dividend Mantra Sells Out (Literally)
« Reply #98 on: November 25, 2015, 12:03:19 PM »
What a train wreck...

http://www.dividendmantra.com/2015/11/the-past-two-months-in-review/

I am convinced that Jason Fieber should not be trusted  - he was there only for the money from the very beginning. Whoever believed him, and was "inspired" to pick their own stocks will be very sorry that they didn't index from the beginning. I am just so sorry for all those newbies...
I think that indexing is "an" answer instead of "the" answer.  There's room for both types of investors, and both types have to find their comfort zone. 

Nobody has to be "trusted" or "believed".  Their advice just has to be measured against the other 50,000 dividend bloggers and the financial industry and the classic books on the subject.  Half of blogging is educational, but another large fraction is sharing a personal journey in a way that makes the readers feel the affinity.  Jason may have "trusted" that the new owners were going to preserve the blog's culture, and I'm sure a lot of bloggers have made that tactical error.  But the guy had a choice of either burning out and shutting it down, or selling it to someone who might make it better.  Considering those choices I suspect it's worth watching the new owners (perhaps accompanied by Jason) for the next 6-12 months to see whether it gets better.  Apparently the new owners have the money to buy blogs without necessarily having the skill to improve them.  We'll have to wait and see.

(Side note about stones and glass houses:  yeah, I sold The Military Guide site.  The new owner has done things that I wouldn't have done with it.  However they're 98% improvements that I never thought of, and 2% things that I would have decided were not worth the effort.  The owner is also an active-duty senior leader who's so busy with his day job that he only creates 10% of the blog's content.  So I feel qualified to comment on selling a blog, and I'd like to think that I avoided Dividend Mantra's mistakes.)

In general, indexing is the least amount of work for the most amount of return.  If anything, it optimizes the level of effort for people who'd rather do anything else than focus on their investments.  It's also a suboptimal return because there's less intelligent effort by the investor.  Yet indexing offers a higher return for 90% of investors because they avoid making so many mistakes.  There's a whole field of behavioral financial psychology that grew out of explaining those mistakes, so it's not as straightforward as we'd think.

However there are lots of people with an internal locus of control who'd like to believe that their personal efforts will improve their returns.  (I'm one of those people.)  Whether it's picking stocks, or managing their own rental properties, or becoming angel investors... they need to figure out whether they're the next Buffett or Fisher or Josh Dorkin.  A newbie who's intrigued by the idea of dividend investing would've learned a lot from Dividend Mantra and can continue to learn from Dividend Growth Investor.  One of the first things they may learn is that it's more work than they care to devote to generating a little (if any) alpha.  But the ones who commit to a sustained long-term effort will learn from their mistakes and become better investors.  All an indexer learns is how to minimize their level of effort (for the best of reasons) in order to spend their time on other activities.  Not that there's anything wrong with that.

Having said that, here's where the "new" Dividend Mantra has shot themselves in the face:
Quote
What kind of content do you want to see in future posts on this blog? What have you really enjoyed reading so far, and what do you wish we would write about? We’re all ears! Please leave your comments below or reach out via the Contact form. Looking forward to hearing from you!
Sincerely,
Allen, Jonathan, Derek, Andy, and more
The Dividend Mantra Team
Um, you guys, including that "more" guy?  The name of the blog is "Dividend Mantra".  You shouldn't need much help figuring out the content, or else you need to ask better questions about the details of the content.  See that stuff Jason wrote for so many months?  Yeah.  Do more of that.  If you have to ask what we want to read...

Any blog that turns from one person's vision into "Team Bloggers" is going to change.  It loses its unique personality and becomes a mishmash of the lowest common denominators.  This is why Get Rich Slowly went downhill (despite having some very good freelance writers), and why Early-Retirement.org went through such a ruckus when its founder sold*, and why Dividend Mantra is probably going the same direction.

(* I was a moderator during the Early-Retirement.org turnover.  Believe me, it was a ruckus.)

The problem ain't the dividend-investing technique.  It ain't the credibility of the founder or his methods.  It's the "team" of people trying to produce the content.

WhateverWorks

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Re: Dividend Mantra Sells Out (Literally)
« Reply #99 on: November 25, 2015, 01:30:41 PM »
What a train wreck...

http://www.dividendmantra.com/2015/11/the-past-two-months-in-review/

I am convinced that Jason Fieber should not be trusted  - he was there only for the money from the very beginning. Whoever believed him, and was "inspired" to pick their own stocks will be very sorry that they didn't index from the beginning. I am just so sorry for all those newbies...

You sound more bitter and jealous that he sold vs his actual investment strategy.  Multiple times you have stated on this forum that his advice is "dangerous".  Really?  Why didn't this critical, negative tone on his investment strategy surface before he sold? 

I stumbled across Jason's blog about a year ago and while I didn't agree with a lot of his stock picks he did give sound advice and was actually very conservative in his approach to investing.  During the time I followed him he wasn't promoting any type of scammy service or questionable investments like penny stocks.  Most were all blue chip companies with great track records.  One can't fake any of those reporting numbers.  It's all very transparent.

I completely agree with the comment above that "A newbie who's intrigued by the idea of dividend investing would've learned a lot from Dividend Mantra and can continue to learn from Dividend Growth Investor."

I never once read any posts where Jason was trying to steer people into buying any of his picks or point them toward some scummy investment material to profit off of.

Now, was that a smooth website transaction to another owner(s).  Nope.  Not at all.