# Controversial Questions (Run wild and off topic)



## jcgd (Oct 30, 2011)

I have lots of questions, some of which may seem rhetorical but are honestly not, and I want to ask for your individual opinions. I'll probably add more questions to the thread as time goes on and I see things to which I think "gee, that sounds dumb" but it is important to remember that I don't know everything... maybe I hardly know anything. 

So ask questions here, and fight for your opinion here. Let us try to put in substantial explanations. This is a thread to find out why you think what you think, not just to state your opinion.

So here are a few questions to get started...

1) Why do individuals only invest in companies that pay dividends, and then drip the dividends? Doesn't this say that you'd rather the company not pay the dividend?

2) Why would an investor limit their purchases to criteria such as stock prices between $5-50?

3) Why would an investor limit their purchases to even lots, generally 100 of any given stock purchase (I've heard of it, but never actually seen it)?

4) Why do YOU like or dislike, or are indifferent to stock splits?

5) What is your definition of risk? (Difficult question, IMO)

6) What is the relevance of yield on cost?

*Eclectic's questions:*

7) Why do so many focus on their favourite way of making money to the point of telling others "dividend investing is crap", "capital gains only is crap", "stock picking is a mugs game" < insert investing theme of choice here> ? If one is making money consistently, why do others care?

8) Related to number 7 - Why are lifestyle & limits ignored/dismissed? For example, a momentum trader can dismiss the "I'm stuck in meetings for three hours so buying on momentum five minutes before the meeting doesn't work". Or a buy for the long term type can assume a trader does not have a long term position.

Originally Posted by andrewf 
9) This kind of raises the question of why people think day trading is a viable career.


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## Ethan (Aug 8, 2010)

These are great questions. There's only one that I have a definitive answer for, question 3. 1 option contract represents 100 shares, so trading in 100 share blocks is generally more liquid, and allows you to write covered calls. Selling short 100 shares also allows you to sell covered puts.


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## cldellow (Feb 16, 2012)

(1) dividends give you flexibility. If you drip them today, it means you want capital appreciation. At any point in the future, you can stop dripping to get income streams, instead.

For (3), what I've heard is that the bid/asks shown are typically in lots of 100, known as round lots. Historically, they were the most commonly traded size, so your odds of getting a fast fill were better than with odd lots.

(2) might be a natural result of (3) - the average Jo(e) wants to invest at most $5,000 at a go, hence the ceiling, and wants to avoid penny stocks, hence the floor.

(4) doesn't matter to me. Stock split? Pfft, smoke and mirrors to satisfy (2) and (3).

(5) I might die, having never spent my money. That's a terrifying risk. BRB, spending some.


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## andrewf (Mar 1, 2010)

1) I agree completely. I chalk it up to dividend fetishization.

I'd also ask why payment frequency matters much, or at all. Is it that hard to bank dividends for a quarter? If I were living off a portfolio in retirement, I can't see doing transfers from my brokerage account more than once per year, deposited into a savings account.


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## jcgd (Oct 30, 2011)

Loving the response so far. I'm just going to pick on the things I don't understand or agree with.



cldellow said:


> (1) dividends give you flexibility. If you drip them today, it means you want capital appreciation. At any point in the future, you can stop dripping to get income streams, instead.


If you are reinvesting into the same company, aren't you saying the company can grow the money better than you can with alternative investments? Therefore, in your personal opinion, they shouldn't be paying the dividend. They should be reinvesting it anyway so you just send it back to them.

If you want income, what's the difference if you just sell some stock to get the income or take the dividend (putting taxes aside). If the total return is 10% annualized, what's the difference whether it's from dividends or capital gains or both?

See... I'm really trying to make people answer for their logic. I know, it's really challenging. I'm terrible at explaining myself more times than not.



cldellow said:


> (2) might be a natural result of (3) - the average Jo(e) wants to invest at most $5,000 at a go, hence the ceiling, and wants to avoid penny stocks, hence the floor.


I can understand the floor, but why stop at $50 share prices? Why not just by one stock of the $5000 stock? No body will fault you for not buying 100 shares of BRK.A.


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## donald (Apr 18, 2011)

1)It would be the same question why a landloard buys more income property-Why does a owner(private business) hire more employee's-How else are you suppose to build a ''system''?The game is easier by buying dividend payer's.(cash flow to spend for more cash flow)
It's the system(something you can duplicate)It also keeps greed/speculation/over reaching ect @ bay and it has less swings in market corrections.Slower/safer(on average/on a whole)Proven?Id say.
It's not quick riches and that is why it works imo.
I look @ bloggers that employ the dividend strategy and as far as i can tell it works-ie:frugal trader/my own advisor ect-It's a buffet/munger approach---i like playing the odds.
Id rather hold proter and gamble/coke/ibm/cheveron----rbc/enb/t/bce ect ect then mess with small caps or hot stocks.
It's about building a mouse trap?no.....plus you can(to some degree)spend your days ''free" building your other wealth ie:day job/business ect and not have to spend your whole day and energy watching a netflix type stock ect
I'm still learning though and i do see other methods working but this is the safest for people with day jobs/other area's they are in making $$


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## GoldStone (Mar 6, 2011)

1) DRIPs are overrated and overhyped. No question about it. Dividends are not. If anything, they are underappreciated.

I read this blog post the other day. It provides a good reminder why dividends are important:

If I were a dividend, I'd fire my press agent. I'd be jealous and feel neglected because stock prices get a lot more attention than they deserve. The only time dividends make headlines is when they get reduced, because dividend cuts (or omissions) often go hand in hand with stock price declines. The stock is a victim; the dividend is the bad guy.

But if I were a dividend, I'd be more upset because I never get the credit I deserve. *Over the past century dividends delivered close to half of all stock market returns.* Think about that. If you were fortunate to be alive for the past 100 years and had your money invested in the stock market, half of your returns would have come from dividends.

However, the above statement needs an important clarification: It sometimes takes decades for investors in broad stock market indexes to obtain "average" returns. Historically, the stock market has gone through exciting phases of above-average returns (secular bull markets), which were usually followed by less satisfying phases of below-average returns (secular sideways markets), each lasting about a decade and a half.

I have written about why my research leads me to believe we are in a long-lasting sideways market. *During the past three sideways markets, dividends were responsible for more than 90 percent of stock market returns.*​


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## GoldStone (Mar 6, 2011)

3) Old habits die hard, I guess. Odd lots used to be less liquid than even lots. This is no longer true. Stock exchanges evolved their market making rules to facilitate trading in odd lots, to help small retail investors.


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## Eclectic12 (Oct 20, 2010)

jcgd said:


> I have lots of questions, some of which may seem rhetorical but are honestly not, and I want to ask for your individual opinions.


Some will be opinions and some will have a basis in fact ... here goes ...



jcgd said:


> 1) Why do individuals only invest in companies that pay dividends, and then drip the dividends? Doesn't this say that you'd rather the company not pay the dividend?


Some use the history of paying/increasing dividends as a measure of a successful, long term company. So they will buy based on this but may not want/need the dividends at the moment. Hence they will roll the dividends back into more stock.

Others just like the automatic purchases as they would otherwise have to figure out how to save up/invest odd amounts and spend time on.




jcgd said:


> 2) Why would an investor limit their purchases to criteria such as stock prices between $5-50?


Some are learning and are intimidate by a $700 per share. Some figure that based on what they have to invest monthly/quarterly etc., a limited share price range will keep the number of shares (and/or commissions per share) at reasonable level to avoid situations such 7 shares, which may not be that easy to sell.




jcgd said:


> 3) Why would an investor limit their purchases to even lots, generally 100 of any given stock purchase (I've heard of it, but never actually seen it)?


In the past, some brokers charged extra fees for odd lots. Then too, if one buys thirty shares, the shares have to move a bigger amount to pay back the commission (especially when commissions were $100+).
http://www.businessknowledgesource.com/investing/_what_is_an_oddlot_order_027253.html
http://www.investorbrain.com/index.php/logicalblocks/comments/odd_lot_trades_generate_controversy/




jcgd said:


> 4) Why do YOU like or dislike, or are indifferent to stock splits?


Where the return is the same, I'd prefer no split as this cuts down on the adjusted cost base calculations. 

Where it might impact how many people consider buying, I don't mind the work so much. 

For example, when looking at a six year run for a stock, would one think that $38 after split share price has room to grow compared to a no split price of $152? How many of the question #2 people would look at the split price versus skip the no split price?


Now to add to the list:

7) Why do so many focus on their favourite way of making money to the point of telling others "dividend investing is crap", "capital gains only is crap", "stock picking is a mugs game" < insert investing theme of choice here> ? If one is making money consistently, why do others care?

8) Related to number 7 - Why are lifestyle & limits ignored/dismissed? For example, a momentum trader can dismiss the "I'm stuck in meetings for three hours so buying on momentum five minutes before the meeting doesn't work". Or a buy for the long term type can assume a trader does not have a long term position.


Cheers


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## jcgd (Oct 30, 2011)

Hey Donald. I somewhat agree with you. I agree that hot stocks and such are dangerous, but I disagree strongly about the similarities between Buffett/Munger and the dividend bloggers such as Frugal trader, MOA, Dividend Ninja, Passive Income earner, The Dividend Guy and more. In my opinion, that strategies aren't even really similar and they have completely different mantras. If you study the situations of many of these famous investors, the strategies are very different. For example, some people are adding to Coke today. Buffett would never add to Coke today, there is no discount. To buy Coke today isn't investing like Buffett, nor is buying American Express, or many of his big positions. You could come close to his style if you bought Wells Fargo today, but even then you are still paying a huge premium over what he paid. It's important to understand that the only reason he bought these great businesses with wide moats is because he got a smoking deal on them. He'd never pain 19x earning for coke. If you are willing to buy coke today, I believe you are saying that you invest quite differently than Buffett. You clearly aren't a value investors. Value investors don't buy good companies and fair valuations, it's a sure fire way to be mediocre. 

The dividend strategy typically works well because it essentially tricks you into being a value investor. Often as good companies get beaten down in valuation the dividend yield rises and attracts dividend investors. It's somewhat a style of value investing. My fear is that people are misunderstanding why they are succeeding, investing for the dividend when they are really investing for value. They are the same, yet different. But hey, if it works, it works.

Going out today and buying fairly valued companies, dripping and forgetting them won't likely make you any excess returns. You won't get rich slowly, or quickly, you'll get rich at the rate you get rich. It's nothing special if you get rich at the rate any old person could get rich, or if you could get rich in the same amount of time just indexing.

The fantastic part about being a great investor is that you really DO get rich quickly, rather than the rate at which the index would make you rich. I'm not talking about getting rich overnight by chasing a hot stock, but if you are not going to get rich more quickly than if you weren't putting all this effort in, then there is no point. You don't put effort into getting rich slowly. You put effort into getting rich LESS slowly. 

My opinion is that getting rich quickly is the fastest method by which you can get rich and actually repeat the process. Getting lucky on AOL doesn't count, unless you can use the same method and get the same result time and time again. Also, getting rich making 2% a year over your entire life is completely unacceptable. Going off history, that would be a complete failure. So would simply making the market return after a lifetime of study and practising investing unless your sole reason for doing so it the enjoyment of the activity.


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## Eclectic12 (Oct 20, 2010)

jcgd said:


> If you want income, what's the difference if you just sell some stock to get the income or take the dividend (putting taxes aside). If the total return is 10% annualized, what's the difference whether it's from dividends or capital gains or both?


Where one gets the income from selling, taxes aside - there's the commission to pay, that portion of the stock is gone and presumably the income is spent on something other than investments.

Where one gets the income from dividends or cash distributions - there's no commission, the number of shares/units has stayed the same and unless the underlying business has changed - the same income will be paid next year, the year after and maybe the year after that the dividends/distributions will be increased. (Bearing in mind that taxes are aside.)


To use an imperfect analogy - does one prefer making the same money selling off the contents of a home or renting a room out?




jcgd said:


> I can understand the floor, but why stop at $50 share prices? Why not just by one stock of the $5000 stock? No body will fault you for not buying 100 shares of BRK.A.


Where one is saving $50 a month to invest - that's a little over eight years to buy that one share at $5K, assuming prices haven't fluctuated. Where one can save $1k a month, it's a different ball game.


Cheers


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## jcgd (Oct 30, 2011)

Eclectic, you make some excellent points. Having only been investing (or speculating, maybe) for three years I have never seen what it was like in the days of less liquidity and high commissions. Those reasons didn't even occur to me. I'm so used to my $5 commissions I don't even think about them.

7. I think it's just human nature. Obviously my life is better than yours, or my car is better than yours, or yadda yadda. Really, if you agree with the next person completely you would be doing what they are doing. Some people have to point it out to cause pain. But some of us, such as in this thread, are doing as to encourage learning and discussion. Being the Devil's advocate can really help to explore or even change/add to your opinion. I think a healthy amount of comparison is a good thing. It's especially important when people are misunderstanding why they are doing something. To appreciate dividends is one thing. But to not realize where they come from and how they affect the business is important as well. I'm just using dividends as an example, but hopefully I'm making my point.

8. Good points, I just don't have much to say here.


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## donald (Apr 18, 2011)

Ya but i'm talking about dividend investing as a whole(your going into a sub section of dividends ie:vaule investing ect)
I plunged in american dividend stocks in mid 2011(six figure sums)-I thought that american dividend stocks were cheap than(and i was right looking back)I have a base on my payers now.
When i plunged-there was alot of fear(even in cfm)even humble pie was mocking me(i remember her saying ****) and belguy was in full gear(notice he aint around anymore?)I remember how scared everybody was---buying 2 yrs ago looks good now-I basically bought the dow then.

I would'nt plunge now.Isnt it wierd now everybody is gung-ho on american companies now----Get rich using the dividend income instead of dripping after you have a base.


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## jcgd (Oct 30, 2011)

Eclectic12 said:


> Where one gets the income from selling, taxes aside - there's the commission to pay, that portion of the stock is gone and presumably the income is spent on something other than investments.
> 
> Where one gets the income from dividends or cash distributions - there's no commission, the number of shares/units has stayed the same and unless the underlying business has changed - the same income will be paid next year, the year after and maybe the year after that the dividends/distributions will be increased. (Bearing in mind that taxes are aside.)
> 
> ...


Eclectic, just thought I'd add that I really respect and appreciate your contributions to this forum. You seemed to be very knowledgable and I find the way you lay out your thoughts make you easy to understand and learn from.

Enough sucking up... I kind of like the house analogy. Commissions is another reason I didn't consider, but in this day and age, I'm not sure how much of a drag the commission would be.

In the case that you only have so much money I can't see why you need to limit yourself to, say, a $50 stock, but I can understand if your limit was the amount you had to invest at the moment. But if that is what we are worried about than it might be an idea for all stocks to split or reverse split to keep all stock prices at a nice number like $30. It would also make the Dow a much more relevant index!


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## Sampson (Apr 3, 2009)

1) Dunno why - I look for potential for total return, that said, my portfolio is full of classic dividend payers and growers, I find it easier to analyze some of these stocks over others - large cap, stable earnings etc.

Re: dripping - it makes sense in the accumulation phase to reduce the psychological barriers people have to invest when markets are severely down. Anyone dripping during 2009 probably didn't add much new money in, but I bet they didn't run off their DRIP. This meant reinvesting on a value-basis - good for total returns in my books.

2) Dunno - psychological barrier. I think when people have relatively small portfolios and the value of diversification has been bombarded into us, then it makes sense to avoid stocks with extremely high nominal value.

3) Dunno?

4) Like. Returns value to the shareholder. When I analyze a company, I'm interested in EPS, the "PS" part is significant. Only looking at top or bottom line without consideration of new stock issuance (or buybacks) is foolish. A company could be growing, but my part of that company could be diluted. Share buybacks are the opposite of this.

5) So many aspects. From a pure equity valuation standpoint and in terms of portfolio construction, I consider the classic standard deviation as risk. Now the confusion begins when people discuss how to handle risk. It can be reduced by choosing different asset allocations, it can be transferred via insurance or annuity type products, it can be mitigated by simple decisions like entry point.

6) Relevance? None. Is a measurbating tactic. I only care if I'm richer at the end of the day.


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## Sampson (Apr 3, 2009)

Terrific thread idea BTW, but I'm sure it will be a verbose one.


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## jcgd (Oct 30, 2011)

@ Donald,

I think I'm misunderstanding you or you are misunderstanding me. It's simply my opinion that dividend investing works (as a whole) because you inadvertently invest in value stocks by finding attractive attributes in the dividend stocks. I'm saying that successful dividend investing is a subsection of value investing. It's like a niche of value investing. It's just my opinion, hard to prove.

Successful investing is earning abnormally high returns. Simply investing in dividend companies won't make you abnormal returns, there is something about the method that some dividend investors employ - that result in the market beating returns.


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## jcgd (Oct 30, 2011)

Sampson said:


> Terrific thread idea BTW, but I'm sure it will be a verbose one.


I had to google verbose. :stupid:

ver·bose 
/vərˈbōs/
Adjective
Using or expressed in more words than are needed.
Synonyms
wordy - prolix - voluble - loquacious - garrulous


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## jcgd (Oct 30, 2011)

@ Sampson

1. I totally agree. Even though dividend yield has little importance to me, most of my stocks pay dividends. The yields are all over the place, though yield when I buy is generally higher than it typically is for the given stock. Hence my thoughts about dividend investors being a subset of value investors.

4. I agree on those points. I believe in buy backs for what they are. I like shares outstanding to decrease when the company is trading at a low valuation. I don't like dilution.

5. I am not able to comment on risk yet. I haven't formed an opinion quite yet. It's a hard thing to wrap your head around.

6. I agree.


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## donald (Apr 18, 2011)

I don't know how my dividend investing will pan out going foward.I do know i feel WAY better know that i have a base---I think plunging @ a good time helps though.I did'nt drip.i bought heavy--now i'm dripping.

The stock market is my #2 though-My #1 is my construction business---stocks/investing is secondary,even living frugal might be #2 and investing #3


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## Nemo2 (Mar 1, 2012)

jcgd said:


> I had to google verbose. :stupid:
> 
> ver·bose
> /vərˈbōs/
> ...


Not to mention circumlocutory. :wink:


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## andrewf (Mar 1, 2010)

Eclectic12 said:


> Now to add to the list:
> 
> 7) Why do so many focus on their favourite way of making money to the point of telling others "dividend investing is crap", "capital gains only is crap", "stock picking is a mugs game" < insert investing theme of choice here> ? If one is making money consistently, why do others care?
> 
> ...


7) I've been accused of this before. I guess my perspective is that dividend investing, stock picking etc. can get you into trouble. On average, it's not likely to lead to excess returns, and it takes more time than basic passive index investing.

I get concerned when people obsess over yield and don't care about total return. To say that stock picking is a mugs game does not mean it's terrible. It just is unlikely to lead to excess returns. If you don't run up significant trading costs (commissions, spreads, taxes) and invest in a well diversified way (don't load up on bank stocks because they pay fat dividends), I'm sure you can get pretty close to market returns over the long term.

8) This kind of raises the question of why people think day trading is a viable career. If making money at trading was just a matter of dedicating time to it, wouldn't the big traders scoop up all the dollar bills lying around, particularly with algorithmic trading constantly on the look out for said dollar bills? I've never seen a proper study of day trading returns, but my guess is that after you control for risk, day traders don't make any more money than someone who invests in the market long term and does something productive with their day.


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## GoldStone (Mar 6, 2011)

andrewf said:


> I've never seen a proper study of day trading returns


Take a look at Terrance Odean's papers. You may find some data there.
http://faculty.haas.berkeley.edu/odean/

This one is a classic. It's about active trading, not day trading specifically. Close enough in my books. 
http://faculty.haas.berkeley.edu/od...ons/Individual_Investor_Performance_Final.pdf


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## andrewf (Mar 1, 2010)

So based on that, is there any reason people should think day trading is a value added activity? You'd be better off reading a book, as far as I can tell.


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## donald (Apr 18, 2011)

One big difference between investors and trader's(what ive read-speaking of pro's and likely lifetime amateur trader's)Is it seems trader's do not trade for the money(more about the game,a natural bent towards the puzzle)
If you have ever read up on successful trader's they all have one thing in common and it's they all go bust/get up again/go bust ect.(and it does'nt bother them)
Ive read market wizard's/livermore ect ect and it is never about the $(it seems)They just like the game(win or lose).....it's like the bank robber that robs banks for the chase.
I guess the vaule to trading would be learning what one does wrong over and over again-and learning from the mistakes.


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## jcgd (Oct 30, 2011)

donald said:


> I guess the vaule to trading would be learning what one does wrong over and over again-and learning from the mistakes.


My issue with trading is that I can't see how there are definable mistakes to learn. I would think day trading would be mostly random and luck based over the long haul. This isn't to say I don't believe in technical analysis. I don't know whether it works or not, but I would think it would work. I think technical analysis is pretty much self fulfilling. I could see the existence of patterns that result from human nature affecting the market, but I would think they would be weak at best. I makes sense that more people trading on TA would make the patterns stronger. I don't think the likelihood of the average Joe having good results are great, but I can see the algos being very good at exploiting patterns, and every other bit of noise that appears in the market. 

All in all though I believe indexing is the best default and I think a value strategy is a legitimate option for people who want to try at it. I don't think it comes free, but I think that there is a good chance of being successful if you have or develop the temperament to stick to a strategy, are reasonably intelligent and put in some hard work. 

Value investing seems to be pretty obvious to me. Buy companies cheap or on sale. I accept that it is easier said than done but I think you can learn how to invest with experience.


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## lonewolf (Jun 12, 2012)

# 8 A short term or medium term trader might hold a position short term or medium term but have a long term position in thier method i.e., Based on certain parameters an investor buys or sells the stock, etf,or whatever which based on black & white parameters & even though the stock might be held for a short time the method s used over a long time period.

short term, medium term, long term most likely mean a differnt time length to most investors.

Maybe a standard should be set, short term could be 25% or less of an investors life expectancy (or remaining life expectancy), medium term 25%-75% of life expectancy, long term maybe 75% or more of life expectancy.


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## lonewolf (Jun 12, 2012)

#5 definition of risk
If math when used properly is the most exact langauge for understanding concepts & thier exact meaning i.e., 1+1=2 not 1.1 or 1.2

If I put a differnt meaning into a word then you & try to cultivate understanding of a concept that I understand you will most likely not understand if we both have a differnt meaning of a word.

With the use of math to come to the same conclusion we must put the exact same meaning into each number & use multiplying, division, adding, subtracting or what ever to mean the same.

The best way to define risk of an investment would it not be best to use the most exact language which is that of not words but of math.


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## Eclectic12 (Oct 20, 2010)

jcgd said:


> 7. I think it's just human nature.
> Obviously my life is better than yours, or my car is better than yours, or yadda yadda... But some of us, such as in this thread, are doing as to encourage learning and discussion...


Hmmm ... I don't think I worded this strongly enough. 

Conversation, exploring other methods and debate are fine. What I meant was more where the discussion has degenerated into "I know my method is the best and that you are lying about your returns so just quit being silly".




jcgd said:


> Eclectic, just thought I'd add that I really respect and appreciate your contributions to this forum.


Thanks. Though as usual, make sure you check everything out - I've been know to make mistakes once in awhile, assume things or misunderstand. :biggrin:




jcgd said:


> ... I kind of like the house analogy. Commissions is another reason I didn't consider, but in this day and age, I'm not sure how much of a drag the commission would be.


Do you want the $1 Big Mac or the free one?
The point is that if everything else is equal - the drag no matter how small and the shrinking supply to sell is automatically going to mean less one's pocket.

Of course on the markets - it's rarely two exact equals to choose from.




jcgd said:


> In the case that you only have so much money I can't see why you need to limit yourself to, say, a $50 stock, but I can understand if your limit was the amount you had to invest at the moment.


Part of the equation is about spreading the transaction costs. 

If one buys one share at $500 with a $5 commission - when sold, there's a $10 rise in share price needed to break even. For the same $500, twenty shares @ $25 only needs a $0.50 rise to break even.




jcgd said:


> But if that is what we are worried about than it might be an idea for all stocks to split or reverse split to keep all stock prices at a nice number like $30.


In case it wasn't clear - the companies that care, already do splits to keep their stock in the target range. They just don't all think they stock should be in $30 range.
Those that don't care, don't do splits (how about $156K per share?).


Reverse splits on the other hand are avoided as much as possible. They are seen an indication of a changed business and/or bungling management (it's hard to claim the company is growing while cutting back on the number of shares). So these are more likely to happen when the company is afraid of being delisted from the exchange(s) they want to be traded on.


Cheers


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## jcgd (Oct 30, 2011)

GoldStone said:


> 1) DRIPs are overrated and overhyped. No question about it. Dividends are not. If anything, they are underappreciated.
> 
> I read this blog post the other day. It provides a good reminder why dividends are important:
> 
> ...


This is all nice but what were the returns of the market if no dividend was ever paid? Unfortunately this can never be known because it didn't happen. We only have one view of hindsight, and we can only analyse one market history. We don't know what the result would have been if the dividends were never paid. Maybe the total return would be the same, maybe it would be much worse. Maybe it would be better. We know the dividends don't come from nowhere, so we can't just deduct the dividend return from the total return and say that those returns are 100% due to the dividends paid out. If that money stayed in the business something would have been done with it. It would have affect the total return in some way, maybe good, maybe bad. I won't even hazard a guess. That money may have been squandered, or maybe it would have added to the return, who knows? Dividends are what they are. They aren't a free lunch.


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## lonewolf (Jun 12, 2012)

For safe secure income I buy GICs
Dividends are not needed for prices to rally higher on something that is traded. Tullips never paid a dividend


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> 7) I've been accused of this before.
> 
> I guess my perspective is that dividend investing, stock picking etc. can get you into trouble. On average, it's not likely to lead to excess returns, and it takes more time than basic passive index investing.


Maybe ... or maybe not. 

In any case, I don't think I worded it strongly enough. Where there's discussion, exchange of views or learning - no problem. 

What I'm referring to is more along the lines of "my post is right while your post is lies so quite being obnoxious agree with me".




andrewf said:


> 8) This kind of raises the question of why people think day trading is a viable career.


I think you've raised #9.

My point was that everyone is working from a different knowledge level, amount of cash for investing, available time and access to the markets. They can also have widely varying goals. Yet some will comment as everyone has had the same training, is sitting in front of the same equipment, has the same time available to them and has the same goals.

Cheers


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## GoldStone (Mar 6, 2011)

jcgd said:


> This is all nice but what were the returns of the market if no dividend was ever paid? Unfortunately this can never be known because it didn't happen. We only have one view of hindsight, and we can only analyse one market history. We don't know what the result would have been if the dividends were never paid.


I fail to see your point. We live in a real world. Many companies choose to pay dividends. You can't wave a magic wand and stop it. What's the point of talking about imaginary world where 100% of companies reinvest 100% of earnings 100% of the time.

Think about this:



> *During the past three sideways markets, dividends were responsible for more than 90 percent of stock market returns.*


The total stock market includes two groups of companies: those that pay dividends and those that don't. During last 3 sideway markets, dividends accounted for 90% of total market returns. It means that, during last 3 sideway markets, all dividend payers (as a group) outperformed all non-payers (as a group) by a wide, wide margin. It's a simple arithmetic.


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## jcgd (Oct 30, 2011)

Eclectic12 said:


> Maybe ... or maybe not.
> 
> In any case, I don't think I worded it strongly enough. Where there's discussion, exchange of views or learning - no problem.
> 
> ...


I don't know what you want me/us to say. Am I the poster you are referring to, or is Andrew, or is it just a general question? If I'm not the person doing it I don't have an answer and if I am the poster in question I still don't have an answer because I'm not aware I do it and I don't mean to if I do.

Sorry, but I can't tell from your post if you are being sincere or picking a fight.


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## lonewolf (Jun 12, 2012)

My point was that everyone is working from a different knowledge level, amount of cash for investing, available time and access to the markets. They can also have widely varying goals. Yet some will comment as everyone has had the same training, is sitting in front of the same equipment, has the same time available to them and has the same goals.

Cheers[/QUOTE]

Electric12

You nailed it, Through experience everyone has differnt knowledge & understanding.

Perhaps this is one of the biggest reason why a successfull method for one investor wont work for another investor. 

If investor x trys to use investors y stratagy & does not understand that which investor y was thinking concerning thier investing stratagy. Emotions will cause investor x to trade based on thier understanding i.e., If Iam standing in the middle of the road & a car is traveling @ breakneck speeds in my direction & about to hit me fear will cause me to jump out of the way if my understanding, the car hits me it will put @ risk that which I value (life). Even if someone tells me the car wont hurt me my understanding of the situation will cause me to get out of harms way. (if i dont understand & think Iam sperman & can get run over by the car & not put my life in danger I wont jump out of the way.)

Independent thinking based on ones knowledge & understanding is the best way to play the market & or decide if one should even play the market. (To the best of ones ability try to make certain you understand that which your thinking or you might think your superman)


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## jcgd (Oct 30, 2011)

GoldStone said:


> I fail to see your point. We live in a real world. Many companies choose to pay dividends. You can't wave a magic wand and stop it. What's the point of talking about imaginary world where 100% of companies reinvest 100% of earnings 100% of the time.
> 
> Think about this:
> 
> ...


We jeez, now I'm not sure what I'm trying to say.

Okay, so the guy is saying dividends are wonderful because 90% of the return during a sideways market were dividends. I'm saying that if those companies didn't pay the dividends the companies would had different total returns. And same for the non dividend payers who would have had different total returns if they paid out dividends.

Say some company has a 35 year annualized return of 10%. We don't care what the return was during years 7-22 which were a sideways market, we care that it was 10% annualized over our holding period of 35 years. If that company had kept those dividends inside the company, that equity would have earned some rate of return, possibly lower or higher than it did after it was paid out to the investor. Therefore the total return of the company could have decreased from the actual, or increased from the actual total return. We don't know what the alternative would have been so we don't know that paying out the dividends was the best option.

Dividends add value if the company can't make a good return on the money and hinders the return if they could put it to better use but are paying it out just for the sake of paying a dividend. I'm not saying dividends are good or bad (I like 'em in general) I'm just saying they are what they are. A return of cash to the owner. What matters is where that money would be better used.

The only other argument I can see on my side requires the results of the bull and bear markets. Do dividend payers outperform always or overall? I don't know so I can't really argue it, but if dividend payers don't outperform all the time I would have to know when the sideways markets would take place so I could time when to get my dividends vs my capital appreciation during bull markets. Since I have no clue when to do that I figure total return is the next best option.


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## jcgd (Oct 30, 2011)

Just another thought... you can say that MCD had an annualized return of 19% when paying dividend while a competitor didn't pay a dividend and only returned 17% annualized but we can't say that MCD returned 17% if it didn't pay dividends. We don't know what the total return might have been so we can't assume we got the best annualized return possible. We don't know the alternative.

The dividend should be paid when it creates more value you and not paid when it destroys value. This can or may be what is taking place with a given company, but may not be the case. Same thing with buy backs. Some create huge value while others are completely wasteful.


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## CanadianCapitalist (Mar 31, 2009)

GoldStone said:


> The total stock market includes two groups of companies: those that pay dividends and those that don't. During last 3 sideway markets, dividends accounted for 90% of total market returns. It means that, during last 3 sideway markets, all dividend payers (as a group) outperformed all non-payers (as a group) by a wide, wide margin. It's a simple arithmetic.


No it doesn't. Simply that dividends accounted for the bulk of the total returns. It says nothing about what the total returns were for dividend payers and non-payers were. For all you know, the total returns may have been 5%, 4.5% of which were in the form of dividends for dividend payers and 5% for non-payers assuming equal capitalization for both.

In my opinion, dividends don't matter. At all. Only earnings and its growth matters. One can always fake a dividend by selling a portion of shares. 

Dividends are just one component of total returns. If it is taken away, a portion of total return is taken away and so it is going to be less. This should be no surprise because it is like saying 4 percent return produces just a quarter of the value of a 7 percent return over 50 years.


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## jcgd (Oct 30, 2011)

And what I'm saying is you can't compare the results of a company that paid dividends to the results of what that same company if it HADN'T paid dividends. You cannot calculate it by simply subtracting the return attributed dividends from the total return because that dividend money would have stayed in the company and earned a return. And we dont know what return that money would have earned if it hypothetically stayed inside the company. It's no going to earn 0 as if the dividend was paid out of thin air, and it not going to earn the same return that the company earned with those dividends paid out.


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## none (Jan 15, 2013)

I like this answer.



CanadianCapitalist said:


> No it doesn't. Simply that dividends accounted for the bulk of the total returns. It says nothing about what the total returns were for dividend payers and non-payers were. For all you know, the total returns may have been 5%, 4.5% of which were in the form of dividends for dividend payers and 5% for non-payers assuming equal capitalization for both.
> 
> In my opinion, dividends don't matter. At all. Only earnings and its growth matters. One can always fake a dividend by selling a portion of shares.
> 
> Dividends are just one component of total returns. If it is taken away, a portion of total return is taken away and so it is going to be less. This should be no surprise because it is like saying 4 percent return produces just a quarter of the value of a 7 percent return over 50 years.


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## dogcom (May 23, 2009)

I never drip and leave the cash in the account to buy what I want.

I believe dividends are more important for companies that are big and have less room to grow so the money is best put to the share holders. Large gold companies making big cash should give more to shareholders even though I know they need to constantly grow their pipeline. Instead they keep buying companies that require huge costs to run just to up that pipeline when they should be finding better creative ways to do so or if not keep giving more cash to shareholders.


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## Eclectic12 (Oct 20, 2010)

jcgd said:


> I don't know what you want me/us to say.


I'm looking for people to agree, give their theory as to why it goes that way sometimes or argue that it never happens. 




jcgd said:


> Am I the poster you are referring to, or is Andrew, or is it just a general question?
> 
> If I'm not the person doing it I don't have an answer and if I am the poster in question I still don't have an answer because I'm not aware I do it and I don't mean to if I do.
> 
> Sorry, but I can't tell from your post if you are being sincere or picking a fight.


I'm not sure why it would be taken as anything other than a general question. Question #1 is phrased in a similar way but there doesn't seem to be an idea it refers to specific people.

I'm just trying to figure out why some keep at trying to convince others their method is best, where the details have been talked through at length. There's no more learning happening so that it's clearly a "let's agree to disagree instead of repeating the same info". There's usually at best a comment about "you aren't listening".


Cheers


*Edit:* In what way could I be picking a fight? 

As near as I can tell - I've pointed out that the responses so far to #7 have concentrated on the mild version (i.e. learning or discussion) where I'm wondering more about the extreme version (i.e. discussion has dropped the info piece and turned to insults).


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## jcgd (Oct 30, 2011)

Fair enough, I just didn't understand before is all. It's not you, it's me who's mistaken.


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## lonewolf (Jun 12, 2012)

The use of the word "dividend" seams to becoming more popular, just like the words "internet stocks" became more popular through the 1990s. This is just my view & not based on research to get the exact number of times the words have been used on the internet.

When everyone focuses on one type of investment & has all thier money down where will the new money come from. Creative ways to leverage & or borrow money can be used to build a house of cards & it is hard to tell how far it will be taken.

A pyrimid scheme can pay big dividends to those that get in early but @ some point getting in does not pay well & eventualy those that are invested lose money. The arcitects of the scheme & perhaps a few investors that take the money & run make out okay unless they end up in jail.


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## GoldStone (Mar 6, 2011)

CanadianCapitalist said:


> No it doesn't. Simply that dividends accounted for the bulk of the total returns. It says nothing about what the total returns were for dividend payers and non-payers were. For all you know, the total returns may have been 5%, 4.5% of which were in the form of dividends for dividend payers and 5% for non-payers assuming equal capitalization for both.


5% real return is not a sideway market.

Once again, the statement was:



> During the past three sideways markets, dividends were responsible for more than 90 percent of stock market returns.


In the sideway markets, the total market moves up and down but the average over time is close to zero. You have the following ways to earn decent returns:

1. Market-time up and down moves of the total market. Very hard to do, even for the pros.

2. Trade individual stocks based on fundamentals or/and technicals. Hard to do for the individual investors with the full-time day jobs and families.

3. Focus on dividends. If you are buy-and-hold individual investor and the price return is close to zero (this is true by definition in the sideway market), dividends is all you get.

The reason I'm focused on the sideway markets? Life is easy in the bull markets. Rising tide lifts all boats. You automatically earn a good rate of return if you stay in the market and is reasonably diversified. No need to do anything special. By contrast, earning a decent rate of return in the sideway markets is very hard.


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## andrewf (Mar 1, 2010)

Just because the dividend flow of the market was equal to 90% of the return of the market does not mean dividend paying stocks accounted for 90% of the return. Why? Because total returns can be negative. Ie, dividend stocks can have capital losses more than offset their dividend yield (falling P/Es). Non-dividend paying stocks could potentially have higher total return than dividend paying stocks, even if the net total stock market return is primarily from dividends.

So, while it is true that stock market returns at times came overwhelmingly from dividends on a net basis, it says nothing useful about owning a subset of the market. You need a more nuanced analysis to draw any useful conclusion.


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## Toronto.gal (Jan 8, 2010)

Eclectic12 said:


> 1. I'm just trying to figure out why some keep at trying to convince others their method is best, where the details have been talked through at length. *There's no more learning happening so that it's clearly a "let's agree to disagree instead of repeating the same info". There's usually at best a comment about "you aren't listening".*
> 
> 2. In what way could I be *picking a fight?*


*Jcgd:* I must say you chose the perfect title ['controversial..'] to open people's curiosity/interest & it worked. Already verbose & tautological indeed, but kudos for wanting to learn & understand better!

*1.* That's exactly it, and the very reason why I will not be participating here after this post. There have been enough arguments & plenty of insults even [not yet on this new thread I don't think], and for what? Some people here love nothing more than argue [not debate], and lack total respect & appreciation for the help/opinion some offer with nothing but good intentions. I respectfully disagree with many, but it would never occur to me to tell them that what they write is 'nonsense', or that people should 'not be paying attention to what x member is writing', etc. etc. 

Eclectic, you also correctly pointed out, that some forget that indeed *'everyone is working from a different knowledge level, amount of cash for investing, available time and access to the markets with widely varying goals.'* That was the best post for without this understanding, it's pointless to debate.

*2.* Never! You're one of the nicest & most helpful members here! I have learned quite a bit from your clear & generous long explanations, so thank you!


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## kcowan (Jul 1, 2010)

Good thread. Like TG, I am on the sidelines reading. Every investing approach has arguments for and against. Every approach that we have selected can become a defensive position to justify our selection. I think the extreme case is belguy who repeatedly states his approach and derides any nay-sayers. Such behaviour adds nothing to the richness of these forums.

The simplest example is dividend returns in a sideways market. Try to draw a conclusion but be prepared for a debate. As Eclectic says, no approach can be explained without knowing your history and current position on investing. Everyone else will be arriving here with a different history.


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## Sampson (Apr 3, 2009)

GoldStone said:


> During the past three sideways markets, dividends were responsible for more than 90 percent of stock market returns.


What about in falling or rising markets?

While I think it is certainly not for granted that dividend paying stocks outperform in a sideways market - let me follow that assumption. What proportion of the time are equity markets moving sideways? And in the other scenarios, does the outperformance continue?

Also, when the value premium is removed from the equation, do dividend paying stocks still outperform?

I don't see any dividend investor bashers, but dividend investing caveat 'pointer-outers' (sorry, only one cup of coffee this morn').

While looking for dividend paying companies focusing on those that consistent pay and grow dividends, and while they are paying historically high yields is an easy way for most investors to seek out value, there are so many potential pitfalls if one focuses solely on this strategy. I believe this is what everyone is trying to point out. Plenty of blog posts out there already that list caveats to dividend investing, perhaps it's time for the forum hosts to prepare another


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## andrewf (Mar 1, 2010)

^ Yeah. I really don't see anyone on this forum who is 'anti-dividend'. Just those who question whether dividends are a superior form of return.


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## GoldStone (Mar 6, 2011)

^ Sure. Dividends are not a superior form of return. They are an important part of the total return.


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## gibor365 (Apr 1, 2011)

GoldStone said:


> ^ Sure. Dividends are not a superior form of return. They are an important part of the total return.


For me dividends are major and very important form of return... for very knowlegdable guys like HP - it may be options....


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## Four Pillars (Apr 5, 2009)

All I know about this is that one of these days I'm going to write a book about dividend investing.

Give the people what they want....


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## Eclectic12 (Oct 20, 2010)

jcgd said:


> Fair enough, I just didn't understand before is all. It's not you, it's me who's mistaken.


No problem.

Now that there's been clarification and some side info, I'll comment on *what I think (or have noticed) for #7*.

Because people have made money with their favourite way, they start commenting to educate or get others thinking about "their" way etc. At some point, they lose sight of the education/discussion, feel their points are being ignored (made worse by the lack of non-verbal signals in a forum such as this) and their emotions kick in to the point of the comments. Especially where they have a cherished "proof" that others don't accept carte blanche. 

Since they are now trying to "win", instead of acknowledging anything learned, new to consider, that there's info but no agreement - frustration at the lack of dialogue results harsh statements.


*For 8),* it seems to be an attitude that anything less than the best return (which their method provides) is seen a failure. 

The problem with this idea, IMO is that it assumes everyone is at the same level, has the same options/goals etc. In reality - everyone is at a different place, sees different opportunities, has different goals and can commit different amounts of time. 

If one doubts this - just look at the threads where the question comes up - "when do you want/need to use the money being invested?".

Why not be happy that someone did well, with the time/knowledge they have & point out other options for the future?


*For 9) *I have no idea why many think day trading is a viable career. It reminds me of the people who think "if I own a business, customers will come and I'll be on easy street". Most successful business owners I know put in a lot of hard work building the business.


*To add 10)* What do you like most about investing? 

For me it's the variety of ways to make money when one sees opportunities (ex. shares, split shares, dividends, cash distributions, options etc. etc.). Then too, with the rise of discount brokers as well as information available at the library - it's easy to get started (except possibly saving the cash to invest :biggrin. 


Cheers


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## Sampson (Apr 3, 2009)

Eclectic's 
7) Another possible slippery slope when considering a personal investment style. No one wants to acknowledge a poor decision, but I think it is very easy for one to believe a method works based on anecdote alone. I would hesitate to guess that most investors don't even bother to calculate the returns on their total portfolio, they just focus on some cherry picked winners then say this is evidence that the strategy works. Very dangerous.


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## jcgd (Oct 30, 2011)

Toronto.gal said:


> *Jcgd:* I must say you chose the perfect title ['controversial..'] to open people's curiosity/interest & it worked. Already verbose & tautological indeed, but kudos for wanting to learn & understand better!
> 
> *1.* That's exactly it, and the very reason why I will not be participating here after this post. There have been enough arguments & plenty of insults even [not yet on this new thread I don't think], and for what? Some people here love nothing more than argue [not debate], and lack total respect & appreciation for the help/opinion some offer with nothing but good intentions. I respectfully disagree with many, but it would never occur to me to tell them that what they write is 'nonsense', or that people should 'not be paying attention to what x member is writing', etc. etc.
> 
> ...


Thanks T.Gal, I always appreciate your words. 



kcowan said:


> Good thread. Like TG, I am on the sidelines reading. Every investing approach has arguments for and against. Every approach that we have selected can become a defensive position to justify our selection. I think the extreme case is belguy who repeatedly states his approach and derides any nay-sayers. Such behaviour adds nothing to the richness of these forums.
> 
> The simplest example is dividend returns in a sideways market. Try to draw a conclusion but be prepared for a debate. As Eclectic says, no approach can be explained without knowing your history and current position on investing. Everyone else will be arriving here with a different history.


Thanks as well. Just please try to keep the discussion to debate and arguments. I'm hoping we can keep from naming names in this thread. 



Four Pillars said:


> All I know about this is that one of these days I'm going to write a book about dividend investing.
> 
> Give the people what they want....


I like the way you think!



Sampson said:


> Eclectic's
> 7) Another possible slippery slope when considering a personal investment style. No one wants to acknowledge a poor decision, but I think it is very easy for one to believe a method works based on anecdote alone. I would hesitate to guess that most investors don't even bother to calculate the returns on their total portfolio, they just focus on some cherry picked winners then say this is evidence that the strategy works. Very dangerous.


I totally agree. I look at my portfolio and see some of these nice fat returns... 30%, 45%, 55% or whatever and I feel so proud. But then I calculate my total XIRR and I'm lagging my benchmark. :hopelessness:

*I'd like to add this comment and try to have it read by all, hence the bold and large font. Please, for the respect of the forum, the thread and all the contributors here, let's please try not to name names, or even identify other posters by talking about their past actions. We have enough bickering throughout the forum and frankly, I think everyone is tiring of it. In this thread in particular, I'd like to remind people to try to aim all their comments at everyone, so that if you are saying something rude, remember that you are saying it to all of us. For this thread, if you are singling out any person, for any negative reason, consider that you are deliberately disrespecting everyone who is trying to learn and share here. By all means debate, argue and rebut, but refrain from talking down. Lay out your opinion and any facts you believe should be considered, and leave the readers to form their own opinions. It is fine to say you disagree with someone, it is not okay to belittle them.*


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## Eclectic12 (Oct 20, 2010)

Sampson said:


> Eclectic's
> 7) Another possible slippery slope when considering a personal investment style.
> 
> No one wants to acknowledge a poor decision, but I think it is very easy for one to believe a method works based on anecdote alone...


I also suspect this is true. If the poster really has tracked their method's results - it makes no sense to so quickly slide into the "I said, you said" and "believe what I say but I don't believe what you say" type vague comments.


Cheers


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## Eclectic12 (Oct 20, 2010)

Toronto.gal said:


> *Jcgd:* I must say you chose the perfect title ['controversial..'] to open people's curiosity/interest & it worked. Already verbose & tautological indeed, but kudos for wanting to learn & understand better!


It's been good to read some of the thinking and areas to consider/



Toronto.gal said:


> *1.* ... Some people here love nothing more than argue [not debate], and lack total respect & appreciation for the help/opinion some offer with nothing but good intentions. I respectfully disagree with many, but it would never occur to me to tell them that what they write is 'nonsense', or that people should 'not be paying attention to what x member is writing', etc. etc.


That's where I can see some exaggerations to underline the point but I shake my head where it's almost all exaggerations and/or attacks instead of explanations and info.




Toronto.gal said:


> *2.* Never! You're one of the nicest & most helpful members here! I have learned quite a bit from your clear & generous long explanations, so thank you!


Thanks ... I re-read it a couple of times and could see some areas I could have been clearer but nothing that looked like a fight.


Cheers


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## mrPPincer (Nov 21, 2011)

jcgd said:


> XIRR


I agree with others who have implied that any talk of returns that aren't XIRR (with cash/fixed-income included btw) should be taken with a grain of salt.
Using XIRR imho is the only way we can accurately assess how successful any particular strategy is being over any given time period without comparing apples to oranges.

That said, I think maybe you should consider modifying your benchmark.
If i recall correctly you were comparing your returns to the S&P500, and if you underperformed you were planning to shift to indexing, but if you do so, would you go 100% S&P500?

Also, some years the S&P500 is up compared to a more diversified basket, and sometimes it's down and if you aren't trading exclusively in US stocks now, is it really the right benchmark?


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## jcgd (Oct 30, 2011)

mrPPincer, you are correct. And I tend to agree with you, but here is my full, honest situation. I'd like to hear your thoughts on my situation. If it is worth anything I am comfortable right now, but I'm willing to change and/or improve it so I'm all ears.

- My networth is low enough that I don't yet have a developed asset allocation. I'm young, I rent, and typical stock purchases range from $1-2.5k.
- My group RRSP accumulates money throughout the year. I put this money in a few cheap mutual index stock and bond funds and DCA until I liquidate the account to fund my brokerage account once per year, usually around October. I considered staying in cash but I started investing in 2009, everything seemed cheap and it's been a healthy march upwards so I chose to try my best to stay invested.

- I am 100% equities or cash
- My benchmark is the S&P500
- 21.5% of my net worth is in Churchill Corporation CUQ.TO, via a share purchase plan through work.
- 16.5% of my net worth is in my TFSA with half in a US stock and the other half in two stock that I tend to trade. I need to stop that.
- 62% of my net worth is in my RRSP with a small position in BNS.TO (my first stock purchase) with the remained in USD or US equities.

-So at this moment in time I disregard my CUQ.TO position in any return calculations. I somewhat consider my company stock to be a bonus and I think it's undervalued right now relative to future prospects so I'm just dripping and holding and averaging down.

-I combine my TFSA and RRSP for my active investing return calculations, convert it all to Canadian dollars and use XIRR to get my return.
Because I'm mostly in US equities right now I simply defaulted to the SP500. My holdings aren't the same, but I'm lazy and it is an easy Benchmark to use. Also, if my portfolio did look the same I would just buy the index and be done with it. I should really set up a model couch potato index to compare to instead, or as well, but I think there are enough people doing it around here that I can get a feel for what they are making.

-I'm also so green to investing that I'm still learning constantly and my thoughts change rapidly. I think I'm slowly developing a style, and I try to stay consistent but my style is changing. Though odd as it sounds I believe as my style changes it becomes more consistent. I think you could say my style is settling down and I'm developing more discipline.


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## Jungle (Feb 17, 2010)

jcgd said:


> I have lots of questions, some of which may seem rhetorical but are honestly not, and I want to ask for your individual opinions. I'll probably add more questions to the thread as time goes on and I see things to which I think "gee, that sounds dumb" but it is important to remember that I don't know everything... maybe I hardly know anything.
> 
> So ask questions here, and fight for your opinion here. Let us try to put in substantial explanations. This is a thread to find out why you think what you think, not just to state your opinion.
> 
> ...


Maybe it was in the movies or something, before I learned of investing I thought people went downtown to trade daily in the pits then go home making a 6 figure salary. Boy was I wrong!


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## jcgd (Oct 30, 2011)

Nice post Jungle. Your note at the end gave me a chuckle.


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## mrPPincer (Nov 21, 2011)

Jcgd, for starters, you're way ahead of the game compared to where I was when I was young, you have far superior access to information today as well as the support of the online community for brainstorming concepts & ideas in investing.

I'm an indexer, but dabble a bit in stocks, mostly for my reit allocations, and I am a believer in the importance of diversification in reducing the unnecessary portion of investment risk, and in keeping trading costs and all costs down, but I won't try to convince anyone one way or another.
A stock trader or a stock picker could do very well over a long term period, but it's still hard to know how to evaluate those kind of individual returns when you throw risk and the randomness factor into the calculations.*

My thoughts on the benchmark is I tend to agree, if you're in mostly US equities now S&P seems ok, but as you've mentioned in another thread, you were planning to go for 4 years and if you didn't beat the benchmark you'd go to indexing, so I'd suggest also looking at a more broadly diversified benchmark that would reflect what your balanced index portfolio would have been.

I'm not sure a benchmark should mean too much since your diversification is very low, so your returns could fluctuate wildly from any benchmark you choose.

I've read somewhere that returns in the ealier stages of wealth building are not as important so much as your savings rate, so if that's true, then at least now is the ideal time to learn from any mistakes you might make.
Fortunately I see you didn't get burned in the APPL correction, that's good.

I would suggest if you do start to add indexing to your strategies that you still hang on to BNS.TO, I can't really see it not continuing to be a quality stock for the forseeable future, you've already paid the trading fees, and there's no MER.
And if you don't have enough share yet to drip a full share, you might consider that, as it has a 2% discount for drips.
I don't know anything about CUQ.TO, but if you continue to see it as a solid investment I would suggest to hold and continue to diversify around what you have.

It's not much, but that's all the thoughts I have at the present moment, it is good to see you and the other young investors here taking an interest and learning investing, it would be a good thing if a few more Canadians would do so.


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## lonewolf (Jun 12, 2012)

Does the pendulum swing back & forth between optimism to pessimism as investors play the market ?

Or

Does the pendulum swing back & forth between fear & hope ? (maybe more then one pendulum but maybe not of equal importance ?)

If the old adage is right & investors buy in fear of missing a profit. & hold onto a losing position hoping the market will recover then fear causes them to sell near the bottom. 

Perhaps the common thinking is wrong & the real pendulum consiste of fear & hope. @ max fear investors take action which would be selling @ the bottom & buying near the top as they bought in fear of missing a profit


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## Rusty O'Toole (Feb 1, 2012)

Why does anybody do anything? There are a lot of successful investors and no two invest the same way. Some of the things you name make sense or once made sense, but mostly they are a matter of preference with no real (cash $$$) advantage.

One of the funniest stories I heard was about a guy who was buying corporate bonds of a bankrupt company. No he wasn't crazy, they had a very high coupon because the company had a shaky credit rating, plus he was buying them at a discount, and they were secured by a mortgage held by a different, financially sound company.

He figured it would take a year or 2 to wind up the bankruptcy proceedings but he would get paid out 100 cents on the dollar for bonds he bought for 60 to 70 cents ( for a 50% capital gain) and he was drawing 15% interest on his investment in the meantime.

The interviewer asked what stocks he liked and he recoiled in horror. ``I never buy stocks`` he said ``They go UP and DOWN all the time``. LOL OMG HA HA

Everybody has their own idea of what makes a good investment.


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## Rusty O'Toole (Feb 1, 2012)

Speaking of pendulums... I wish someone would do a study of the flow of funds into and out of financial markets. I suspect in the past demographics had a lot to do with overall market performance and today, printing by the central banks. Why wouldn`t an influx of billions of dollars in pension and retirement funds affect the market. And why wouldn`t it affect the markets just as sharply when that age group retired and pulled their money out.


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## Rusty O'Toole (Feb 1, 2012)

Today the small individual investor (like us) seems to be a very small factor compared to hedge funds, mutual funds, pension funds, insurance companies and the like. Not to mention government and central bank interference.

If you could predict what the central banks are going to do next, and infer from that what the big professional investors were going to do, you could predict the general trend of the market.

On the NYSE some 60 or 70 percent of all trades are in and out, algo driven program trades by computers, trying to clip a penny or 2 per share on a million shares a day. This explains some of the flash crashes and occasional nervous breakdowns or unexplainable gyrations of the market. Then, Bernanke watches the markets like a hawk and revs up the printing presses whenever to markets have a fainting spell, so Congress and Obama can point to the rising stock market as proof that the country is doing fine, as unemployment and the number of people on food stamps set new records.


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## Jungle (Feb 17, 2010)

BTW I think couch potato is a better benchmark, but adjusted for your fixed income. 
Couch potato is the safe alternative to stock picking where the strategy is based on that over the long term, very few beats the indexs. 
Also this is comparing on a total return basis. Like said above, if you are looking to live off dividends, total return may not matter so much, but dividend growth will.


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## eulogy (Oct 29, 2011)

> Over the past century dividends delivered close to half of all stock market returns.


This is a meaningless statement. Dividends aren't the returns, the businesses are. If over the last century dividends weren't paid, your return would be identical (not including taxes as dividends are tax inefficient) because a business is worth what a business is worth.


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## Cal (Jun 17, 2009)

1) Why do individuals only invest in companies that pay dividends, and then drip the dividends? Doesn't this say that you'd rather the company not pay the dividend?

Personally I am comfortable with this type of investing. It works for me. Not for everybody, most people have trouble figuring out what investing style (s) they are comfortable with. I drip the dividends for the most part for 2 reasons. 1. If I had more free cash I would buy more of that company anyways, and who am I to determine the optimal buy price. I just try to figure out the right companies to buy. 2. Some companies offer a discount on dripped shares, so it is nice to recieve a 1-5% discount on shares that I would probably buy anyways.

I get what you are trying to say with the second part of this Q, but getting a cut of the profits potentially in my pocket, if I were retired, works for me.

2) Why would an investor limit their purchases to criteria such as stock prices between $5-50? 

I dunno.

3) Why would an investor limit their purchases to even lots, generally 100 of any given stock purchase (I've heard of it, but never actually seen it)? 

Options as Ethan mentioned up thread.....and sometimes odd lots don't get filled as quickly.

4) Why do YOU like or dislike, or are indifferent to stock splits? 

I really don't get why companies tend to do these splits to appeal to retail investors by showing a lower share price. IMO perhaps the powers that be at these companies feel it gives them the best of retail and institutional investors appeal over time. Perhaps they feel it is a sign of a strong company. As a dividend investor, it really doesn't matter to me, in that I don't care if I get .50c a share from 2 shares, or $1 from 1 share. It is all the same. As long as the company is making profits, and doing well.

5) What is your definition of risk? (Difficult question, IMO) 

I am going to interpret this in regards to dividend paying companies. In line with your other quesitons. Risk...a company paying out a high % of their profits. B/c if the dividend gets cut, the share price will go with it. And it would beg the quesiton why are the profits at the levels they are at, is something fundamentally wrong with the company.

Buying a dividend payer for the sake of a monthly dividend, or b/c it has a high dividend. I would probably call that something other than risky.

Same with buying a dividend payer becasue it is the in thing to do. Or because it does not suit your portfolio, goals, or comfort level.

6) What is the relevance of yield on cost? 

IMO that is what it is all about. What return we get for our hard earned dollars.

Eclectic's questions:

7) Why do so many focus on their favourite way of making money to the point of telling others "dividend investing is crap", "capital gains only is crap", "stock picking is a mugs game" < insert investing theme of choice here> ? If one is making money consistently, why do others care?

I think some things have worked for some people, and they either feel strongly or are obtuse. Different people have different comfort zones. I like dividend investing and a happy with that style for the most part, and there are others on here who do not. Some of those opinions I really respect, and appreciate the knowledge that they share on here. If one can at least consider them, the opposing views can help to give one better perspective on some of their investing decisions.

8) Related to number 7 - Why are lifestyle & limits ignored/dismissed? For example, a momentum trader can dismiss the "I'm stuck in meetings for three hours so buying on momentum five minutes before the meeting doesn't work". Or a buy for the long term type can assume a trader does not have a long term position.

You have gotta do what works for you.

Originally Posted by andrewf 
9) This kind of raises the question of why people think day trading is a viable career. 

Not for me.


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## kcowan (Jul 1, 2010)

Percent payout of free cashflow is one of the major indicators for me. I am comfortable with any sustained payout of less than 50%. 30% is ideal.


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## lonewolf (Jun 12, 2012)

Investing for dividends I think the best way to do it is through something like private reits. Not as much price flucuation & most of the money made comes from dividends

Investing for capital gains I think it is best to use stocks, because the most money lost & or gained is from price change & not dividends.


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## humble_pie (Jun 7, 2009)

lonewolf said:


> Investing for dividends I think the best way to do it is through something like private reits. Not as much price flucuation & most of the money made comes from dividends


sorry ... always an opposite opinion, no?

but wolf i think it's too late for private reits. They spook me now, with the chill in housing setting in. Any private reit i've ever heard of reports much less than publicly-traded reits plus has a long redemption period lasting 3-6 months.


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## none (Jan 15, 2013)

Here's a good Q: When does investing end and gambling begin?


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## Sampson (Apr 3, 2009)

humble_pie said:


> Any private reit i've ever heard of reports much less than publicly-traded reits plus has a long redemption period lasting 3-6 months.


Agreed, plus there is relatively higher rates of fraud. The last boom, several private REITS around these parts very prominently ripped off investors.


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## Sampson (Apr 3, 2009)

none said:


> Here's a good Q: When does investing end and gambling begin?


When real metrics (fundamental or technical analysis) are not used. 

When reasoning such as "my girlfriend wears Lulu, therefore it is a good investment" or other soft reasons are used - this in my books is a gamble.


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## none (Jan 15, 2013)

I would agree but something prices far outstrip fundamentals. Look at apple - would you say anyone who purchased AAPL after it passed $400 (arbitrary) was simply gambling at that point?


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## andrewf (Mar 1, 2010)

I think Apple's price run up could be justified by fundamentals, if the company were 10x or 100x smaller even more so. But I think a lot of the price run up was not driven by fundamentals but rather exuberance/momentum. For some reason, a large part of the market is quite bearish on Apple, putting a large discount on its future cash flows.


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## Sampson (Apr 3, 2009)

I also don't think you can use an arbitrary cutoff where it becomes gambling because one investor may be basing the decision on air and the other on concrete metrics. Predictions (data and assumptions) can be wrong, but I believe any 'investment' decision should be rooted in real World figures.

I think the another complication is changing valuations the market is willing to pay. Look at P/E of any former tech growth stock before compared to know (MSFT, CSCO, even AAPL) come to mind. You could be 'investing' based on knowledge and real firm data, but caught up at the wrong moment.


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## lonewolf (Jun 12, 2012)

humble_pie

I agree I would not touch a reit right now.

I think it is just a better tool then playing common shares to collect dividends but should only be used when the time is right.

There is a time for investing for capital gains & a time for investing for dividends. Now is not the time to be using private riets to collect dividends in my opinion. When the time is right they are a great tool for dividends.


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## lonewolf (Jun 12, 2012)

none said:


> Here's a good Q: When does investing end and gambling begin?


 I think it is the other way. When does gambling end & investing begin.

Perhaps when enough pain is experienced to cultivate understanding the gambling stops & investing begins


Just like a casino wins in the end the small payouts help to turn a small gambler into a bigger gambler. A bull market in stocks will help turn the small gambler into a bigger gambler. The small gains without any research to develope a method that gives the investor a long term edge maybe gives the investor more courage to put more on the table.

Regarding Riets, They often have a lot of debt & interest rates cant go much lower. Higher interest rates @ some point would most likely have negitive effect. About 30 years from now should be next 30yr cycle top in interest rates.


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## Eclectic12 (Oct 20, 2010)

Cal said:


> Eclectic's questions:
> 
> 7) Why do so many focus on their favourite way of making money to the point of telling others "dividend investing is crap", "capital gains only is crap", "stock picking is a mugs game" < insert investing theme of choice here> ? If one is making money consistently, why do others care?
> 
> I think some things have worked for some people, and they either feel strongly or are obtuse. Different people have different comfort zones. I like dividend investing and a happy with that style for the most part, and there are others on here who do not. Some of those opinions I really respect, and appreciate the knowledge that they share on here. If one can at least consider them, the opposing views can help to give one better perspective on some of their investing decisions...


... which again raises the question of why their favourite way is the only way. I'm okay with exchanging info & new ideas but the type of exchange I'm referring to does not allow any other method except their method.




Cal said:


> 8) Related to number 7 - Why are lifestyle & limits ignored/dismissed? For example, a momentum trader can dismiss the "I'm stuck in meetings for three hours so buying on momentum five minutes before the meeting doesn't work". Or a buy for the long term type can assume a trader does not have a long term position.
> 
> You have gotta do what works for you.


Which is why it puzzles me when someone says "I can see how method x works for you - I'm in different place" the at best scientism comes into play or worse, the insults.


Cheers


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