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Retirement number
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Even if you don’t generate taxes in retirement account, you will have transaction costs when buying and selling.
“Educated market timing” is one click away from keeping it real goes wrong.
I would be more disciplined with my retirement account (100% index, no trades, dollar cost averrage) because retirement is the last thing you want to mess up.
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9.99 to buy
9.99 to sell
For less than 20$ I made 15grand in time period of a little over a month
C’mon man that’s a no brainer
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My bad I actually made 3 buys
So my fees were 39$ and 96 cents for the entire transactions
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Obviously there is no “winner” counter-anecdote on the indexing side.
As many dividend stock advocates do, he is just saying “I vastly prefer stockpicking to indexing.”The dividend argument typically goes: “Yes, dividend stocks are better than other stocks. It’s true that none of the dividend oriented index funds and ETFs look that great when you compare their long term performance to broader indices, but that’s because you can’t just invest in dividend stocks, you need to avoid the overvalued ones. It takes judgement, brains, and maturity to score in the dividend game. Any idiot can do ‘average’ in the index DCA world, but this is the way to come out on top.”
But, if you can identify undervalued and overvalued stocks, you should be able identify them in any category. What’s the big deal about dividends? Is there supposed to something that makes it easier to pick dividend stocks than any other kind?
Kpack’s investment philosophy comes down to stock picking, market timing, and the belief that because the equities [i]he chooses[/i] pay you income regularly over time give them a relative risk/return profile greater than the market over all.
There’s no arguing with it because it can’t countered with data.
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And again most of indexing data excludes dividends and reinvestment of those dividends
That’s a very unfair comparison in fact its dishonest
Im nearly certain there is some data out there to compare returns and Seigle quotes that in his book
And again Dividend reinvestment is dollar cost averaging.
Maybe I time my intial buys to a degree but what works for me is Buying the stocks I feel good about when they are near there 52 week lows.. SO timing intial buys OK that is market timing to a degree but I think its smart and it works for me
The index fund investors philosphy is just put it in never look at it again and count on historical patterns to have a respectable return. Thats fine. I just think there are ways to improve upon that if you have a philosophy that includes Intial Buy triggers and most defintely sell triggers……………….You always want to be able to cut your losses.
If index funds were so great You were see all really wealthy people using them………………..And very few do
Finally
While there are certain aspects of index investing that are attractive, like the completely passive robotic no thinking involved nature of it, Personally I find that for an engaged and educated investor the better path to wealth accumulation would be to focus on direct partial equity ownership in high quality companies that have a lengthy history of paying, and raising, dividends.
If you dont have the interest or time to educate yourselves about finance and investing to the point where a dividend growth strategy makes sense then In these cases, index investing (even factoring in the shortcomings) would be the better investment vehicle
But if you tell me that I would have done better when I started 23 years ago while a 1st year resident. THen I have plenty of my own data to prove you very wrong.
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[b]But, if you can identify undervalued and overvalued stocks, you should be able identify them in any category. What’s the big deal about dividends? Is there supposed to something that makes it easier to pick dividend stocks than any other kind? [/b]
I know what I know and I like to think I know what I dont know.
What I like about dividends is
1. They are real and if you put them back into a company you get 100% of that dividend as equity in the company. If a company doesnt pay dividends then you are trusting it to always do the right thing with their profits……………Maybe they will but Maybe they will just give bigger bonuses to their CEO or buy back their stock at bad prices etc.
2. If a company has been paying them for 180 years like WGL then they are probably going to keep paying them
3. If they have been increasing them for 25 years then there is a good chance they continue that as well and therefore your dividend usually outpaces inflation as per value. ( when I first bought Federal Realty it was paying 1.20/yr………….today it is paying 3.76 a year and its probably going to bump that up to 4 bucks a share or close next quarter.
Also. There are certain sectors I just do not feel comfortable buying because I have little knowledge of them or they-
So dividends are the big secret?
But every dollar that a company pays out in dividends could have been retained equity in the company, right? That doesn’t seem like the best strategy for long term growth. You just time it to get out in time and move on to the next dividend cash cow?
Sounds just like market timing. What am I not understanding?
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this is the last time
I’m rounding the numbers to simplify
Dividend reinvestment
Company X
Share price 10$
Pays a dividend yield of5%……… 50 cents a year
You originally buy 100 shares
At the end of the first year the company pays you a total of 50cents for every share
That’s a total of 50$ at the end of year one
You reinvest back in the company the 50$
Assume the share price remains 10$….. You buy 5 more shares
At the end of the year you now own 105 shares
Year after year this adds up that is one aspect of where the growth in your investment adds up
Now if the stock price goes up, you get that additional growth too
Of course the stock price can go down too just like any other stock
Here is why it is not market timing
Typically a company has a dividend reinvestment program or DRIP and it pays the dividend in quarterly installments so you are reinvesting increments of cash every 3 months…..basically that is dollar cost averaging….investing increments of cash on a regular basis
Is it really that difficult to understand
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For those of you interested in building wealth the Bogleheads way, check out this book by William Bernstein MDPhD
[link=https://dl.dropboxusercontent.com/u/29031758/If%20You%20Can.pdf]https://dl.dropboxusercon…758/If%20You%20Can.pdf[/link]-
“Picked up a quick 15 grand in a month”
All this time I thought you were talking big money -
Interesting thread.
I suggest the kpack123’s investing approach is like democracy – it works for him, but it may not be the best solution for the whole world. If you have the time *and interest* in investing, go ahead and try it- start with a small % of your finances and evaluate:
a) how you do and,
b) whether you like spending the time necessary to make it work.
If you like your results and spending your time on investing, then go for it. If not, strongly consider a low risk strategy like Boglehead.
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I don’t think there is anything wrong with kpack’s investment plan, it’s what kpack feels works best. Dividend investing has been particularly popular in the last few years, and it’s just another strategy, similar to a value tilt. Lots of people use different strategies like small cap tilt or emerging market tilt, and this is just another one. It’s not completely in line with what bogleheads believe to be right, but that doesn’t mean it’s wrong. I think people should invest in the way that they are most comfortable. Even John Bogle disagrees with investing in foreign markets, which is not the currently accepted boglehead strategy for diversification. Invest in what works for you. In the end most people come out pretty similar in return assuming that your asset Beta isn’t terribly far off the market Beta (which really only takes about 20-50 stocks to accomplish).
As a disclaimer I generally invest in index funds in my accounts, largely because I don’t feel like I have the time, nor the want to management 20-50 individual investments.-
Quote from themagicangle
I don’t think there is anything wrong with kpack’s investment plan, it’s what kpack feels works best.
The disagreement (which has come up before) is not about kpac’s plan. It’s about the specifics. Dividends come out of the shareholder’s pocket. To state otherwise is false. The one stock that he is pushing: WGL. Who owns the most… Wait for it…. Vanguard. I bet that almost everyone on this board owns the stocks kpack owns. IBM… XOM…. Coke….
I never really understood his point. I think that he is stating that one should only own those stocks.
Disclaimer:
I also don’t think there is anything wrong with 1) buy low sell high 2) buy and hold 3) investing in established dividend paying companies.-
The classic S&P 500 index fund has all of these.
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I’m not sure why it is so absolute that dividends come out of shareholder’s pockets. After all dividends are paid directly to shareholder’s and the amount paid is directly reduced from the company’s retained earnings in a one to one fashion, so shareholder’s are only losing out the taxes that they owe. Perhaps you mean that dividend’s paid lower the amount that a company can grow assets which could in turn provide for sales growth and better future returns? I suppose that could happen in some settings, but a company in that position isn’t likely to pay a dividend in the first place. A company has to do something with its retained earnings, and paying dividends is one reasonable thing for some companies to do among others. After all a fundamental asset pricing model has to due with dividend cash flows.
If terms of kpack’s plan, I don’t know his specifics, but if one only wants to own WGL, XOM, KO, and IBM only, that’s their choice, and I wish them well. It’s a defensive portfolio, that has probably done well given all the market volatility in the last decade, but I think that it’s likely leaving money on the table and I wouldn’t only rely on those stocks alone myself.
If one wants to discuss market timing, WGL would be one for a worthy debate for a short position given a quick look at it. -
And yes WGL in my opinion is right now over valued.
My cost basis per share on this about 6 bucks. Ive owned it since 1993
I would not be a first time buyer at these levels in fact I bet you can pick it up in the 50’s within the next year
That speaks to my other point about intial buys and market timing………………. I would wait and get this company cheaper
Buy good companies when they are a little beat up
Interest rates will go up and utilities will tank …………………then you can buy WGL and get that nice 4-5% yield . You buy it today and you probably don’t make money for a few years.
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Dividends come out of one shareholder pocket and into another shareholder pocket.
Shareholders own the company. Shareholders are the company. Earnings are shareholder’s earnings.
Dividends do not create a tax bill. They are offset by the capital gains loss when the stock price is reduced.
Quote from themagicangle
I’m not sure why it is so absolute that dividends come out of shareholder’s pockets. After all dividends are paid directly to shareholder’s and the amount paid is directly reduced from the company’s retained earnings in a one to one fashion, so shareholder’s are only losing out the taxes that they owe. Perhaps you mean that dividend’s paid lower the amount that a company can grow assets which could in turn provide for sales growth and better future returns? I suppose that could happen in some settings, but a company in that position isn’t likely to pay a dividend in the first place. A company has to do something with its retained earnings, and paying dividends is one reasonable thing for some companies to do among others. After all a fundamental asset pricing model has to due with dividend cash flows.
If terms of kpack’s plan, I don’t know his specifics, but if one only wants to own WGL, XOM, KO, and IBM only, that’s their choice, and I wish them well. It’s a defensive portfolio, that has probably done well given all the market volatility in the last decade, but I think that it’s likely leaving money on the table and I wouldn’t only rely on those stocks alone myself.
If one wants to discuss market timing, WGL would be one for a worthy debate for a short position given a quick look at it.
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You are looking at this through a different set of eyes
From my perspective dividends do incurr a tax
Granted they are taxed at a lower rate
Your confusing academia of finance with personal finance
It’s quite different
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NYPHD,
That’s not how dividends work. They don’t come out of one shareholder’s pocket and go into another, they come out of the earnings that a company has over the course of the year. Basically a company can do 4 basic things if there is an excess of earnings at the end of the fiscal year. The company can pay a dividend out to shareholders, the company can increase assets, the company can buy treasury stock (stock buy back) thus increasing stock price and returning value to shareholders, or a company can pay debt, which isn’t always a good thing as it can decrease return on equity by de-levering the company’s balance sheet. In no way does a dividend rob money from one shareholder and give it to another. Dividends are wholly dependent on company management and company earnings. No robbing Peter to pay Paul here. Stock price changes after the dividend pay out is another example as to why this is so.
Kpack,
I agree with you that WGL isn’t in buy territory. If things are working for you, good for you. Your strategy might not be for everyone, me included, but that’s ok, do what you feel is right for you. Good luck. -
themagicangle,
That’s not how dividends work. It’s not academic, it’s real world. Also, it is finance 101. If you took Financial Markets at Yale by Bob Shiller, you would have learned what a dividend is. It’s probably in this lecture: [link=https://www.youtube.com/watch?v=78_GRGjlL6E&list=PL542Xoh-I5xRzuhGQUiIjLNfsfFG6sOxM&index=9.]https://www.youtube.com/w…sfFG6sOxM&index=9.[/link]
Tomorrow, I buy every single IBM stock. I own 100% of the company. Let’s say that the company has a 100 billion value. They have 10 billion in cash and 10 billion in real estate. I own the company. It’s mine I can do what ever I want. If I sell the real estate, take the money and rent, the company is now worth 90 billion. If I take all the cash (let’s call it a dividend), the company is worth 80 billion. Now I want to sell all my stock, it will be worth 80% of what I paid. The company, “the stock” will be worth 80 billion. I can take a loss on my capital investment, but it is offset by the 20 billion I took from the company.
I believe that kpack makes the argument, that this is not his experience. When he invested in IBM, he got his 20 billion and when he sold the company it was valued at 200 billion. As he has stated before, he is on the forum to brag. It’s surely possible, that every dividend stock he bought he got dividend and also sold it for a profit. But, that not due to the dividend.
Quote from themagicangle
NYPHD,
That’s not how dividends work. They don’t come out of one shareholder’s pocket and go into another, they come out of the earnings that a company has over the course of the year. Basically a company can do 4 basic things if there is an excess of earnings at the end of the fiscal year. The company can pay a dividend out to shareholders, the company can increase assets, the company can buy treasury stock (stock buy back) thus increasing stock price and returning value to shareholders, or a company can pay debt, which isn’t always a good thing as it can decrease return on equity by de-levering the company’s balance sheet. In no way does a dividend rob money from one shareholder and give it to another. Dividends are wholly dependent on company management and company earnings. No robbing Peter to pay Paul here. Stock price changes after the dividend pay out is another example as to why this is so.Kpack,
I agree with you that WGL isn’t in buy territory. If things are working for you, good for you. Your strategy might not be for everyone, me included, but that’s ok, do what you feel is right for you. Good luck. -
the last thing kpack is doing is bragging on here
i must say that the hardest part about investing individual stocks is knowing when to sell…and keeping your losses to within 10-20% of buy levels. It’s difficult to recover from 50% losses. -
Sorry NYPHD, your example doesn’t make any sense. There is no loss for any shareholder in the example that you provide. There are tax implications, but there is no actual material loss in any money whatsoever. You might have renamed your cash flows, but nothing is lost. Let’s take another look. You say that your company is worth $100 billion and that is what you paid for it today. For the simple example, let’s pretend that there aren’t any future cash flows company into the company, and just go with the book value (since market value is heavily influenced by future cash flows), and it seems to fit your example the best. In that setting the balance sheet of IBM is worth $100 billion, including $10 billion in cash and $10 billion in long term assets (real estate investments) as you stated among other assets. On the other side of the balance sheet you have to have a match in liabilities or equity. So you as a manager decided to hand out the $20 billion to yourself in the form of the dividend from the $10 billion in cash on hand and cash from sale of the $10 billion in long term assets. In order to match your balance sheet you reduced the retained earnings of the company by $20 billion as well. Now your book value is $80 billion. If you now sold the company for $80 billion today, you’d have the $80 billion from the sale and the $20 billion from the dividend you paid yourself. That matches what you paid, thus you didn’t lose anything. The person who bought it from you lost nothing, he bought an $80 billion dollar company for $80 billion dollars. No one is robbed here.
It’s not just academic, it is real world. I don’t need to take Bob Schiller’s course, I’ve taken many more courses than just finance 101 in my time. But if you trust his opinion, he himself states in that lecture that the whole point of owning a company is to get a dividend as a share of the company’s profits. This is a serious finance 101 over-simplification as there are plenty of other ways to give profit back to shareholders.
If kpack wants to brag, take it for what it’s worth. Kpack likes dividends, so what? A lot of people like dividends, including Bob Schiller. Maybe he made a killing on IBM from the dividends that he got, plus the capital appreciation that came with the increase in future cash flows as the business grew. But the profit that kpack made came at the expense of any other investment that might have done better or might have done worse. Frankly I don’t care if he’s right or wrong because it’s not my money, but his belief that dividends are an important source of cash flow isn’t off base.
On last point to not forget, market value of a company is not what a company is worth in assets today. Market value is heavily influenced by future cash flows which haven’t been realized yet.
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Again, I only take issue to kpack’s and themagicangle’s assertion that ex dividend,
“…..the stock price pops right back up the next day or 2 or even the same day. So why does it matter. ”
That’s it. This is just made up. Please, give a single reference that this is true.
Stop playing games and trying to cloud the issue. There are so many things wrong in your post, I will not even list them.
Quote from themagicangle
Sorry NYPHD, your example doesn’t make any sense. There is no loss for any shareholder in the example that you provide. There are tax implications, but there is no actual material loss in any money whatsoever. You might have renamed your cash flows, but nothing is lost. Let’s take another look. You say that your company is worth $100 billion and that is what you paid for it today. For the simple example, let’s pretend that there aren’t any future cash flows company into the company, and just go with the book value (since market value is heavily influenced by future cash flows), and it seems to fit your example the best. In that setting the balance sheet of IBM is worth $100 billion, including $10 billion in cash and $10 billion in long term assets (real estate investments) as you stated among other assets. On the other side of the balance sheet you have to have a match in liabilities or equity. So you as a manager decided to hand out the $20 billion to yourself in the form of the dividend from the $10 billion in cash on hand and cash from sale of the $10 billion in long term assets. In order to match your balance sheet you reduced the retained earnings of the company by $20 billion as well. Now your book value is $80 billion. If you now sold the company for $80 billion today, you’d have the $80 billion from the sale and the $20 billion from the dividend you paid yourself. That matches what you paid, thus you didn’t lose anything. The person who bought it from you lost nothing, he bought an $80 billion dollar company for $80 billion dollars. No one is robbed here.
It’s not just academic, it is real world. I don’t need to take Bob Schiller’s course, I’ve taken many more courses than just finance 101 in my time. But if you trust his opinion, he himself states in that lecture that the whole point of owning a company is to get a dividend as a share of the company’s profits. This is a serious finance 101 over-simplification as there are plenty of other ways to give profit back to shareholders.
If kpack wants to brag, take it for what it’s worth. Kpack likes dividends, so what? A lot of people like dividends, including Bob Schiller. Maybe he made a killing on IBM from the dividends that he got, plus the capital appreciation that came with the increase in future cash flows as the business grew. But the profit that kpack made came at the expense of any other investment that might have done better or might have done worse. Frankly I don’t care if he’s right or wrong because it’s not my money, but his belief that dividends are an important source of cash flow isn’t off base.
On last point to not forget, market value of a company is not what a company is worth in assets today. Market value is heavily influenced by future cash flows which haven’t been realized yet.
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If what you are suggesting is true……………………the stock would eventually disappear to zero
Its really a dumb argument
Yes their is a momentary price adjustment because of the dividend but that’s typically it bounces back usually same day or pretty darn quick
THis is the dumbest argument for not wanting to invest in dividend stocks Ive ever heard and I question what reality you are living in
I really don’t think you have the slightest clue of what a dividend in.
Its weird -
NYPHD,
You are being dishonest now. Here is the direct quote from your post #169 on page 5. You directly say that dividends come out of one shareholder’s pocket and into another’s. This is just not right, at all. I’ve tried to explain that to you in multiple different ways. You don’t care to accept it, so be it. Don’t buy dividend stocks, that’s your right.
No where at any point in this discussion have I backed up the idea that stock price always recovers quickly after the ex dividend so who cares. To state that I did is patently false. I have held firm that the market decides what it decides and if the price recovers there is a reason for that.
Whatever you think Bob Schiller has said, I think you are probably misunderstanding him. I don’t care to listen to his undergrad finance 101 lecture, because I’ve heard it all before at that level and well beyond. His Nobel status has nothing to do with the discussion. That said if you think that he is adamantly in support of your position, about where in the lecture does he talk about it? I’ll watch that part, and if you are right, I’ll happily give you credit.
Dividends are not bad. They don’t rob anyone. They are a way of passing company earnings on to shareholder’s. That is all.
I don’t care what kpack thinks is the best way to invest. Maybe he’s right, maybe he’s not. He can do what he wants and it really doesn’t matter to how you or I invest, or at least it shouldn’t.
Quote from NYPhD
[b]Dividends come out of one shareholder pocket and into another shareholder pocket. [/b]
Shareholders own the company. Shareholders are the company. Earnings are shareholder’s earnings.
Dividends do not create a tax bill. They are offset by the capital gains loss when the stock price is reduced.Quote from themagicangle
I’m not sure why it is so absolute that dividends come out of shareholder’s pockets. After all dividends are paid directly to shareholder’s and the amount paid is directly reduced from the company’s retained earnings in a one to one fashion, so shareholder’s are only losing out the taxes that they owe. Perhaps you mean that dividend’s paid lower the amount that a company can grow assets which could in turn provide for sales growth and better future returns? I suppose that could happen in some settings, but a company in that position isn’t likely to pay a dividend in the first place. A company has to do something with its retained earnings, and paying dividends is one reasonable thing for some companies to do among others. After all a fundamental asset pricing model has to due with dividend cash flows.
If terms of kpack’s plan, I don’t know his specifics, but if one only wants to own WGL, XOM, KO, and IBM only, that’s their choice, and I wish them well. It’s a defensive portfolio, that has probably done well given all the market volatility in the last decade, but I think that it’s likely leaving money on the table and I wouldn’t only rely on those stocks alone myself.
If one wants to discuss market timing, WGL would be one for a worthy debate for a short position given a quick look at it.
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We have had this discussion
Mostly a dividend come out of a companies earnings. Basically the company gives part of its earnings back to you. Now yes the company could completely reinvest 100% of their profits back into themselves. Many do this and are successful. I have no problem with companies that do this. They just aren’t my thing.
You feel that because the stock price drops the amount of the dividend on the day the dividend is declared that it is somehow sucked out of the stock price over time
I say so what…..the stock price pops right back up the next day or 2 or even the same day. So why does it matter. I don’t care to think in those terms.
Even though your point is true and valid for the intial moments after a dividend is declared, it becomes a moot point and basically invalid longer term…If what you were saying were valid…………….accompany would eventually disappear in value.
I point to WGL……………….its been paying dividends since 1848………………..why is it still here paying ever increasing dividends.
And to your other point………….. Yes Index funds own a lot of good stocks, but they also own a lot of crappy stocks as well. The more quality you own the better the performance, so why own the crappy ones
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That’s not me bro. I have 0 realized gains. I never sell.
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How do you know interest rates will go up?
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Given the jobs numbers and fed speech recently, there will probably be 1 to 2 rate hikes this year.
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I’m fairly big in utilities
If rates don’t go up I’m good with that
I really can’t predict when all I can say is if they go up…… Then utilities will go Down and if you want a good buy in point..,,. That’s it
I do not predict these things long term. I react when the time is right
Predictions on economic policy are not what I’m good at so I don’t try
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Point being
There are times to buy certain sectors
Utilities are approaching all time highs, so better to wait now
Big oil is low time to look for bargains
Buy low and either hold or sell high
Honestly the only thing I like right now and fits my criteria is Archer-Daniels Midland (ADM)
And I think it I can get a few bucks cheaper if I decide I want it
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Buy low and sell high… if it were that easy…
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Well…….. When oil is 120$ a barrel…….. It’s not real hard to figure out that it’s time to either hold…. Or sell
When oil is 30-40$ a barrel……it’s probably time to start paying attention and looking for bargains
The problem with boggle heads or whatever you call it is they don’t teach you patience
Patience Is buying when low even if that means holding onto some cash
That philosophy is ok and it will probably give you historical marker performance
I’d rather take some educated risks
I think that’s where we differ
Bottom line is you need to do what makes you sleep well at night
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Bogleheads approach isn’t patient? It’s the ultimate buy-and-hold strategy.
Live below your means
Invest early and often
Never bear too much or too little risk
Diversify
Never try to time the market
Use index funds when possible
Keep costs low
Minimize taxes
Invest with simplicity
[b]Stay the course[/b]-
It’s robotic
A monkey could do it and you will probably retire comfortably at age 70
If that’s ok with you then by all means go for it
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The S&P 500 index dropped more than 50% from 2007 to 2009 but then tripled in value from 2009 to 2014. If your investment horizon is 10+ years (which it should be otherwise you shouldn’t be in stock), then it’s not difficult at all to recover from 50% losses. Dollar cost average and stay the course.
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some stocks go to 95% losses from 50% losses.
I am speaking of individual stocks here. There are no guarantees a stock will even recover : see blackberry; LINN, OXGI (or any biotech stock), BTE, countless other MLPs which may not survive-
That’s why I don’t own individual stock. My two funds own close to 10,000 stocks in total.
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And by owning a fund you pretty much miss out on the as Peter Lynch would say once a decade 10 bagger
what you are advocating is safe and conservative. Nothing wrong with that, but there are other ways to do things
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I agree knowing when to sell is the hardest part. Over time Ive tried my best to just cut my losses quicker. very very seldom does a stock lose 50% of its value or even 20% overnight so I think you can cut your losses if you are disciplined keep your ego in check and don’t fall in love with your stocks
What I try to do is
I sell If they cut the dividend period
I sell if fundamentals change
– I sell very quickly if some sort of scandal comes up. Accused of cooking the books etc
-Ive sold a few times because I saw a company take on so much debt that I didn’t feel comfortable
-I sell frequently if My company gets bought out and I don’t like or Know much about the new company.
There will be up and downs but if the company is strong the downs are less and the highs are higher
My opinion……………as long as that payout ratio is good these stocks are pretty safe and very consistent…… THat being said Ive had several good companies delay their dividend increases during tough times and that’s fine but when the Payout ratio is acceptable you can feel very safe that the dividend is not at risk
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Index funds are not safe and conservative any more than equity investing can be — just takes advantage of diversification which has been called the only free lunch available to the average investor.
The value investors of the past probably would not outperform today. It was a different world back then, prior to the internet, making information widely dispensed and trading incredibly fast and easy.
One can argue that markets are more efficient today than any time in the past thanks to changes in technology.-
I guess our definition of safe are not the same
My philiosphy- The markets are safe over the long term
If they are not we are all screwed anyway so it doesn’t matter much
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Kpack, this seems, like a reasonable system, but I bet it takes some work to keep up on. The biggest failure to any investing is not sticking to your plan. This is the whole point behind the boglehead philosophy (which I don’t 100% follow). Stay the course and invest in broadly diversified funds to make things easy and provide a healthy gain for any investor. Perhaps it’s better than your plan, but perhaps it’s not. To each his own. Dividends are great, and I take them when they’re offered, but I myself wouldn’t chase after them in the way you do, because to me it’s probably not worth the hassle. To you it is, and that’s fine. What matters is that each individual is comfortable with their system and sticks with it.
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NYPHD,
I never once said that the stock price should return a day or two after the ex-dividend date. If it does, that’s because the market has determined that the company will continue to grow future cash flows in a way that will outpace yesterday’s expectations. Or maybe the market hasn’t decided anything, and a computer algorithm decided that that was the right the to do. It doesn’t matter either way to my point. Dividends do not rob money from one shareholder and give it to another. If you want me to explain the dividend growth model for asset pricing and how the ex-dividend fits into that, I will. But my post makes perfect sense, and if there is something that you don’t understand I’d happily explain it to you. Dividends are not some nefarious tool that companies use to rob you. And you truly feel that they are, might I suggest you give up on stocks and invest in treasuries, you’ll sleep better at night.-
Ive said repeatedly that the stock price typically goes back up to the original price the day of or within a day or 2 of the date it is paid
Because……………………..it does -
Again, I only take issue to kpack’s and themagicangle’s assertion that ex dividend,
“…..the stock price pops right back up the next day or 2 or even the same day. So why does it matter. ”
That’s it. This is just made up. Please, give a single reference that this is true.
Stop playing games and trying to cloud the issue. There are so many things wrong in your post, I will not even list them.
***themagicangle, this is the discussion. That is all I am posting about. I’m not sure what you are posting about. You can put all the words in my mouth that you want, but please give a reference. “Because……………………..it does ” is just silly.***
Quote from themagicangle
NYPHD,
I never once said that the stock price should return a day or two after the ex-dividend date. If it does, that’s because the market has determined that the company will continue to grow future cash flows in a way that will outpace yesterday’s expectations. Or maybe the market hasn’t decided anything, and a computer algorithm decided that that was the right the to do. It doesn’t matter either way to my point. Dividends do not rob money from one shareholder and give it to another. If you want me to explain the dividend growth model for asset pricing and how the ex-dividend fits into that, I will. But my post makes perfect sense, and if there is something that you don’t understand I’d happily explain it to you. Dividends are not some nefarious tool that companies use to rob you. And you truly feel that they are, might I suggest you give up on stocks and invest in treasuries, you’ll sleep better at night.
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Here is what you can do
Go to yahoo
Randomly pick 10 dividend paying stocks
Chart the price the day before day of and 1-2 days after it goes ex dividend
Just go ahead and do that and see what you learn
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And again if what you were saying we’re true……. These companies would eventually have zero value over time
How do you explain this
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Basically you are saying that paying a dividend has a negative effect on the stock price
And what I’m
Saying is over any significant period of time that is simply not true-
Kpack,
Dividends do have a negative impact on stock price as seen with the ex-dividend. That’s ok though, because the shareholder hasn’t lost anything given the dividend payment and the ex-dividend price. The stock price both before and after the ex-dividend should be based on future cash flows of that company. Once a dividend is paid the value of the company will drop a little because that future cash flow has been paid out today and the next future cash flow if off at some time in the future. The value of the company will then steadily increase over the time period to the next dividend based on the expected return for that company, at which point the next dividend is paid. The cycle continues to repeat in perpetuity (or until the company fails). The stock price is thus based on the promise of future cash flows so it should never drop to zero, unless the company ceases to generate revenue over the long term.
Why stock prices recover so quickly ex-dividend, that’s a different story. The market feels that it should for whatever the reasons might be. I don’t question it because I don’t think anyone can answer for sure. But if there was a real generous arbitrage here it would be gone by now, because a lot of smart people are looking for these kinds of things all the time.-
Yes the stock price is adjusted the day the stock goes ex dividend
That’s never been an argument
But if it doesn’t affect the long term price of the stock in a negative way….. Why would anyone care
In fact it probably impacts the long term price positively
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Comments on SDY?
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NYPHD,
I’m not trying to cloud any issues. My assertion is that dividends themselves do not rob money from one shareholder and give it to another. If I’m not mistaken you are taking the counterpoint to that assertion. Kpack’s notions that stock price bounce back immediately after the ex-dividend might happen, but that’s not the point. The market has determined that there is a reason for this quick price recovery to happen. If there’s isn’t a reason then a lot of people are making stupid investments and maybe shouldn’t be buying stocks.
If you don’t like companies that pay out dividends, don’t buy companies that pay out dividends, nothing wrong with that. That’s your philosophy, which is totally acceptable. It seems like you prefer companies that maintain retained earnings and continue to grow. However at some point all companies have to mature and those retained earnings have to go somewhere. You can’t grow indefinitely forever as there would have been only one company a long time ago. If dividends aren’t for you, then perhaps you like stock buy backs, that’s another nice way to hand value back to shareholders. LUV is a nice example of a company that has done this of late. In the end though the company in some way shares profits with investors.
I’m not trying to say that kpack is the next Warren Buffet, if he was I doubt he’d be posting here. I’m saying is that kpack’s strategy works for him, and that’s ok. My strategy works for me and hopefully yours works for you.-
Again, I only take issue to kpack’s and themagicangle’s assertion that ex dividend,
“…..the stock price pops right back up the next day or 2 or even the same day. So why does it matter. ”
That’s it. This is just made up. Please, give a single reference that this is true.
Stop playing games and trying to cloud the issue. There are so many things wrong in your post, I will not even list them.
*** You are clouding and changing the one single issue. I gave you a simple example why it is true and a video by a Nobel Laureate in Economics clearly stating the contrary. themagicangle (kpack), ****please give a reference to support**** your claim that “…..the stock price pops right back up the next day or 2 or even the same day.” You state :”Sorry NYPHD, your example doesn’t make any sense.” “Its really a dumb argument ” “Because……………………..it does ” “Go to yahoo” It’s not convincing.
ps I never said “that dividends rob money from one shareholder and give it to another.”
Quote from themagicangle
NYPHD,
I’m not trying to cloud any issues. My assertion is that dividends themselves do not rob money from one shareholder and give it to another. If I’m not mistaken you are taking the counterpoint to that assertion. Kpack’s notions that stock price bounce back immediately after the ex-dividend might happen, but that’s not the point. The market has determined that there is a reason for this quick price recovery to happen. If there’s isn’t a reason then a lot of people are making stupid investments and maybe shouldn’t be buying stocks.
If you don’t like companies that pay out dividends, don’t buy companies that pay out dividends, nothing wrong with that. That’s your philosophy, which is totally acceptable. It seems like you prefer companies that maintain retained earnings and continue to grow. However at some point all companies have to mature and those retained earnings have to go somewhere. You can’t grow indefinitely forever as there would have been only one company a long time ago. If dividends aren’t for you, then perhaps you like stock buy backs, that’s another nice way to hand value back to shareholders. LUV is a nice example of a company that has done this of late. In the end though the company in some way shares profits with investors.
I’m not trying to say that kpack is the next Warren Buffet, if he was I doubt he’d be posting here. I’m saying is that kpack’s strategy works for him, and that’s ok. My strategy works for me and hopefully yours works for you.
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Don’t really plan on retirement until kids are out of college (late starter in that department). Don’t have a specific number either, but combo of pension and 401k should afford me a very cushy retirement.
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[b]This is just made up. Please, give a single reference that this is true.[/b]
[link=https://finance.yahoo.com/q/hp?s=SYY+Historical+Prices]https://finance.yahoo.com…=SYY+Historical+Prices[/link]
THats just one I checked. DO you need more?
Mar 29 close 46.46
paid 31 cent dividend
Opened at 46.18 on March 30
Closed on march 30 at 46.63
Again this happens most all of the time
Im definitely not a nobel laureate but…………….Any more questions?-
If you are a long-term investor (horizon 10+ years), none of this noise should matter to you.
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True
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You are being so ridiculous.
Give a reference that it is true in general as you guys are stating.
I can find a a single stock that does any thing.
I gave a reference from a Nobel Laureate stating that your assertion in general is false.Quote from kpack123
[b]This is just made up. Please, give a single reference that this is true.[/b]
[link=https://finance.yahoo.com/q/hp?s=SYY+Historical+Prices]https://finance.yahoo.com…=SYY+Historical+Prices[/link]
THats just one I checked. DO you need more?
Mar 29 close 46.46
paid 31 cent dividend
Opened at 46.18 on March 30
Closed on march 30 at 46.63
Again this happens most all of the time
Im definitely not a nobel laureate but…………….Any more questions?
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NYPHD,
You’ve lost credibility on this one, sorry. Your reference isn’t an adequate reference for any legitimate discussion on the topic. At any rate I haven’t giving any support to the statements that you claim kpack and I are responsible for, and you can’t seem to point out where I did level support.
Invest how you like and believe what you want, your knowledge gap on this doesn’t matter to me. I’m off to vacation, so enjoy the last word, cause I’m done trying to help you understand. It doesn’t appear like it’s going to happen in this matter at least.
-themagicangle out.-
You are surely entitled to your opinion.
You made false accusations and resorted to personal attacks. And then stuck to it.
I’m not credible, not honest…. good ones.
Quote from themagicangle
NYPHD,
You’ve lost credibility on this one, sorry. Your reference isn’t an adequate reference for any legitimate discussion on the topic. At any rate I haven’t giving any support to the statements that you claim kpack and I are responsible for, and you can’t seem to point out where I did level support.Invest how you like and believe what you want, your knowledge gap on this doesn’t matter to me. I’m off to vacation, so enjoy the last word, cause I’m done trying to help you understand. It doesn’t appear like it’s going to happen in this matter at least.
-themagicangle out.
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[b] gave a reference from a Nobel Laureate stating that your assertion in general is false.[/b]
Honestly no disrespect or being a smart arse here but Can you show me what is false about My reference. Its the actual opening and closing price of a stock the day before the day of and the day after it goes ex-dividend. Its real data from a week ago, NOt made up and not false
I can give you couple hundred others ones too
THis very typical of what happens to the stocks that I Follow……………..I told you it happens all the time and it does.
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I have to apologize kpack and magicangle. I am wrong and you are right. I am dishonest and not credible.
I have trouble understanding basic finance. Thank you for setting me straight. I have leardn a lot.
Now I understand that the stock price pops right back up the next day or 2 or even the same day. So why does it matter.
Thanks again. Sorry for being so dense.
[link=http://finance.yahoo.com/echarts?s=EWM+Interactive#]http://finance.yahoo.com/.harts?s=EWM+Interactive#[/link]{“range”:”6mo”,”allowChartStacking”:true}
Quote from kpack123
[b] gave a reference from a Nobel Laureate stating that your assertion in general is false.[/b]
Honestly no disrespect or being a smart arse here but Can you show me what is false about My reference. Its the actual opening and closing price of a stock the day before the day of and the day after it goes ex-dividend. Its real data from a week ago, NOt made up and not false
I can give you couple hundred others ones too
THis very typical of what happens to the stocks that I Follow……………..I told you it happens all the time and it does.
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just a quick question for kpack and others. Why not just invest in berkshire in your taxable accounts and take advantage of Buffets expertise in investing in these high quality dividend stocks and also avoiding the taxes because berkshire itself does not pay a dividend. In your tax deferred accounts you can use an index fund.
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Quote from jerry garcia
just a quick question for kpack and others. Why not just invest in berkshire in your taxable accounts and take advantage of Buffets expertise in investing in these high quality dividend stocks and also avoiding the taxes because berkshire itself does not pay a dividend. In your tax deferred accounts you can use an index fund.
Index funds are suited for taxable accounts as well because of very low turnover. -
I understand that index funds are tax efficient and therefore fine for taxable accounts. But what if you are working and don’t need the additional income stream. You would be losing compounding on the taxed amount. I read this interesting take on Berkshire. Look at section 3 about tax efficiency. The numbers would be less disparate for an index fund but sill may be a couple of percentage points which over the long run is still a big deal.
[link=https://25iq.com/2014/05/10/a-dozen-reasons-why-berkshires-moat-will-survive-the-departure-of-warren-buffettcharlie-munger/]https://25iq.com/2014/05/…buffettcharlie-munger/[/link]
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After you have maxed out the 401k/403b, backdoor Roth IRA, HSA, and 529, where else are you going to put that money? You can put it in a bank and lose money due to inflation. Interest is also taxed at ordinary income rate (twice as high as dividend rate you would get through an index fund in a taxable account). Bonds get taxed at ordinary income rate too. Even if you are working, the erosive effects of inflation are against you (historical average of 3.3% a year, we are in a low of 2% a year currently).
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And actually platforms do exist to take advantage of the ex dividend date both getting payment of the dividend and taking advantage of the spread
I’ve never subscribed to doing that but some people do
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Stop arguing over things that are not important. Keep it simple. Get your fair share of market returns by investing in a broad-based low-cost index fund[b].
[/b] -
Kpack, I’m assuming that you mean get the dividend and then reinvest at ex dividend price? Nothing wrong with that.
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At best you misunderstood. My statement was about the same shareholder. I even gave an example with one shareholder.
Pretty insulting to change my quote and call me dishonest.
I never said that “that dividends come out of one shareholder’s pocket and into another’s” or “that dividends rob money from one shareholder and give it to another.” You wrote those.
My copied unedited quotes are: [b]”Dividends come out of the shareholder’s pocket. To state otherwise is false.”[/b]
and
[b]”Dividends come out of one shareholder pocket and into another shareholder pocket. [/b]
[b]Shareholders own the company. Shareholders are the company. Earnings are shareholder’s earnings.[/b]”
Here’s another simple example. We are psychiatrists. We own a practice. 50% stock each. No assets except $1 million earnings in the bank. We each take a 250k dividend. It’s our company. 500k is mine and 500k is yours. After we take 250k each out of the company, 500k is still mine.
250k is in my company account (pocket) and 250k is in my personal account (pocket).
Rather than 500k in my company account.
Quote from themagicangle
NYPHD,
You are being dishonest now. Here is the direct quote from your post #169 on page 5. You directly say that dividends come out of one shareholder’s pocket and into another’s. This is just not right, at all. I’ve tried to explain that to you in multiple different ways. You don’t care to accept it, so be it. Don’t buy dividend stocks, that’s your right.No where at any point in this discussion have I backed up the idea that stock price always recovers quickly after the ex dividend so who cares. To state that I did is patently false. I have held firm that the market decides what it decides and if the price recovers there is a reason for that.
Whatever you think Bob Schiller has said, I think you are probably misunderstanding him. I don’t care to listen to his undergrad finance 101 lecture, because I’ve heard it all before at that level and well beyond. His Nobel status has nothing to do with the discussion. That said if you think that he is adamantly in support of your position, about where in the lecture does he talk about it? I’ll watch that part, and if you are right, I’ll happily give you credit.
Dividends are not bad. They don’t rob anyone. They are a way of passing company earnings on to shareholder’s. That is all.
I don’t care what kpack thinks is the best way to invest. Maybe he’s right, maybe he’s not. He can do what he wants and it really doesn’t matter to how you or I invest, or at least it shouldn’t.
Quote from NYPhD
[b]Dividends come out of one shareholder pocket and into another shareholder pocket. [/b]
Shareholders own the company. Shareholders are the company. Earnings are shareholder’s earnings.
Dividends do not create a tax bill. They are offset by the capital gains loss when the stock price is reduced.Quote from themagicangle
I’m not sure why it is so absolute that dividends come out of shareholder’s pockets. After all dividends are paid directly to shareholder’s and the amount paid is directly reduced from the company’s retained earnings in a one to one fashion, so shareholder’s are only losing out the taxes that they owe. Perhaps you mean that dividend’s paid lower the amount that a company can grow assets which could in turn provide for sales growth and better future returns? I suppose that could happen in some settings, but a company in that position isn’t likely to pay a dividend in the first place. A company has to do something with its retained earnings, and paying dividends is one reasonable thing for some companies to do among others. After all a fundamental asset pricing model has to due with dividend cash flows.
If terms of kpack’s plan, I don’t know his specifics, but if one only wants to own WGL, XOM, KO, and IBM only, that’s their choice, and I wish them well. It’s a defensive portfolio, that has probably done well given all the market volatility in the last decade, but I think that it’s likely leaving money on the table and I wouldn’t only rely on those stocks alone myself.
If one wants to discuss market timing, WGL would be one for a worthy debate for a short position given a quick look at it.
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Inflation is more like 0.8-1.5% past 2-3 years
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[link]http://whitecoatinvestor.com/2016-tax-report/[/link]
Has anyone ever deducted 200k a year into their retirement accounts???
[ul][*]His [link=http://whitecoatinvestor.com/retirement-accounts/backdoor-roth-ira/]Backdoor Roth IRA [/link]$5,500[*]Her Backdoor Roth IRA $5,500[*]Partnership 401(k)/Profit-Sharing Plan $53,000[*]Partnership [link=http://whitecoatinvestor.com/cash-balance-plans-an-extra-retirement-account/]Defined Benefit/Cash Balance Plan[/link] $30,000[*]His WCI Individual 401(k) $53,000[*]Her WCI Individual 401(k) $53,000[*][link=http://whitecoatinvestor.com/retirement-accounts/the-stealth-ira/]Health Savings Account[/link] $6,750[*]Total: $206,750[*]Total Deductible: $195,750 [/ul]-
Yes I know atleast 3 private practice physicians who have been doing that for 6 years. Their side business is real estate
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This guy is crushing it.
[link=http://whitecoatinvestor.com/state-of-the-blog-2016/]http://whitecoatinvestor…state-of-the-blog-2016/[/link]
White Coat Investor LLC 2015 income
[ul][*]Speaking, Writing, Consulting Fees: $26,965[*]Book Royalties: $131,688[*]Served Ads (like Adsense): $6,598[*]Private Ads, Listings, Newsletter Sponsorships: $182,828[*]Affiliate Marketing Agreements: $142,304[*]Donations: $100 [/ul] Total Income: $490,483
Total Expenses: $112,403
Total Profit: $378,080-
Yes that’s why I am not supporting his facade. Not taking advice from a physician regarding financial matters. This thread already established that. And he’s and ER physican. Whatever.
This is how online marketing works. He’s selling boglehead advice, repackaged…and physicians lining up in droves. The same mentality of “hey his word must be gospel” is the whole reason physicians get crushed by business people.
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thats very true
Give the guy kudos for starting a side business realizing there are suckers born every minute
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Actually the thought crossed my mind earlier that radio2012 was just trying in to steer traffic to a few of those websites for personal gain
His posting is infomercial and very staged like
Hmmmmmmmm
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He’s not a real Boglehead. Check out his asset allocation in his taxable account.
[link=http://whitecoatinvestor.com/my-quest-to-become-debt-free/]http://whitecoatinvestor….t-to-become-debt-free/[/link]
[ul][*]Vanguard Precious Metals Fund $25,094[*]Vanguard Energy ETF $8,456[*]Vanguard EM ETF $26,904[*]Vanguard 500 Index $18,654[*]Vanguard Total International ETF $32,918[*]SPDR Health Care ETF $8,947[*]Total $121,118 [/ul]
John Bogle would never advise people to buy a precious metals ETF. That’s like gambling.
[ul] [/ul]-
Uhh he is buying ETFs and since he’s marketing to idiot physicians he has to do something with his money I.e. Precious metals
Whatever. Lost in all of this bickering of which fund, realize that his business generated more than your stock portfolio radi2012. Coincidence ? No he’s milking physician eyeballs to his profit
I can’t respect him. If student doctor network riddled their site with website with ads like he does or promoted “hey refi your loan with this link!!!!” they’d be doing 500k a month.
Also I did some research since radi2012 you were so gracious to post the link here – he has “partnered” with Sdn finance. Hmmm where else to grab dumb Med students to drive traffic eh ???
What a racket
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He has a lot of good points for physicians in his book and on his website. You don’t have to click on any of his links. Why hate on his success? That’s what progressives and socialists do. Don’t hate on the 1%. Strive to be the 1%.
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Hey you like his way of doings things more power to you. I don’t.
There are free resources online. A for profit organization has an agenda. His posts – atleast the ones I clicked – has bunch of links and Adsense ads which I don’t appreciate put on my face. He could have cleaner website without ads at every corner.
Oh and by the way private ads don’t need clicks. They are there plastered and he gets upfront fees six months in advance.
And yes he is a boglehead
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Everyone has an agenda. If there is no agenda, then there’s no incentive for innovation or the creation of new products. That’s how capitalism works.
He is not a true Boglehead because he’s too heavily invested in individual sectors and commodities. Those funds are also active funds. The emerging markets tilt is also ridiculous. He does not own a fair representation of the whole market.-
Dude you don’t have to lecture me on capitalism. Not an idiot here.
Also you coming on this board and pontificating how kpack’s way is dumb and boglehead all the way dudes! Is your opinion.
I’d like to think physicians, while money is important, work more selflessly, without putting pay me first approach. Atleast I do. Whe I see a physician affiliate marketing, it disgusts me. My opinion.
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Radio 2012 is a plant to drive traffic to these sites
I knew I smelled something funny through all the Blabber
Time to boycott these sites-
White Coat Investor and Mr. Money Mustache are similar to Wealthfront and Betterment. They educate you and take a cut. But that cut is much smaller than what traditional financial advisors take. So overall I believe they do much more good than harm. I still prefer the do it yourself approach.
I did not say kpack’s way was dumb. I disagree with it. Have you ever disagreed with someone?
Why can’t physicians market themselves? What is wrong with that? He has an idea and product that people are willing to pay for. He is not stealing anyone’s money. It’s a mutual exchange of goods and services. If you don’t like it, you don’t have to go to his website or buy his book. Simple as that.-
I didn’t say you were dumb
I said your babble is infomercial line as if you are trying to sell or promote a site or product for your own gain
Your boycotted dude
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You listed specific stocks that you owned. If more people on here buy it then your value goes up. What do you want to call that? But unlike you, I don’t see anything wrong with it. You have your freedom of speech and people have free will.
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Dude forget it you’re not getting my point.
Not saying you can’t market it, but affiliate marketing is someone else’s product. That’s his money generator. A physician sells his own service not marketing someone else’s
But I’ll end it here. I dislike ad riddled websites. Simple as that.
Have I disagreed with someone ? Yes. Didn’t get the memo? What have I been doing with you ?
What a time waster arguing with a resident.
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Is there something wrong with recommending someone else’s product or service if you think it’s good? Have you ever heard of Yelp? It’s a strong driving force and incentive for businesses to offer a better product or service to a customer so that the customer not only comes back but also recommends it to other people they know. Go to the resident section and read about people’s recommendations of books for board review. I’m sure they did not write them or get any revenue from them.
Your mindset of antibusiness thinking is why business people are owning physicians. They are the equity and we are becoming the commodity. I’m done as well. We can agree to disagree.
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I’m not advocating anything to be honest
I’m just saying there are not only more ways to do something but better ways
Radio 2012 is a troll pure and simple trying to drum up clicks for a few websites
He all but admitted that he was an infomercial
I hope people boycott the sites he is pumping
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Physicians are foolish if they think they can consistently beat the market. If hedge fund managers can’t do it , why are you foolish enough to think you can.
There are solid reasons why more and more money is flowing into low cost index funds. It is not because index funds are better. It is simply because they are cheaper. Active investing is expensive. So, if you want to take advantage of the only free lunch in investing(diversification) and you don’t want to research/purchase 100s of stocks on your own then indexing is for you. Buy 3 funds, set it and forget it.
[link=http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-managed-funds-study.html]http://www.cnbc.com/2015/…funds-study.html [/link]
[link=http://time.com/money/3936885/index-active-versus-passive-funds/]http://time.com/money/393…-versus-passive-funds/[/link]
[link=http://www.chicagobooth.edu/ideas/efficientMarket.aspx]http://www.chicagobooth.e…s/efficientMarket.aspx[/link]-
Study after study shows that the majority of active funds will underperform index funds. The percentage of active funds beating index funds approaches zero as you expand the time frame looked at, further supporting the math behind low cost funds.
I recommend everyone look at exactly how much you are paying for the privilege to invest. The actual number may be sobering and serve as a wake up call.-
Differential you’re right. Studies do show it. But there are investors who do beat the market and don’t do index – warren buffet doesn’t beat the market ? His long term returns destroy indexing
Also personally I don’t consider indexing investing at all. You are just buying broad index funds and putting money in and relying on general growth of the market. No idea of valuation or how businesses work etc
While studies show indexing beats money managers what about skills gained from understanding businesses ? I consider such excersize learning basic valuation valuable
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Why all the hate for the white coat investor? I say good for him. Much better that he makes some cash than the vulture financial advisors who charge 1.5% annually for “managing” your money. As they say there are many roads to Rome. What works for Kpack or others may not be everyones cup of tea.
Radioman, not sure why you don’t consider indexing not investing. You are still putting capital to work and at potential risk. It may not involve as much thought and research, but it still investing. Not many people enjoy or have time for that. You also mention Buffet, why not just invest with him and let him do the work for essentially free?
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It’s more speculating than investing to me because what is the down side risk? You’ll lose all the money ? Or the reliance on “stock market always recovers” as analysis ? I don’t feel comfortable investing in index funds because I don’t know the downsides or can’t assess it or know it.
For example when I know the local real estate market I know how much I can flip it for or rnent for consistently.
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Warren Buffett is not the normal human. He is a one of a kind at what he does. Berkshire is almost a index fund in itself by how diversified it is and it does have a 0% expense ratio. I think if I could buy 1 stock it would probably be Berkshire because of the diversification benefit. But there is still individual stock risk assigned to Berkshire. If a black swan event were to strike Berkshire then I wouldn’t want all my eggs in 1 basket.
With that said, Buffett is not the normal investor. You, me, and 99% of the people on this forum are what Wall Street calls a ‘retail investor.’ That means we are the fish in the shark pool. My question to you is do you think the typical radiologist has even 10% of Buffett’s skill at investing? Not just Buffett, but what about comparing us to a below average hedge fund manager? I say this because when you buy/sell on the market you are competing with them and the playing field is not level.
Regarding real estate – sure it can be a great investment. But what percent of your nest egg are you willing to risk for real estate? What if there is a black swan event in your region? IE Detroit. The whole purpose of diversification is to spread your downside risk out.-
You’re right for physicians index makes sense but as I said it’s a lazy way to “invest” and I’m calling it speculation
I mich rather go concentrated portfolio rather than index funds. That’s what I’m thinking so far.
You guys have more experience but I’ll post my adventure in a blog I’m thinking. A live experiment. It’s ok if I lose money but I must try than follow the herd.
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I think one problem people have with index funds is because they don’t have a good grasp on exactly what an index funds is. It is not as tangible as a name such as Apple or Wal-Mart. I think if people could actually see the individual stocks they were buying with index funds it would make them more comfortable.
VTI, or Total Stock Market ETF is probably the biggest index fund out there. It is composed of 3698 US domestic stocks. It can be owned for a expense ratio of 0.05% which is 95% lower than the avg US stock fund. It has total net assets of $389.8 billion. For comparison, a popular actively managed stock fund the Dodge and Cox stock fund has $54.8 billion in assets and has an expense ratio of 0.54%.VTI holds Apple, Google, Microsoft, Exxon, J&J, GE, Berkshire, Facebook, ATT, and PG as it top 10 holdings which make up 15% of assets. Dodge and Cox owns many of the same stocks albeit in different percentages.
For $1mil in VTI, you pay $500 a year in expense ratio fee.
For $1mil in Dodge and Cox stock fund, you pay $5200 a year in expense ratio fee.
Oh, and VTI has outperformed Dodge and Cox in past 1 year, 3 year, and 5 year, and 10 year comparisons.
Full list of VTI holdings here:
[link=https://personal.vanguard.com/us/FundsAllHoldings?FundId=0970&FundIntExt=INT&tableName=Equity&tableIndex=0&sort=marketValue&sortOrder=desc]https://personal.vanguard…lue&sortOrder=desc[/link]-
I understand it just fine but I much rather go concentrated investment. Thanks.
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This paper is for you Radioman and explains how to pick active managers: [link=http://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n4.7]http://www.cfapubs.org/do.pdf/10.2469/faj.v69.n4.7[/link]
Active Share and Mutual Fund Performance
Antti Petajisto
Using Active Share and tracking error, the author sorted all-equity mutual funds into various categories of active management. The most active stock pickers outperformed their benchmark indices even after fees, whereas closet indexers underperformed. These patterns held during the 200809 financial crisis and within market-cap styles. Closet indexing has increased in both volatile and bear markets since 2007. Cross-sectional dispersion in stock returns positively predicts performance by stock pickers.
From the paper: “I used Active Share and tracking error to sort domestic all-equity mutual funds into five categories on the basis of the type of active management they practice. I found that the most active stock pickers have been able to add value for their investors, beating their benchmark indices by about 1.26% a year after all fees and expenses.”
In the early 1980s, well over half of mutual funds had an active share above 80%, but as of 2009, only 20% or so of funds were this active. Therefore the papers that have declared the death of active management have a bias in that they lump the closet index funds (most of the funds) with the truly active funds, deduct the expense ratio, and then declare that active management doesn’t work. Most of the available actively managed funds are built to gain assets, which eventually will make them closet index funds, rather than maintain Alpha, which is why they under perform after expenses-
[attachment=0][attachment=0]One problem with research/statistics is it can be manipulated to demonstrate whatever you want it to. A majority of the financial industry is based upon active investing, financial advisors, etc. What would you do if your field was being threatened? While some of their work is good not all of it is honest. If you look at the trend of money flow, indexing it putting those people out of business. So, I am not surprised to see an article like that to promote Active share management despite all the [b]academic [/b]literature out there arguing against active investing.
If you note in the article he doesn’t really go in depth into actual performance of the mutual funds he mentions. So I did this myself. VTI outperformed every single fund he listed with somewhat similar asset allocation: FMI large cap, Growth fund of America, Sequoia fund, and Fidelity Magellan over the past 1 year, 3 year, 5 year, and 10 year comparisons. Over past 10 years, VTI was + 61.17%. Fidelity Magellan – 22.96%, Sequoia + 16.58%, American Growth + 24.17%, and FMI large cap + 37.32%. VTI also outperformed T Row Price mid cap value and long leaf small cap over all the time periods but I didn’t include those since they are different asset class. I would have gone back further but VTI didn’t exist before then.
[link=https://www.google.com/finance?cid=336733322397731]https://www.google.com/finance?cid=336733322397731[/link]
Why this trend? Freedom of information with the internet and thousands of analysts daily across the globe analyzing stocks to find inefficiencies in pricing. This has resulted in a market efficiency that approaches 95-99%. To beat the market, need to identify any inefficiency [b]correctly[/b] before anyone else. After the active managers have toiled all day and all night to find that inefficiency and then charge you a fee, the result is that the total return is lower than what the regular old boring index would have given you with no work and low fee.
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DDX,
Your right in that statistics can be manipulated as your doing right now. But my prior post was not meant for you. I do not care what you do.
The paper clearly states that “Therefore, an Active Share of 50% is the theoretical minimum that a pure active manager could haveanything below that is essentially a combination of an active fund and an index fund.” Obviously an index fund or a closet index fund (Fidelity ® Magellan ® Fund) with higher fees will under perform an index fund with lower fees.
Figure 3. Fidelity Magellans Active Share, 19802009 Active Share (%) 100 90 80 70 60 50 40 30 20 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Peter Lynch Morris J. Smith Jeffrey N. Vinik Robert E. Stansky Harry Lang
As you can see from the figure above from the paper, Magellan’s active share was below 50% for 8 out of the 29 years therefore it was a closet index fund with higher fees for most of the time (21 years), obviously under performing a lower fee index fund like vti. You are incorrectly cherry picking data from the paper to refute it. Please read before you post. If you feel that the paper is statistically innaccurate then feel free to contact the author and refute it. Let us know how bad he kicks your butt if you decide to do this as he has a PHD from MIT.
Furthermore the market is a zero sum game. For one to win another has to lose. If the average investors return is 3% and the stock market return is 8% then it is basic math that someone else has to be making 8+5=13%. That someone else are the better active investors. The purpose of this post is to educate those that are interested in active management. They could do this in combination with or instead of indexing depending on their skill level.-
Holler at Sequoia and Bill Ackman if you like concentrated funds.
There are 2 types of individual investors. Those that know they don’t know and those that don’t know that they don’t know.
Stay the course my fellow Bogleheads.
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sadly I must agree with our socialist friend Bernie Sanders when he says the business model of Wall Street is fraud.
The guys making big money are all playing a different game than us retail investors.
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Macrophallus feeling the Bern. Better get that checked out.
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Think people are confusing what I’m saying
Index investing is fine to invest IN the market. My retirement account is indexed, but my retirement is going to be my side ventures and businesses that I have 100% control and understanding of
Few here will agree, ask kpack (who has some retail store) and fw who has couple of businesses. Heck radi2012 posted business income of that ER physician selling advice on his blog for 500k
99.99% physicians don’t have time for this and that’s fine. I for one have and will continue to develop side business because that out does any stock index return
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Side business and index investing is not mutually exclusive. You can do both. But we were talking about equity and retirement account investing.
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Individuals beat the market all the time and consistently
If you don’t think it can be done or is done frequently then you are fooling yourself
Gotta love the millennial living in their parents basement telling the world how to make money
Priceless
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I guess I’m fooling myself.
My parents have a furnished basement and it has a bathroom so I’m good.
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Nah your just a plant/ troll trying to drive up clicks to useless website
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You mad bro?
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I don’t believe in the low returns of market returns. I will max retirement accounts that get matched with my employer, the rest of the effort goes to businesses.
I am and will hopefully continue to get much better returns in my business – why bother with 6.4% of market returns ??
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That’s fine. Nobody is disagreeing with you on that. But your 401k or Roth IRA does not let you invest that money into your business. You have to pick something in that account. What people pick is the center topic of our discussion.
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Quote from radioman_10
I don’t believe in the low returns of market returns. I will max retirement accounts that get matched with my employer, the rest of the effort goes to businesses.
I am and will hopefully continue to get much better returns in my business – why bother with 6.4% of market returns ??
Because statistically speaking your business is more likely to fail and see the investment money disappear than it is to succeed and generate anything like market returns.
But if you are an entrepreneur and believe in yourself and are ready to take risks … go for it.
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Let’s not doubt radioman’s business prospects. We need more entrepreneurs like him. All of the companies you know and love (Google, Apple, Uber) started small and grew to what they are now. When you invest in stock, you are investing in someone else’s business. If you have time and dedication, start your own.
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Dergon,
Question for you may or may not pertain you but I will take a shot
I think you and I are close to the same age, I may have finished med school though a little earlier than you, I’m not sure
But, when you were in Med school did all the smart know everything types tell you that radiology and all specialist was essentially dead and primary care was where you wanted to be in the future?
Because basically this is what this entire discussion reminds me of……. Follow the herd…… Don’t try to do anything different
Personally I’m glad I ignored that advice
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Another point
A 6.4% yearly return your money double about every 11 years
If you have a 6.4% yearly return plus a 4% dividend yearly then you are looking at a return that doubles your money in 6.5 years
Over the course of a few decades…… That’s a huge difference
Don’t take no boogle head to figure that one out
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Obviously its not that straight forward KPack. While you as an individual may have that return, everyone would pick that option if it was simple. Generally dividend stocks have lower price appreciation than non-dividend paying stocks. No one is disputing the success you may have picking the right stocks. Its just for the vast majority that level of success is not there and they would do better with index funds. There are always the outliers who outperform as well as underperform. Where you are as individual, only you know.
You never answered my earlier question, what do you think about investing with Buffet? Maybe you are outperforming him? If so I would love to you hear what stocks you have in your portfolio.
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I actually own a lot of the same stocks 12 exact and 8 I bought before he did
But I never thought much about it
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Quote from kpack123
Dergon,
Question for you may or may not pertain you but I will take a shot
I think you and I are close to the same age, I may have finished med school though a little earlier than you, I’m not sure
But, when you were in Med school did all the smart know everything types tell you that radiology and all specialist was essentially dead and primary care was where you wanted to be in the future?
Maybe you are a few years older.
I have never in my life heard anyone say or even imply that primary care was a better lifestyle or money gig than specialties of any type.
We were pushed towards it, told that it was “rewarding”, had university leaders [i]try[/i] to sell it … but those efforts were made on appeals to our hearts, not to our heads.
_________
The basis of my financial approach to life came from my father, who was head of the Trust department at a large Midwestern bank.
He was a boglehead before there were bogleheads.
He also watched my grandfather (who was at one point in the the 1908s the oldest living stockbroker in the US) repeatedly ignore his own “buy blue chip stocks and hold them” ( this predated the existence of index funds) on a regular basis by playing in the market. My grandfather would later acknowledge that over-thinking and over-trading hurt his lifetime returns and he was a pro. (Don’t worry… he did just fine).
If you can get market returns you are going to outperform 80-90% of all investors. If you’re a radiologist with lots of income [i]and[/i] you can get market returns you have already won the game.
There’s no need to take additional risk beyond that.
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Interesting
When I finished Med School early 90’s we were all being strongly encouraged to do primary care.
I too developed my financial outlook from my father. Just a plain old ordinary no college educated Coal miner/Inspector who never made more than 30k a year but developed a stock portfolio of several million dollars by the time he was 70
I pretty much do what he did……….and it still works and honestly I would argue with you that Its less risky than the overall market and I offer as proof what this type of portfolio does during market downturns
You buy companies with a long history of increasing dividends……… a low payout ratio and Sell if fundamentals change or if the dividend gets cut. Really there is not a lot of thinking involved. There is a degree of watching and waiting….Picking your moment if you will.
For example………..why buy apple at 130 after a huge stock split and while all the suckers are racing in………wait until it hits 95 and buy 35% more shares with the same dollar. Honestly I don’t think its that hard
Its not that hard and in my experience its actually less volatile and safer than the overall market
What a lot of index investors don’t want to talk about is over half of the stuff probably more that their fund owns is garbage…crap whatever . Honestly what is the bigger crapshoot…………investing in Solid companies with proven records and the consistent cashflow to maintain payouts over prolonged periods…………or Everything the good the bad and the ugly.
THe bad and the ugly That’s what drags down their returns.
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Look at the last 10yrs
Dividend Aristocrat Portfolio average 10.3% a year
S and P 6.3% a year
Again its not that hard-
Quote from kpack123
Look at the last 10yrs
Dividend Aristocrat Portfolio average 10.3% a year
S and P 6.3% a year
Again its not that hard
That’s true. It’s been a good run for dividend stocks.
I would just counter with the statement that dividend stocks tend to see a run up in multiples during periods of low interest rates as people start to use those equities as pseudo-bonds.
While I don’t have a crystal ball, I would expect that as interest rates normalize the big rush of money into dividend stocks that has been in play since the crash will normalize.-
That’s a maybe
But again What is the bigger crapshoot
Investing in solid companies with a long term history of steady cash flows easy dividend coverage and increasing dividends
or
Buying the entire market….. the good the bad and ugly
Its not rocket science and my fees are less than any index funds because in my taxable portfolio I might trade 2-4 times a year that’s 10 bucks a trade or 20-40 bucks a year. -
Quote from kpack123
That’s a maybe
What is the bigger crapshoot
Investing in solid companies with a long term history of steady cash flows easy dividend coverage and increasing dividends
or
Buying the entire market….. the good the bad and ugly
That’s pretty much the entire unanswerable question of this thread.
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If only it was as easy as investing in good companies. Good companies do not always get good returns. Owning the market lets you catch the next 10 bagger. I would love to see kpacks returns compared to a dividend appreciation index. Everyone’s a genius in a bull market. 99%+ of radiologists would best be served by a few index funds.
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First off do you know what a 10 bagger is?
Im quite Happy with my returns
Good luck getting 10 bagger owning the market………….for that to happen your index fund would have to go up 1000%
An index fund may own a stock that goes up 10x but its also watered down with the other crapp in the fund……………..so you are getting a 6% return annually.
Second, Yes picking good companies are not always easy………..That’s why I look for COmpanies with long track records of dividend increases (because that means the dividend is important to them) and the Payout ratio is better than the industry average (because that means the dividend is safe at least near term.
I don’t know why this strategy makes you so angry?
The last 10yrs and actually quite longer the Dividend aristocrat portfolio has beat the S and P by a large margin….. and there was a market collapse mixed in that time period as well
Index funds are sold by the big brokerage houses to make you feel better. 6.3% aint that great
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Quote from kpack123
The last 10yrs and actually quite longer the Dividend aristocrat portfolio has beat the S and P by a large margin….. and there was a market collapse mixed in that time period as well
I don’t know a whole lot about these things but if i’m not mistaken, SPY has actually beat SDY over the past 10 years.
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Actually just briefly looked at SPY versus SDY. So SPY is the broader average and SDY is the Dividend payor
SPY
Price April 3, 2006—–106.96
Price April 1, 2016—–204.50
[b]Total return 91.2% 10 year[/b]
SDY
Price April 3, 2006—— 37.61
price April 1, 2016——-79.41
[b]Total return 111.12%[/b]
Again I don’t know much about either but either fund structure but……….. The dividend fund outpaced the broader market fund during the 10 year time period
And if you add the 10 years of Dividends in then the actual return is much higher with the dividend fund…..Right?
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Radioman, I too would like to own a business but I guess I’m a little chicken right now. Maybe when I get to the later stages in my career I will take the leap.
I saw that you said you sock away in retirement accounts enough to get the max match from your employer. Definitely agree that is a good move. One other thing I love about retirement accounts it the ability to tax defer. I don’t know what the max is for your retirement account but every dollar you put away can reduce your tax bill ~40 cents/dollar. My plan is to save taxes now by maxing a tax deferred 401K now when I am in a a very high tax bracket until I retire mid 50’s and then gradually convert that money to a Roth when I will be in a much lower tax bracket. Key is to do it before SS(if it exists then) kicks in and before age 70.5 (RMD’s start for the traditional IRA/401K). This entire plan however is dependent upon the current tax code which is subject to change of course.
Other tax advantaged vehicles are backdoor Roth IRA, HSA account, and 529 account. Encourage everyone to learn about those if they want to both save and reduce tax bill at same time.
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DDX,
Thanks for the post. You are correct, retirement accounts are beneficial specially the match – thats free money for me! So I do it.
However, for whatever reason (Note: I am a risk taker and am confident in my abilities; started a business in undergrad and med school and both I quit even though they were doing well due to time contraints)
1. I just feel like business or investment that I can control fully I feel good about. It takes time and effort, but mostly it is fun for me. Not bragging but those prior business were returhing 35% and 45% ROI on my money. Stocks may come close but its rare.
2. No risk no reward. Dergon is right; I can lose alot of money, but that is the thing, with medicine I can take greater risk. So doing indexing is me being too conservative. I say I go out and get something going for much higher return.
3. Re: the retirement money, I can’t touch that money till 70 (hence the retirement), but as I have issue with calling passive dumping of money in an index fund as “investment” (I don’t think thats investment at all), I do not like that I can’t “use” that money for business etc and I’ll have to wait till that time to withdraw. So I wait all these years and then enjoy retirement? whatever. My time in business has taught me to go aggressive and reinvest money right back to generate greater and greater cash flow. I suppose I am a cash flow investor and not a growth investor. I want to use my money now.
Anyways those are my thoughts.-
[link=http://www.oncoursefp.com/files/Vectors%20April%202016%20final.pdf]http://www.oncoursefp.com…ril%202016%20final.pdf[/link]
For the ten years ending December 31, 2015, 82% of large-cap, 88% of mid-cap and 88% of small-cap actively managed domestic stock funds
underperformed their S&P benchmark index. The majority of active managers in all international stock asset classes also underperformed their S&P benchmarks in the past decade.-
Well IM no manager
But I blew the S and P’s doors off over that time period
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yeah I think a lot of the studies are looking at returns after fees, which are usually a lot for actively managed funds. it’s actually not that hard to outperform the S&P500 as an individual investor.
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Not sure Id say its easy but…it can be done and in fact is done….A lot
Anytime you see this data published, you have to look at the source. It is so easily manipululated. Anyone that advocates index funds …..wants to sell you an index fund
Anyone that advocates hedge funds……………wants your money
Anyone who advocates bonds and Tax free muni’s………..want to sell you their stuff
So they are all going to sugar coat their data
Its not hard to figure that out once you’ve been around the block a few times-
[link=http://www.marketwatch.com/story/jim-cramer-doesnt-beat-the-market-2016-05-13]http://www.marketwatch.co…-the-market-2016-05-13[/link]
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Quote from kpack123
Not sure Id say its easy but…it can be done and in fact is done….A lot
Anytime you see this data published, you have to look at the source. It is so easily manipululated. Anyone that advocates index funds …..wants to sell you an index fund
Anyone that advocates hedge funds……………wants your money
Anyone who advocates bonds and Tax free muni’s………..want to sell you their stuff
So they are all going to sugar coat their data
Its not hard to figure that out once you’ve been around the block a few times
Isn’t this also the deal with the “We guarantee upside when market is up, and you will lose nothing when market is down”?
If the market is down and/or gets crushed, these guys will vanish into bankruptcy or some other spinoff where they get cut a sweetheart deal … and you get screwed. It’s sorta obvious that they’ve set up this “heads we win, tails you lose” scenario
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JTG – You are exactly right, the stock market is a zero sum game. For every winner there is a loser. Except it is not a 50/50 even trade. We have to remember the costs of active investing. There is the trade fee, there are the tax consequences, million dollar salaries of active managers, record keeping fees, account management fees, etc. So for every trade in the market, the math proves there is a negative total return even if the trade is 100% efficient. This proves that the more trading there is the more losing there is due to transaction cost. The biggest winners here are the employees of the financial market that collect the fees. Govt wins with taxes as well. These fees and emotional trading are the reasons why the avg investor underperforms.
Also, when considering the stock market as a zero sum game with winners and losers. Who do you think the losers are going to be? A doc with his investor cap on or a wall street shark who lives and breathes the market? I don’t think this is a level playing field. MLB versus Little League maybe?
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[link=http://www.forbes.com/sites/brettowens/2016/04/10/the-4-newest-dividend-aristocrats/#5c2a35d71790]http://www.forbes.com/sit…stocrats/#5c2a35d71790[/link]
I’m not familiar wth SDY ( I suspect its some fund that is screwing over people as funds do) but This is a chart I’ve seen in a few other places For some reason I can’t copy and paste
One other point………… a lot of these so called studies go just on Price of a unit and don’t factor in dividends to the total return. That’s basically fudging your data. That’s why they can make these outlandish claims
Just another reason why they can stick funds straight up their Arses
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Quote from radi2012
[link=http://www.marketwatch.com/story/jim-cramer-doesnt-beat-the-market-2016-05-13]http://www.marketwatch.co…-the-market-2016-05-13[/link]
I remember years ago seeing a paper written showing that the best ways to get returns off of Jim Cramer was to wait 2 weeks after he mentioned a stock on his program, then short it.
The stock price would get a temporary bump after he mentioned it, then fall back to baseline.-
If one had just bought and held the S&P 500 index fund, one would have spent much less time, paid much fewer fees, and beat Cramer’s portfolio.
Bogleheads stay the course!-
Dergon, I think that was Louis Rukeyser’s WSW.
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[link=http://www.marketwatch.com/story/these-dividend-kings-have-had-average-annual-returns-of-up-to-21-for-25-years-2016-05-26?siteid=YAHOOB]http://www.marketwatch.co…16-05-26?siteid=YAHOOB[/link]
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Basically when you add in dividends and reinvest….. You crush the s and p
Most studies by the index fund managers conveniently omit dividends altogether or don’t take into account reinvestment of them
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