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Re: A Backtest of the Dividend Growth Model, 1871-2010

MindBogler,

Do you read what I write? I have said twice that there is no problem using earnings growth instead of dividend growth.

What is wrong is losing sight of how the Gordon Equation is derived. It is from cash flow.

It must be getting late.
by TJSI
Wed Oct 29, 2014 9:45 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4445

Re: A Backtest of the Dividend Growth Model, 1871-2010

rmelvey, Earnings growth rate is often substituted in place of dividend growth and they are close. However, there is a hidden assumption --that the payout ratio is constant. The payout ratio is not quite constant and earnings are more volatile than dividends. Over the long term, the earnings growth ...
by TJSI
Wed Oct 29, 2014 9:13 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4445

Re: A Backtest of the Dividend Growth Model, 1871-2010

Larry, Go back and review your notes from NYU! The Gordon Model is cash flow. No variation in shares. And it is not earnings it is dividends--cash. Now many substitute earnings growth for dividend growth and they are close. So no major error. But the Gordon model is a cash flow analysis with zero ch...
by TJSI
Wed Oct 29, 2014 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4445

Re: A Backtest of the Dividend Growth Model, 1871-2010

Simplegift, By the Dividend Growth Model, I assume you are referring to the Gordon Model. That model is a discounted cash flow analysis. It is the price of one share of stock assuming an initial yield and constant dividend growth rate. There is no variation in share quantity. If the share quantity v...
by TJSI
Wed Oct 29, 2014 6:34 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4445

Re: A Backtest of the Dividend Growth Model, 1871-2010

We have been down this path before but I will try again. Adding a buyback yield to the Gordon formula produces a nonsense number. Buybacks are investments. If buybacks are good in general, their effect will show up in an increased earnings or dividend growth rate. Their effect is already included in...
by TJSI
Wed Oct 29, 2014 12:02 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4445

Re: IBM: Stock Buybacks Gone Wrong?

inbox788, You asked if I had any ideas for IBM. At the time I had none. However, in a burst of creativity I now have two: 1) IBM wants to own the cloud. They should look into owning the pipes between the clouds. Buy/build some backbone networks. 2) Google wants to provide cloud services. Use Watson ...
by TJSI
Wed Oct 22, 2014 10:11 pm
 
Forum: Investing - Theory, News & General
Topic: IBM: Stock Buybacks Gone Wrong?
Replies: 65
Views: 4134

Re: IBM: Stock Buybacks Gone Wrong?

inbox788, Sorry, I don't have any recommendations for IBM. I hope they recover and continue as a mainstay of the IT industry. Maybe the cat has a few more lives in it. I find their strategy of shedding lines of business and doing massive buybacks interesting and peculiar. Maybe it will work--time wi...
by TJSI
Wed Oct 22, 2014 2:51 pm
 
Forum: Investing - Theory, News & General
Topic: IBM: Stock Buybacks Gone Wrong?
Replies: 65
Views: 4134

Re: IBM: Stock Buybacks Gone Wrong?

inbox788, Since they have been consistently doing buybacks, they must have concluded that their stock was consistently undervalued for more than a decade and was always a good investment. They were probably right some of the time but I suspect that there were other motives at work. That is some list...
by TJSI
Wed Oct 22, 2014 2:06 am
 
Forum: Investing - Theory, News & General
Topic: IBM: Stock Buybacks Gone Wrong?
Replies: 65
Views: 4134

Re: IBM: Stock Buybacks Gone Wrong?

Langhhawi, I suggest you read the latest comments from the good professor on buybacks v dividends. See: Musings on Markets, Sept 22, 2014 Stock Buybacks: They are big, they are back & they scare some people. He refers to them as a type of "return" not a dividend. Buybacks are investmen...
by TJSI
Tue Oct 21, 2014 10:44 pm
 
Forum: Investing - Theory, News & General
Topic: IBM: Stock Buybacks Gone Wrong?
Replies: 65
Views: 4134

Re: IBM: Stock Buybacks Gone Wrong?

Stlutz, Well I don't believe a buyback is a dividend, or a form of dividends , or like a dividend. It is an investment. IBM has a great history as a technology company. They have weathered several technology changes and their stockholders have benefitted greatly. It looks like somewhere along the wa...
by TJSI
Tue Oct 21, 2014 8:55 pm
 
Forum: Investing - Theory, News & General
Topic: IBM: Stock Buybacks Gone Wrong?
Replies: 65
Views: 4134

IBM: Stock Buybacks Gone Wrong?

There is an interesting article in today's NYT (The Truth Hidden BY IBM's Buybacks) about a much discussed and debated topic---Buybacks. The article points out that since 2000 IBM has spent $108 billion on buybacks while investing $59 billion on capital expenditures and $39 billion on acquisitions. ...
by TJSI
Tue Oct 21, 2014 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: IBM: Stock Buybacks Gone Wrong?
Replies: 65
Views: 4134

Re: Stock Dividend Yields & Share Buybacks — A Surprise

If you add dividend yield to the percent net buyback your result is a nonsense number. Stockholder yield (return) results from capital gains or dividends. A 5% buyback does not result in an automatic 5% increase in share price. A buyback is an investment by a corporation. It can be a good, bad, or i...
by TJSI
Wed Oct 01, 2014 10:55 am
 
Forum: Investing - Theory, News & General
Topic: Stock Dividend Yields & Share Buybacks — A Surprise
Replies: 70
Views: 4840

Re: DDM model predictions vs real returns

siamond,

Suggest you take a look at the speech given by John Bogle on June 13, 2012--Thinking About What Lies Ahead For Investors. I think you will find it interesting. And it is in the Wiki under John Bogle speeches.

TJSI
by TJSI
Mon Jul 28, 2014 9:53 pm
 
Forum: Investing - Theory, News & General
Topic: DDM model predictions vs real returns
Replies: 6
Views: 611

Re: Value Overvalued

Overvalued or not, I would like to thank James99 for the link. It contains a lot of relevant statistics and data.
Thanks.
by TJSI
Mon Jul 21, 2014 8:57 pm
 
Forum: Investing - Theory, News & General
Topic: Value Overvalued
Replies: 23
Views: 2366

Re: Credit card "payment networks"--how many are there, e.g

tidalwave10, AdamFist & Imbros have used the best term to describe the top of a pyramid of functions--a brand. Below the top it becomes complex and irregular quickly. Each brand provides a set of functions. These functions can be broadly divided into three categories: issuing functions, merchant...
by TJSI
Thu May 29, 2014 5:17 pm
 
Forum: Personal Consumer Issues
Topic: Credit card "payment networks"--how many are there, e.g Amex
Replies: 18
Views: 1619

Re: Credit card "payment networks"--how many are there, e.g

Unfortunately, there can be no easy answer to the question: How many payment networks are there? The term "payment network" has multiple meanings and is used freely an loosely by many article writers. The payment process is large and complex and over the years much of it has been outsource...
by TJSI
Thu May 29, 2014 2:25 pm
 
Forum: Personal Consumer Issues
Topic: Credit card "payment networks"--how many are there, e.g Amex
Replies: 18
Views: 1619

Re: Can we rely on stock and bond yields during bear markets

A nice, concise summary of dividends, earnings, and yields can be found here: http://www.stern.nyu.edu/~adamodar/pc/datasets/spearn.xls If an economic downturn is severe enough dividends can be cut. It is for that very reason that many advise a greater allocation to bonds with age. Note: If you clic...
by TJSI
Wed May 28, 2014 2:50 pm
 
Forum: Investing - Help with Personal Investments
Topic: Can we rely on stock and bond yields during bear markets?
Replies: 5
Views: 831

Re: Woodpeckers...I'm desperate!

I had this problem for a couple of years as a woodpecker would arrive each Fall and do some damage. It use to wake me up in the morning and at first I thought some crazy person was knocking on my door at 6AM. Eventually, I saw the damage it was doing. My little friend would arrive faithfully each Fa...
by TJSI
Mon Apr 14, 2014 4:32 pm
 
Forum: Personal Consumer Issues
Topic: Woodpeckers...I'm desperate!
Replies: 52
Views: 5199

Re: How do I value my business?

Valuation of your business would most likely be done on an after-tax cash flow analysis. Your income tax statements would be the starting point of a valuation analysis. You can determine the value of the company to you by your after-tax cash flow and a discount rate. So if you and your partner gener...
by TJSI
Sun Apr 06, 2014 8:03 pm
 
Forum: Personal Finance (Not Investing)
Topic: How do I value my business?
Replies: 6
Views: 736

Re: Gordon equation-stock buybacks

After a little thought, I will modify the statement about the valuation assigned to manufactured ( non-operating) earnings per share. The P/E should be near 1. If the stocks purchased are undervalued, than the P/E assigned to those earnings would be greater than 1. So if a stock is purchased at 70% ...
by TJSI
Sat Apr 05, 2014 10:32 am
 
Forum: Investing - Theory, News & General
Topic: Gordon equation-stock buybacks
Replies: 11
Views: 927

Re: Gordon equation-stock buybacks

camontgo, Thanks for the interesting links! I found the article "A Supply Model of the Equity Premium" most interesting as they attempt to provide an analytic model of the effect of buybacks. However, I believe their analysis and model is flawed. First they conflate price changes with cash...
by TJSI
Fri Apr 04, 2014 10:22 pm
 
Forum: Investing - Theory, News & General
Topic: Gordon equation-stock buybacks
Replies: 11
Views: 927

Re: Gordon equation-stock buybacks

Andyman, I don't think buybacks are easily incorporated into the Gordon Equation. They are not dividends although they might effect future dividend flows--positively or negatively. The Gordon equation is based upon discounted cash flows and buybacks most directly effect capital gains. I don't think ...
by TJSI
Fri Apr 04, 2014 10:38 am
 
Forum: Investing - Theory, News & General
Topic: Gordon equation-stock buybacks
Replies: 11
Views: 927

Re: Dividend stocks for current income in early retirement?

SteveKL,

I don't know to break the news to you but----long term capital gains have been taxed for a decade at the same rate as qualified dividends.
by TJSI
Fri Mar 14, 2014 9:49 pm
 
Forum: Investing - Help with Personal Investments
Topic: Dividend stocks for current income in early retirement?
Replies: 38
Views: 4230

Re: I don't want to upgrade XP just yet, is that ok?

Nisiprius. Now that is the "Telltale Pie Chart". It shows why Microsoft as a company may have seen its best days. They need to change their marketing strategy from constantly adding ever more features and complexity to how to insure their base is satisfied. Otherwise, I think they will jus...
by TJSI
Fri Mar 14, 2014 3:30 pm
 
Forum: Personal Consumer Issues
Topic: I don't want to upgrade XP just yet, is that ok?
Replies: 86
Views: 7372

Re: How exactly do index funds compound?

rdlaner, I feel your pain. The term compounding is used loosely by many so reading the various posts on the matter will only add to your confusion. The value of your investment in a fund or stock will increase as you gain more shares you own by reinvesting the dividends and through the increase (hop...
by TJSI
Thu Mar 13, 2014 12:53 pm
 
Forum: Investing - Theory, News & General
Topic: How exactly do index funds compound?
Replies: 12
Views: 2235

Re: where did the dividend money go?

Another place money is missing is overseas. Since a significant fraction of large companies revenues are now overseas, the resulting income and cash are held there due to the tax burden of moving them to the US. The money is not so much missing but rather it is sequestered. The earnings component of...
by TJSI
Mon Mar 10, 2014 11:45 am
 
Forum: Investing - Theory, News & General
Topic: where did the dividend money go?
Replies: 8
Views: 1295

Re: where did the dividend money go?

Well a lot of money is now being used for stock buybacks. It is at least as big as dividend payouts and maybe even more. Even though this is massive, I don't believe the effect on corporate profitability and stock holder returns is fully understood. Some of it appears to be money thrown out the wind...
by TJSI
Sun Mar 09, 2014 4:35 pm
 
Forum: Investing - Theory, News & General
Topic: where did the dividend money go?
Replies: 8
Views: 1295

Re: Schwarzman Loves Dividends!

abuss368, you ask who has enough information to invest in firms like Blackstone? I think the answer is the "smart people"--endowments, trusts, pension plans, and the very wealthy with really great investment advisers. It is not for the common folk. Or, for the "little people" who...
by TJSI
Sat Mar 08, 2014 11:55 am
 
Forum: Investing - Theory, News & General
Topic: Schwarzman Loves Dividends!
Replies: 34
Views: 2531

Re: Schwarzman Loves Dividends!

Valuethinker, Thanks for pointing that out. I am guilty of what I accuse others off--using terms in a sloppy and inconsistent manner. They are definitely not a company. They did an IPO and file a 10K. Ordinary shareholders are second class citizens. Now if I can only figure out what they are "w...
by TJSI
Thu Mar 06, 2014 4:11 pm
 
Forum: Investing - Theory, News & General
Topic: Schwarzman Loves Dividends!
Replies: 34
Views: 2531

Re: Schwarzman Loves Dividends!

An interesting company which I suppose would describe themselves as a private equity company which does friendly buyouts and turnarounds. Last year was a very good year as they did an IPO on the Hilton Properties. Seems they had taken it over a few years back and turned it around. I guess Paris was ...
by TJSI
Thu Mar 06, 2014 1:40 pm
 
Forum: Investing - Theory, News & General
Topic: Schwarzman Loves Dividends!
Replies: 34
Views: 2531

Re: Schwarzman Loves Dividends!

Valuethinker, Thanks for the references. I read Barbarians at the Gate many years ago and it was truly entertaining. A recent quote from the WSJ ( 3/4/14) from Mr. Schwarzman on his payout philosophy: " Mr Schwarzman told investors they could look forward to the firm continuing to pay out most ...
by TJSI
Wed Mar 05, 2014 2:19 pm
 
Forum: Investing - Theory, News & General
Topic: Schwarzman Loves Dividends!
Replies: 34
Views: 2531

Re: Schwarzman Loves Dividends!

Thanks Grt2bOutdoors for your comments. I know next to nothing about the private equity business. But those type of numbers are impressive and it will be worthwhile to learn a bit about how such incomes are earned.
by TJSI
Wed Mar 05, 2014 12:43 pm
 
Forum: Investing - Theory, News & General
Topic: Schwarzman Loves Dividends!
Replies: 34
Views: 2531

Schwarzman Loves Dividends!

Stephen Schwarzman CEO of Blackstone Group last year received $352.5 million in dividend income. His total comp was $465.4 million. Apparently, he has not been keeping up with the latest financial theory that dividends don't matter. I don't know what Mr. Schwartzman does to earn that kind of money b...
by TJSI
Wed Mar 05, 2014 12:09 pm
 
Forum: Investing - Theory, News & General
Topic: Schwarzman Loves Dividends!
Replies: 34
Views: 2531

Re: Why do investors prefer cash dividends?

Larry, I believe Mr. Buffett said that he did not pay dividends because he was running a holding company and not an operating company. He said that because his investment horizon was the world, he believed that he could always find good investments ( I believe he said his target was 12% ROI) and thu...
by TJSI
Tue Mar 04, 2014 11:44 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Why do investors prefer cash dividends?

Ogd, You are one of "those people" who are constantly mixing the terms value, price, and worth. So your arguments are full of heat but not easy to interpret. You say that a company that pays a 1% dividend is "worth" 1% less the next day. Is "worth" price or book value? ...
by TJSI
Tue Mar 04, 2014 10:58 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Why do investors prefer cash dividends?

Leeraar, I did not say there was an arbitrage opportunity. I said that most studies show that prices do not change by the dividend amount. Deal with it; don't change the topic. There may or may not be an arbitrage opportunity. I don't know. Larry said: " So you are one of those people (Those pe...
by TJSI
Tue Mar 04, 2014 7:43 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Why do investors prefer cash dividends?

Leeraar, Free money? Where? I want some. I have said only two things: 1) Most research has shown that prices do not drop by the dividend amount. It has been widely studied. 2) The value of an investment is due to the discounted return via dividends and capital gains. The value does not change by the...
by TJSI
Tue Mar 04, 2014 5:21 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Why do investors prefer cash dividends?

Ogd, Well I just did a small amount of research and take a look at this paper: Marginal Stockholder Tax Effects & Ex-Dividend-Day Price Behavior Evidence from Taxable versus Non-Taxable Closed -End Funds (Elton, Gruber, Blake-- NYU Stern). Here is the first sentence from the abstract: "Almo...
by TJSI
Tue Mar 04, 2014 4:22 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Why do investors prefer cash dividends?

Ogd, Before you fling insults, I suggest you learn to use Google and do a little research. There is much to learn for inquiring minds. The topic of dividend capture has also been studied and some say that the is a tiny return available. However, market noise makes the capture of the small change in ...
by TJSI
Tue Mar 04, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Why do investors prefer cash dividends?

Sorry Larry but you are mistaken in the claim that stock prices drop after the paying of a dividend. This thing has been studied to death in multiple stock exchanges around the world and the results vary. The best that could be said is that most likely there will be a slight increase in price before...
by TJSI
Tue Mar 04, 2014 2:54 pm
 
Forum: Investing - Theory, News & General
Topic: Why do investors prefer cash dividends?
Replies: 126
Views: 5935

Re: Stocks that Don't Pay Dividends - Greater Fool Driven?

Valuthinker, I think there are some important differences between dividends and buybacks. First, is the question of intrinsic value of the company and the decision to do a buyback. (Jack touched upon this when he mention the role of CEO as a stock picker.) If a stock is currently selling below its i...
by TJSI
Sat Mar 01, 2014 11:33 am
 
Forum: Investing - Theory, News & General
Topic: Stocks that Don't Pay Dividends - Greater Fool Driven?
Replies: 73
Views: 5000

Re: Stocks that Don't Pay Dividends - Greater Fool Driven?

There seems to be an ongoing assumption by several posters that by choosing capital gains as their preferred return mechanism that they have control of the return and this is advantageous from a tax viewpoint. Unfortunately, this is not the full story. A capital gain postponed is no more than a bet ...
by TJSI
Fri Feb 28, 2014 1:14 am
 
Forum: Investing - Theory, News & General
Topic: Stocks that Don't Pay Dividends - Greater Fool Driven?
Replies: 73
Views: 5000

Re: No Silver Bullets in Investing

Rick, thanks for the link. The paper covers a lot of ground and is informative and readable.

TJSI
by TJSI
Thu Feb 27, 2014 11:29 pm
 
Forum: Investing - Theory, News & General
Topic: No Silver Bullets in Investing
Replies: 14
Views: 2098

Re: What makes markets go up long term? What can make them n

I vote with YDNAl on this and say that earnings and earnings growth best account for long-term market movement. In 1960, S&P 500 earnings were $3.10 and in 2013 earnings were $107.45. Lay on top of this short-term changes due to market emotion and you have a pretty good model of stock market pri...
by TJSI
Tue Feb 18, 2014 8:12 pm
 
Forum: Investing - Theory, News & General
Topic: What makes markets go up long term? What can make them not?
Replies: 16
Views: 1287

Re: Credit Suisse Global Investment Returns Yearbook 2014

Stratton,

Thanks for the notice. Their Yearbook is always a great source of data and analysis.

TJSI
by TJSI
Mon Feb 17, 2014 1:11 pm
 
Forum: Investing - Theory, News & General
Topic: Credit Suisse Global Investment Returns Yearbook 2014
Replies: 2
Views: 889

Re: PE10 - Theory Question

My guess is that PE10 has some predictive ability because it is a measure of the speculative component of returns. So when PE10 is high, optimism reigns and the risk free is of little concern to many investors. Eventually economics wins out and the market returns to normalcy and returns drop. PE10 i...
by TJSI
Fri Feb 14, 2014 11:10 am
 
Forum: Investing - Theory, News & General
Topic: PE10 - Theory Question
Replies: 10
Views: 806

Re: Pet peeve: When people refer to this forum as "Bogglehea

People who have peeves for pets drive me nuts.
by TJSI
Thu Feb 13, 2014 2:13 am
 
Forum: Local Chapters and Bogleheads Community
Topic: Pet peeve: When people refer to this forum as "Boggleheads."
Replies: 36
Views: 6059

Re: JOHN BOGLE'S NOMINATION FOR ECONOMIC LAUREATE

Excellent idea! Hopefully, you have lit a fire.

TJSI
by TJSI
Thu Jan 30, 2014 12:28 pm
 
Forum: Investing - Theory, News & General
Topic: JOHN BOGLE'S NOMINATION FOR PRESIDENTIAL MEDAL OF FREEDOM
Replies: 43
Views: 5386

Re: How the economic machine works

Thanks for the link. An interesting and entertaining effort to tie together many economic forces. I liked his try at differentiating money from credit although I have never been able to convince myself that American Express does not create money.
by TJSI
Wed Jan 22, 2014 12:20 pm
 
Forum: Investing - Theory, News & General
Topic: How the economic machine works
Replies: 4
Views: 597

Re: Long-term future predictions: what's the math?

siamond, Getting back to your original question, one potential source of data for valuation estimates for sectors is the prospectus of the various sector funds and ETFs. If the fund has been around for awhile it will show the history of dividend payments. You could then calculate a dividend growth r...
by TJSI
Tue Jan 14, 2014 10:55 am
 
Forum: Investing - Theory, News & General
Topic: Long-term future predictions: what's the math?
Replies: 20
Views: 1457
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