Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
RAchip
Posts: 176
Joined: Sat May 07, 2016 7:31 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by RAchip » Sat Nov 11, 2017 3:25 pm

"Dividends are part of total return, but are less tax efficient than selling stock in a taxable account as all of the dividend is taxed yearly and when selling stocks only the capital gains part is taxed."

Yes, you will pay less in taxes on a "homemade" dividend than on a qualified dividend for the reason you stated. But "homemade" dividends will reduce your future dividend payments into perpetuity. So "homemade" dividends would likely actually "cost" (produce less after tax value) in the long run for buy and hold investors than qualified dividends.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Sat Nov 11, 2017 3:29 pm

RAchip wrote:
Sat Nov 11, 2017 3:25 pm
"Dividends are part of total return, but are less tax efficient than selling stock in a taxable account as all of the dividend is taxed yearly and when selling stocks only the capital gains part is taxed."

Yes, you will pay less in taxes on a "homemade" dividend than on a qualified dividend for the reason you stated. But "homemade" dividends will reduce your future dividend payments into perpetuity. So "homemade" dividends would likely actually "cost" (produce less after tax value) in the long run for buy and hold investors than qualified dividends.
Nope, this is just the myth that dividends are free money all over again. A withdrawal is a withdrawal whether it is in the form of dividends distributed from one of the securities you own or cash raised by selling shares in one of the securities you own.

It is important to emphasize this is completely wrong - you cost your future returns no more or less by taking the money out via dividends that go unreinvested or via sales of shares. The only additional cost is the tax cost of the dividends being issued regardless of whether you withdrawal that capital from your portfolio or reinvest it.

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sat Nov 11, 2017 4:16 pm

hoops777 wrote:
Sat Nov 11, 2017 1:31 pm
I do have a question.I mentioned earlier in some other phrasing and it was ignored, so maybe it is a foolish question.
Let’s take a company like JNJ.I think it is accurate and fair to say a lot of investors have stayed with this stock for many years because it is a household name that pays a nice dividend.
An investor starts buying the stock in their 30’s and the plan is to reinvest all dividends until retirement.What happens is the amount of shares drastically increase over time as does the yield on the initial investment.The investor retires and now uses the stock as a income vehicle,never selling shares,but now spending the dividends,and when he dies at 85 he leaves the stock to his kids.Say he initially bought 10,000 dollars and it is now worth 200,000,just making up numbers here.

Of course a similar or better outcome would occur if he just sold shares instead of taking dividends when he retired.I get that.

Here is my question.A lot of dividend investors buy the stock because of this strategy,technically flawed or not.They would not have bought JNJ If it did not pay a dividend.So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Would this not make the dividends a factor in a sense?
I am moving this to page 4 so hopefully someone will comment.If this is the dumbest thing ever said just tell me.No problem.
K.I.S.S........so easy to say so difficult to do.

User avatar
triceratop
Moderator
Posts: 3609
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Sat Nov 11, 2017 4:28 pm

hoops777 wrote:
Sat Nov 11, 2017 4:16 pm
hoops777 wrote:
Sat Nov 11, 2017 1:31 pm
I do have a question.I mentioned earlier in some other phrasing and it was ignored, so maybe it is a foolish question.
Let’s take a company like JNJ.I think it is accurate and fair to say a lot of investors have stayed with this stock for many years because it is a household name that pays a nice dividend.
An investor starts buying the stock in their 30’s and the plan is to reinvest all dividends until retirement.What happens is the amount of shares drastically increase over time as does the yield on the initial investment.The investor retires and now uses the stock as a income vehicle,never selling shares,but now spending the dividends,and when he dies at 85 he leaves the stock to his kids.Say he initially bought 10,000 dollars and it is now worth 200,000,just making up numbers here.

Of course a similar or better outcome would occur if he just sold shares instead of taking dividends when he retired.I get that.

Here is my question.A lot of dividend investors buy the stock because of this strategy,technically flawed or not.They would not have bought JNJ If it did not pay a dividend.So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Would this not make the dividends a factor in a sense?
I am moving this to page 4 so hopefully someone will comment.If this is the dumbest thing ever said just tell me.No problem.
Are you suggesting buying dividend stocks because there is upward price pressure on them from those committing an agreed-upon behavioral error? How is this not another behavioral error?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sat Nov 11, 2017 4:45 pm

triceratop wrote:
Sat Nov 11, 2017 4:28 pm
hoops777 wrote:
Sat Nov 11, 2017 4:16 pm
hoops777 wrote:
Sat Nov 11, 2017 1:31 pm
I do have a question.I mentioned earlier in some other phrasing and it was ignored, so maybe it is a foolish question.
Let’s take a company like JNJ.I think it is accurate and fair to say a lot of investors have stayed with this stock for many years because it is a household name that pays a nice dividend.
An investor starts buying the stock in their 30’s and the plan is to reinvest all dividends until retirement.What happens is the amount of shares drastically increase over time as does the yield on the initial investment.The investor retires and now uses the stock as a income vehicle,never selling shares,but now spending the dividends,and when he dies at 85 he leaves the stock to his kids.Say he initially bought 10,000 dollars and it is now worth 200,000,just making up numbers here.

Of course a similar or better outcome would occur if he just sold shares instead of taking dividends when he retired.I get that.

Here is my question.A lot of dividend investors buy the stock because of this strategy,technically flawed or not.They would not have bought JNJ If it did not pay a dividend.So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Would this not make the dividends a factor in a sense?
I am moving this to page 4 so hopefully someone will comment.If this is the dumbest thing ever said just tell me.No problem.
Are you suggesting buying dividend stocks because there is upward price pressure on them from those committing an agreed-upon behavioral error? How is this not another behavioral error?
I am asking if just say half the investors who have bought JNJ the last 30 years,bought it BECAUSE it paid a nice dividend.They would not have bought it otherwise.Does this behavior not factor in to the success of JNJ stock?How would the stock have fared if you removed all the buyers who only bought it for the dividend?What about the value of the company?
K.I.S.S........so easy to say so difficult to do.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Sat Nov 11, 2017 4:46 pm

hoops777 wrote:
Sat Nov 11, 2017 4:16 pm
So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?
The data does not show dividends to have a positive effect beyond what would we be expected from their factor exposure so no, it does not appear that investors specifically chasing dividends have a positive effect on the long term performance of stocks that pay dividends.
If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Why wouldn't others step in and buy the shares? If the price dipped below what someone though it was valued it they would buy it.
Would this not make the dividends a factor in a sense?
Not in any sense in which 'factor' is being used to with regards to constructing portfolios.

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sat Nov 11, 2017 5:04 pm

avalpert wrote:
Sat Nov 11, 2017 4:46 pm
hoops777 wrote:
Sat Nov 11, 2017 4:16 pm
So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?
The data does not show dividends to have a positive effect beyond what would we be expected from their factor exposure so no, it does not appear that investors specifically chasing dividends have a positive effect on the long term performance of stocks that pay dividends.
If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Why wouldn't others step in and buy the shares? If the price dipped below what someone though it was valued it they would buy it.
Would this not make the dividends a factor in a sense?
Not in any sense in which 'factor' is being used to with regards to constructing portfolios.
Let me put it another way.
Say Warren Buffet wakes up tomorrow and says I want to buy 100 million dollars worth of stock.

For whatever reason he says I am buying JNJ because it pays a nice dividend.I am not buying ABC because it does not pay a dividend.
Is the value of JNJ not changed because he chose to buy it only because of the dividend?
The value of a company increases when shares are bought,correct?I just do not understand how millions of investors choosing to buy a company because it pays a dividend does not matter.The dividend matters because they would not have bought the shares if it did pay a dividend.
If you assume that others in equal amounts will step in and buy the same amount,I get that,but that seems like an awfully big assumption.
Last edited by hoops777 on Sat Nov 11, 2017 5:15 pm, edited 1 time in total.
K.I.S.S........so easy to say so difficult to do.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Sat Nov 11, 2017 5:14 pm

hoops777 wrote:
Sat Nov 11, 2017 5:04 pm
avalpert wrote:
Sat Nov 11, 2017 4:46 pm
hoops777 wrote:
Sat Nov 11, 2017 4:16 pm
So if you remove the totality of investors who only buy these stocks because of the dividend,what does that do to the stock price?Don’t the dividend investors have a positive effect on the long term performance of JNJ?
The data does not show dividends to have a positive effect beyond what would we be expected from their factor exposure so no, it does not appear that investors specifically chasing dividends have a positive effect on the long term performance of stocks that pay dividends.
If they had never existed and the shares were never bought and reinvested,would JNJ be the same successful stock?It is not like others would step in and buy the shares they didn’t.
Why wouldn't others step in and buy the shares? If the price dipped below what someone though it was valued it they would buy it.
Would this not make the dividends a factor in a sense?
Not in any sense in which 'factor' is being used to with regards to constructing portfolios.
Let me put it another way.
Say Warren Buffet wakes up tomorrow and says I want to buy 100 million dollars worth of stock.

For whatever reason he says I am buying JNJ because it pays a nice dividend.I am not buying ABC because it does not pay a dividend.
Is the value of JNJ not changed because he chose to buy it only because of the dividend?
And if he decided he wanted to buy 100 million dollar worth because he likes the letter J? Does that mean the value of JNJ changed only because of the letter it starts with?

No, the value did not change because of why he chose to buy it. The current value will be set by whatever price the marginal seller is willing to sell that $100 millionths worth. There is also a good chance the current value will decline quickly afterwards as you don't have other buyers willing to pay a premium for something that isn't expected to increase returns.

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sat Nov 11, 2017 5:30 pm

I added some to my previous post.I will just say that I must have a severe mental block because it make no sense to me.It just seems so logical to me that if the shares were bought over 30 years only because it starts with the letter J,as you suggested,I would say it does matter.
Tesla has a valuation of how many billions,because people bought on hope,and I believe it is not even profitable yet.If half the investors had said screw it,I am not buying this stock until I see profits,that doesn’t matter?Tesla’s value was changed by hope so why can’t the same thing be said about people buying because of dividends?
K.I.S.S........so easy to say so difficult to do.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by avalpert » Sat Nov 11, 2017 5:36 pm

hoops777 wrote:
Sat Nov 11, 2017 5:04 pm
The value of a company increases when shares are bought,correct?
No, the value of a company does not necessarily increase when shares are bought - take a look at price movement of any stock and you will see the price goes up and down, in both circumstances shares are being bought (and sold).

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sat Nov 11, 2017 5:56 pm

Ok.It just seems to me that when they do the academic research they just look at the cold hard numbers,which is I guess all they can really do.
I understand what Swedroe says about dividends in that sense.They don’t matter.But.....in the real world where people make a choice to buy something based on their beliefs,I think dividends do matter regarding what becomes of a stock because they entice people to invest in the company.If they had no bearing on the success of the stock,why do these companies keep paying the dividends?I think because they want to keep their investors.So just maybe all of these investors who really do not understand the technical stuff about how dividends really work,are changing the long term performance of these companies simply by buying.So maybe dividends do matter in their own way that cannot be measured by technicians or maybe I am just nuts,but I really have a hard time buying that they do not matter in any way regarding performance of the stock.
K.I.S.S........so easy to say so difficult to do.

Da5id
Posts: 1500
Joined: Fri Feb 26, 2016 8:20 am

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id » Sun Nov 12, 2017 11:40 am

nedsaid wrote:
Sat Nov 11, 2017 12:10 pm
Da5id wrote:
Sat Nov 11, 2017 8:59 am
nedsaid wrote:
Sat Nov 11, 2017 7:23 am
Man, I never went to parochial school but there are people here who see fit to enforce discipline on investing scofflaws.
If arguing against misguided ideas (like dividends investing > total return investing) is worthy of criticism, OK. I'd argue that letting inaccurate statements stand unchallenged is a bad idea in a forum on investing theory. I also think people who like dividends qua dividends should read Larry's article with an open mind. I think people should work on identifying their weaknesses -- which we all have, being human, and which can sabotage an investing plan --- and fight against them. But hey, that would take discipline of a different sort.
I own three of Larry Swedroe's books and I have read many of his articles. I also have interacted with him many times on this forum. I know exactly what Larry says about dividends. I have restated what he has said here many times. The thing is, this is going beyond pointing out factual errors, it is becoming plain old fussbudget behavior and I for one am getting tired of it.
Got it. But note that the back and forth in this thread has two sides, and it is (IMHO) odd to consider one side overly persistent and not consider the other side overly persistent, as your chastising of one side seems to imply. I for one prefer for incorrect notions to not win out. But chastise away.

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sun Nov 12, 2017 12:20 pm

hoops777 wrote:
Sat Nov 11, 2017 5:56 pm
Ok.It just seems to me that when they do the academic research they just look at the cold hard numbers,which is I guess all they can really do.
I understand what Swedroe says about dividends in that sense.They don’t matter.But.....in the real world where people make a choice to buy something based on their beliefs,I think dividends do matter regarding what becomes of a stock because they entice people to invest in the company.If they had no bearing on the success of the stock,why do these companies keep paying the dividends?I think because they want to keep their investors.So just maybe all of these investors who really do not understand the technical stuff about how dividends really work,are changing the long term performance of these companies simply by buying.So maybe dividends do matter in their own way that cannot be measured by technicians or maybe I am just nuts,but I really have a hard time buying that they do not matter in any way regarding performance of the stock.
So I guess my thinking here is nuts. :happy
K.I.S.S........so easy to say so difficult to do.

User avatar
triceratop
Moderator
Posts: 3609
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Sun Nov 12, 2017 12:52 pm

hoops777 wrote:
Sun Nov 12, 2017 12:20 pm
hoops777 wrote:
Sat Nov 11, 2017 5:56 pm
Ok.It just seems to me that when they do the academic research they just look at the cold hard numbers,which is I guess all they can really do.
I understand what Swedroe says about dividends in that sense.They don’t matter.But.....in the real world where people make a choice to buy something based on their beliefs,I think dividends do matter regarding what becomes of a stock because they entice people to invest in the company.If they had no bearing on the success of the stock,why do these companies keep paying the dividends?I think because they want to keep their investors.So just maybe all of these investors who really do not understand the technical stuff about how dividends really work,are changing the long term performance of these companies simply by buying.So maybe dividends do matter in their own way that cannot be measured by technicians or maybe I am just nuts,but I really have a hard time buying that they do not matter in any way regarding performance of the stock.
So I guess my thinking here is nuts. :happy
I would refer you to the previous posts by avalpert, Da5id, and myself in this thread. It is not correct.

Note that Larry lives in the real world just the same as you or I.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sun Nov 12, 2017 1:35 pm

I was not in any way saying Larry does not live in the real world,I was adding the why people buy vs just number crunching.I was making my point that maybe since so many of the shares of dividend stocks are only bought BECAUSE they pay dividends, and that these shares maybe compose half the value of the company, in that way dividends must contribute something to the performance.
One last try.Please humor me.
I open a donut store.All the research shows donuts are not A healthy food choice.For some reason rumors start spreading that my donuts are healthy and nutritious which is totally false.People believe this for an entire year.I sell a million dollars worth of donuts in 2018!I projected 500,000,but the customers who mistakingly bought ONLY because they thought they were healthy donuts,bought another 500,000!
The value of my company doubled because of this.My CPA crunches the numbers and all he sees is a million dollars in sales and my business is a huge success.He has no idea how the badly informed healthy donut buyers changed the value of my company.

So the way I understand all of this dividend stock discussion leads me to believe that the people who only bought my donuts because they thought they were healthy,did nothing to raise the value of my company.To the CPA they were irrelevant,but in the real world they were very relevant and because of them I bought a new house :happy
I see the people who buy stocks only because of the dividends having the same effect on companies,but I guess my thinking is just totally flawed.
The only way I understand my thinking is wrong,would be if for some reason all the people who did not buy the stocks without it paying a dividend,were replaced by an equal amount of new buyers who did not care about the dividend.
K.I.S.S........so easy to say so difficult to do.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 1:44 pm

Da5id wrote:
Sun Nov 12, 2017 11:40 am
nedsaid wrote:
Sat Nov 11, 2017 12:10 pm
Da5id wrote:
Sat Nov 11, 2017 8:59 am
nedsaid wrote:
Sat Nov 11, 2017 7:23 am
Man, I never went to parochial school but there are people here who see fit to enforce discipline on investing scofflaws.
If arguing against misguided ideas (like dividends investing > total return investing) is worthy of criticism, OK. I'd argue that letting inaccurate statements stand unchallenged is a bad idea in a forum on investing theory. I also think people who like dividends qua dividends should read Larry's article with an open mind. I think people should work on identifying their weaknesses -- which we all have, being human, and which can sabotage an investing plan --- and fight against them. But hey, that would take discipline of a different sort.
I own three of Larry Swedroe's books and I have read many of his articles. I also have interacted with him many times on this forum. I know exactly what Larry says about dividends. I have restated what he has said here many times. The thing is, this is going beyond pointing out factual errors, it is becoming plain old fussbudget behavior and I for one am getting tired of it.
Got it. But note that the back and forth in this thread has two sides, and it is (IMHO) odd to consider one side overly persistent and not consider the other side overly persistent, as your chastising of one side seems to imply. I for one prefer for incorrect notions to not win out. But chastise away.
Well, let me summarize once more my take on dividends. I have been discouraging people from dividend strategies, not because they don't work, but because they have been too popular. Interest rates have been low for 8 1/2 years now and investors have chased yields like crazy. One reason I have lost enthusiasm for REITs, the value just isn't there after all the yield chasing. I am concerned that once intermediate and longer term interest rates start rising, the yield chasers will be hugely disappointed. Low Volatility stocks last I looked were cheaper than they were before, but I suspect this factor is still overgrazed.

Dividend strategies have been successful to the degree that the underlying factors Value, Low Volatility, and Profitability/Quality have been successful. Adjusted for factors, dividend paying stocks have identical returns to non-dividend paying stocks. It is the factors that drive returns and not the dividends themselves.

Stock prices also adjust for cash paid out for dividends. One strong evidence for this is that high amounts of cash on the balance sheet tend towards higher P/E ratios and lower amounts of cash on the balance sheet tend towards lower P/E ratios. In other words, stock prices take cash on the balance sheet into consideration.

So I hope this clears it up, at least as where I stand.
A fool and his money are good for business.

User avatar
triceratop
Moderator
Posts: 3609
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Sun Nov 12, 2017 1:51 pm

Your analogy is fatally flawed, and you are still incorrect in your analysis. Please try to understand the opposing side from previous comments. Additionally, it would be nice to see you address how this is not simply another dressed up behavorial error as I point out in this post.

For one thing, buying donuts (patronage) is different from buying equity (shareholdership). For another, one cannot short a privately held business, and further, not buying donuts is not the same as shorting (see previous point). There are many sophisticated buyers in the equity markets. If they see businesses as being incorrectly priced, they may step in to correct things (though there are limits to arbitrage). Your analogy also does not consider this, and in fact your general thinking about these small-time dividend investors seems to ignore the institutional investors and traders with ability to take large positions. These are the ones who can set prices, more so than a mom-and-pop investor buying JNJ. What do they do in determining how prices should be set? Number-crunching, which you seem to view with such disdain.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sun Nov 12, 2017 1:58 pm

triceratop wrote:
Sun Nov 12, 2017 1:51 pm
Your analogy is fatally flawed, and you are still incorrect in your analysis. Please try to understand the opposing side from previous comments. Additionally, it would be nice to see you address how this is not simply another dressed up behavorial error as I point out in this post.

For one thing, buying donuts (patronage) is different from buying equity (shareholdership). For another, one cannot short a privately held business, and further, not buying donuts is not the same as shorting (see point). There are many sophisticated buyers in the equity markets. If they see businesses as being incorrectly priced, they may step in to correct things (though there are limits to arbitrage). Your analogy also does not consider this, and in fact your general thinking about these small-time dividend investors seems to ignore the institutional investors and traders with ability to take large positions. These are the ones who can set prices, more so than a mom-and-pop investor buying JNJ.
Ok ,I respectfully say I have a severe mental block on this issue and just cannot fathom how people buying only because of the dividends has no meaning to the value of the company.I quit and thank you for responding.
K.I.S.S........so easy to say so difficult to do.

User avatar
triceratop
Moderator
Posts: 3609
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Sun Nov 12, 2017 2:11 pm

If those investors bid up the price of a dividend paying stock beyond what its intrinsic value is (which is what we both agree in this hypothetical is occurring), the correct action to take is to short the stock, not follow the crowd.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

snarlyjack
Posts: 471
Joined: Fri Aug 28, 2015 12:44 pm
Location: Montana

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by snarlyjack » Sun Nov 12, 2017 2:30 pm

This is what Jack Bogle wrote in his
"The Little Book of Common Sense Investing,
10th anniversary Edition", November 2017.

Page 70, Don't take my word for it.

"A blogger who goes by the name "Dividend Growth Investor" picked up on my message about the importance
of dividends and wrote an article that echoes my dividend philosophy".

"John Bogle is an investing legend...I have read several of his books, and really enjoyed his simple messages.
I really liked Bogle's message on keeping costs low, keeping turnover low, staying the course and keeping
it simple. I liked the advise the minute I read it...I especially liked Bogle's advise on dividends."

"Bogle is an advocate of focusing on the dividend payments and ignoring stock price fluctuations. He points
out that the stock market is a giant distraction and that investors should keep an eye on the dividends...

He correctly points out that dividends have a smooth uptrend over time. This makes dividends an ideal
source of dependable income for retirees...Bogle also mentions that while dividends are not guaranteed, they have
gone down more noticeably only a couple of times in the past.

I really love his overall message on staying the course, focusing on dividends, keeping investment costs low and
ignoring stock prices. He also believes in keeping things simple. Bogle is against the widespread practice today
of building portfolios that consist of 10-15 asset classes, whose sole purpose is to create complexity to generate fees
for greedy asset managers. Keeping it simple means owning stocks and some bonds. It also means not getting to
fancy and too carried away by adding fashionable asset classes whose merits are derived from a back tested
computer model"

Jack Bogle & Dividend Growth Investor...
Last edited by snarlyjack on Sun Nov 12, 2017 3:19 pm, edited 1 time in total.

Wakefield1
Posts: 640
Joined: Mon Nov 14, 2016 10:10 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Wakefield1 » Sun Nov 12, 2017 2:32 pm

Nedsaid,I enjoy your posts and find them illuminating.

I am not sure if all of the people have the same objections/attitudes towards (stock) dividends, I see there is an article in today's Washington Post,"How stock dividends can turbocharge your portfolio" that might be able to provide some opportunity for criticism,it appears to advocate reinvesting dividends into the companies that produced them,I believe I have been told by someone of considerable authority that it would be better to reinvest those dividends into broad diversified index mutual funds rather than back into what produced them,thinking of specific stock risk. (Assuming that one is talking about a handful or at least not a large number of stocks)
There was/is a thread going on about (hypothetically?) separating the Total Stock and/or the S&P 500 Index into dividend paying and non-dividend paying components -as investable mutual funds?-would it be interesting to ask which piece would perform (total return?) best? Over what time period? Backtesting applicable to the future? (I think not) Anyway if you did that I would see that(using either without the other) as losing some diversification.

User avatar
triceratop
Moderator
Posts: 3609
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Sun Nov 12, 2017 2:44 pm

Wakefield1 wrote:
Sun Nov 12, 2017 2:32 pm
Nedsaid,I enjoy your posts and find them illuminating.

I am not sure if all of the people have the same objections/attitudes towards (stock) dividends, I see there is an article in today's Washington Post,"How stock dividends can turbocharge your portfolio" that might be able to provide some opportunity for criticism,it appears to advocate reinvesting dividends into the companies that produced them,I believe I have been told by someone of considerable authority that it would be better to reinvest those dividends into broad diversified index mutual funds rather than back into what produced them,thinking of specific stock risk.
All the evidence in that article advocates total return indexing over price return indexing. The author doesn't explain why he is picking individual stocks rather than diversifying that risk away and buying an index. I don't find it adds much value, other than that, yes, spending dividends is withdrawing from your portfolio (because your portfolio's return should always be interpreted in a total return sense).
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 2:45 pm

hoops777 wrote:
Sun Nov 12, 2017 1:35 pm
I was not in any way saying Larry does not live in the real world,I was adding the why people buy vs just number crunching.I was making my point that maybe since so many of the shares of dividend stocks are only bought BECAUSE they pay dividends, and that these shares maybe compose half the value of the company, in that way dividends must contribute something to the performance.
One last try.Please humor me.

Nedsaid: Yes, there are people out there who buy stocks for their dividends, but this would be a pretty small subset of investors. You have to look deeper. No one who bothered to do any analysis at all would buy a stock for its dividend if the dividend were unsustainable. What you are looking for is for enough earnings to cover the dividend. What people like myself are looking for is a dividend stream that will grow over time and hopefully that will grow faster than inflation. You can do this by increasing the payout ratio over time but even better if earnings will grow at least as fast as the dividends.

Many Low Volatility stocks have slow but consistent earnings growth and probably higher payout ratios. The market places a premium on such stocks because the earnings growth though slow is consistent. If the market loves anything it is consistency. Their higher yields also give such stocks some bond-like characteristics even though they are still riskier than bonds. These type of stocks most of the time also are priced like Value stocks though not always.

It the stock pays a dividend but has earnings that grow faster than the economy itself, you have a dividend paying stock with growth characteristics. If such a company has consistently growing earnings, relatively low debt, higher asset turnover; you have the characteristics of a quality company. This is nirvana as far as Wall Street is concerned and thus investors will pay a premium. Such a company will likely increase its dividends over time as its earnings are consistently growing. So it is the quality of the company itself and its growing earnings that drive the stock price and not the dividends themselves.


I open a donut store.All the research shows donuts are not A healthy food choice.For some reason rumors start spreading that my donuts are healthy and nutritious which is totally false.People believe this for an entire year.I sell a million dollars worth of donuts in 2018!I projected 500,000,but the customers who mistakingly bought ONLY because they thought they were healthy donuts,bought another 500,000!
The value of my company doubled because of this.My CPA crunches the numbers and all he sees is a million dollars in sales and my business is a huge success.He has no idea how the badly informed healthy donut buyers changed the value of my company.

Nedsaid: One of the things that Wall Street or a buyer of the donut shop would look at is if those increased earnings are sustainable. It is a perception. If this rise in donut sales is seen as a more or less permanent trend, you will see a big rise in the value of the business. If the rise in sales is seen as a fad, the rise in value would be much less. You might be able to fool an individual buyer of your donut shop but much harder to fool Wall Street.

So the way I understand all of this dividend stock discussion leads me to believe that the people who only bought my donuts because they thought they were healthy,did nothing to raise the value of my company.To the CPA they were irrelevant,but in the real world they were very relevant and because of them I bought a new house :happy

Nedsaid: Again, the old saying on Wall Street is that money follows earnings. Growing earnings will trade at a higher multiple than flat or shrinking earnings. Consistently growing earnings trade at a higher multiple than volatile earnings. In rare situations, the company might be valued on its liquidation basis, that would happen if investors were concerned whether or not the business itself is sustainable.

You have to understand that buyers of stock and buyers of individual business will do analysis before plunking down their hard earned money. There might be truly stupid individuals among the buyers but as a whole the collective judgement of many participants in the stock market is much more difficult to foo. It can happen and it does happen. You can fool some of the people all the time, or all of the people some of the time, but you can't fool all the people all the time. Markets, though not perfect, are pretty efficient.

I see the people who buy stocks only because of the dividends having the same effect on companies,but I guess my thinking is just totally flawed.
The only way I understand my thinking is wrong,would be if for some reason all the people who did not buy the stocks without it paying a dividend,were replaced by an equal amount of new buyers who did not care about the dividend.
Last edited by nedsaid on Sun Nov 12, 2017 3:02 pm, edited 1 time in total.
A fool and his money are good for business.

Wakefield1
Posts: 640
Joined: Mon Nov 14, 2016 10:10 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Wakefield1 » Sun Nov 12, 2017 2:57 pm

Buyers of stocks hopefully do their analysis well,then when/after I buy some index fund shares containing stocks selected from the universe of stocks those buyers buy,perhaps I will benefit in some way.

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sun Nov 12, 2017 4:45 pm

nedsaid wrote:
Sun Nov 12, 2017 2:45 pm
hoops777 wrote:
Sun Nov 12, 2017 1:35 pm
I was not in any way saying Larry does not live in the real world,I was adding the why people buy vs just number crunching.I was making my point that maybe since so many of the shares of dividend stocks are only bought BECAUSE they pay dividends, and that these shares maybe compose half the value of the company, in that way dividends must contribute something to the performance.
One last try.Please humor me.

Nedsaid: Yes, there are people out there who buy stocks for their dividends, but this would be a pretty small subset of investors. You have to look deeper. No one who bothered to do any analysis at all would buy a stock for its dividend if the dividend were unsustainable. What you are looking for is for enough earnings to cover the dividend. What people like myself are looking for is a dividend stream that will grow over time and hopefully that will grow faster than inflation. You can do this by increasing the payout ratio over time but even better if earnings will grow at least as fast as the dividends.

Many Low Volatility stocks have slow but consistent earnings growth and probably higher payout ratios. The market places a premium on such stocks because the earnings growth though slow is consistent. If the market loves anything it is consistency. Their higher yields also give such stocks some bond-like characteristics even though they are still riskier than bonds. These type of stocks most of the time also are priced like Value stocks though not always.

It the stock pays a dividend but has earnings that grow faster than the economy itself, you have a dividend paying stock with growth characteristics. If such a company has consistently growing earnings, relatively low debt, higher asset turnover; you have the characteristics of a quality company. This is nirvana as far as Wall Street is concerned and thus investors will pay a premium. Such a company will likely increase its dividends over time as its earnings are consistently growing. So it is the quality of the company itself and its growing earnings that drive the stock price and not the dividends themselves.


I open a donut store.All the research shows donuts are not A healthy food choice.For some reason rumors start spreading that my donuts are healthy and nutritious which is totally false.People believe this for an entire year.I sell a million dollars worth of donuts in 2018!I projected 500,000,but the customers who mistakingly bought ONLY because they thought they were healthy donuts,bought another 500,000!
The value of my company doubled because of this.My CPA crunches the numbers and all he sees is a million dollars in sales and my business is a huge success.He has no idea how the badly informed healthy donut buyers changed the value of my company.

Nedsaid: One of the things that Wall Street or a buyer of the donut shop would look at is if those increased earnings are sustainable. It is a perception. If this rise in donut sales is seen as a more or less permanent trend, you will see a big rise in the value of the business. If the rise in sales is seen as a fad, the rise in value would be much less. You might be able to fool an individual buyer of your donut shop but much harder to fool Wall Street.

So the way I understand all of this dividend stock discussion leads me to believe that the people who only bought my donuts because they thought they were healthy,did nothing to raise the value of my company.To the CPA they were irrelevant,but in the real world they were very relevant and because of them I bought a new house :happy

Nedsaid: Again, the old saying on Wall Street is that money follows earnings. Growing earnings will trade at a higher multiple than flat or shrinking earnings. Consistently growing earnings trade at a higher multiple than volatile earnings. In rare situations, the company might be valued on its liquidation basis, that would happen if investors were concerned whether or not the business itself is sustainable.

You have to understand that buyers of stock and buyers of individual business will do analysis before plunking down their hard earned money. There might be truly stupid individuals among the buyers but as a whole the collective judgement of many participants in the stock market is much more difficult to foo. It can happen and it does happen. You can fool some of the people all the time, or all of the people some of the time, but you can't fool all the people all the time. Markets, though not perfect, are pretty efficient.

I see the people who buy stocks only because of the dividends having the same effect on companies,but I guess my thinking is just totally flawed.
The only way I understand my thinking is wrong,would be if for some reason all the people who did not buy the stocks without it paying a dividend,were replaced by an equal amount of new buyers who did not care about the dividend.
Thanks nedsaid for taking the time to help straighten me out.I realize now I was being way too simplistic as well as fatally flawed :happy I was so stuck on the dividend I did not include the other reasons why investors would buy a dividend stock in my thinking :x
You know it is kind of alarming in a way how confusing investing can be once you get past something like a simple three fund portfolio.For example,Bogle and Swedroe offer differing advice and opinions.
It is especially difficult if your initial exposure is to the wrong methods.My indoctrination into investing was in the late 90’s when day traders were nuts and the market was like a gambling casino.When I got past that my next one was dividend investing.Once it is in your head it is difficult to dismiss it as folly.Like I mentioned in a couple posts I do not even own any dividend stocks except for a bit of Wellesley,but it still drives me crazy.By any reasonable standards,I was a successful entrepreneur for 23 years,a successful coach high school coach for 25 years,have a college degree and ironically am good in math.This makes me feel like I am an idiot.Life goes on!
To all those who successfully argued with me,I forgive you for all comments you wanted to write but did not because you would face bogleheads banishment :sharebeer
Last edited by hoops777 on Sun Nov 12, 2017 5:52 pm, edited 1 time in total.
K.I.S.S........so easy to say so difficult to do.

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Sun Nov 12, 2017 5:41 pm

snarlyjack wrote:
Sun Nov 12, 2017 2:30 pm
This is what Jack Bogle wrote in his
"The Little Book of Common Sense Investing,
10th anniversary Edition", November 2017.

Page 70, Don't take my word for it.

"A blogger who goes by the name "Dividend Growth Investor" picked up on my message about the importance
of dividends and wrote an article that echoes my dividend philosophy".

"John Bogle is an investing legend...I have read several of his books, and really enjoyed his simple messages.
I really liked Bogle's message on keeping costs low, keeping turnover low, staying the course and keeping
it simple. I liked the advise the minute I read it...I especially liked Bogle's advise on dividends."

"Bogle is an advocate of focusing on the dividend payments and ignoring stock price fluctuations. He points
out that the stock market is a giant distraction and that investors should keep an eye on the dividends...

He correctly points out that dividends have a smooth uptrend over time. This makes dividends an ideal
source of dependable income for retirees...Bogle also mentions that while dividends are not guaranteed, they have
gone down more noticeably only a couple of times in the past.

I really love his overall message on staying the course, focusing on dividends, keeping investment costs low and
ignoring stock prices. He also believes in keeping things simple. Bogle is against the widespread practice today
of building portfolios that consist of 10-15 asset classes, whose sole purpose is to create complexity to generate fees
for greedy asset managers. Keeping it simple means owning stocks and some bonds. It also means not getting to
fancy and too carried away by adding fashionable asset classes whose merits are derived from a back tested
computer model"

Jack Bogle & Dividend Growth Investor...


Hmmmmmmmmmmmm......well regardless of everything else,I feel a little less idiotic now :)
K.I.S.S........so easy to say so difficult to do.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 6:54 pm

hoops777 wrote:
Sun Nov 12, 2017 4:45 pm

Thanks nedsaid for taking the time to help straighten me out. I realize now I was being way too simplistic as well as fatally flawed :happy I was so stuck on the dividend I did not include the other reasons why investors would buy a dividend stock in my thinking :x

You know it is kind of alarming in a way how confusing investing can be once you get past something like a simple three fund portfolio. For example, Bogle and Swedroe offer differing advice and opinions. It is especially difficult if your initial exposure is to the wrong methods. My indoctrination into investing was in the late 90’s when day traders were nuts and the market was like a gambling casino. When I got past that my next one was dividend investing. Once it is in your head it is difficult to dismiss it as folly. Like I mentioned in a couple posts I do not even own any dividend stocks except for a bit of Wellesley, but it still drives me crazy. By any reasonable standards, I was a successful entrepreneur for 23 years, a successful coach high school coach for 25 years, have a college degree and ironically am good in math. This makes me feel like I am an idiot. Life goes on!
To all those who successfully argued with me, I forgive you for all comments you wanted to write but did not because you would face bogleheads banishment :sharebeer
You are a smart man. You are not the first to be puzzled by investing concepts and have discovered there are different schools of thought. There isn't even 100% agreement as to how it all works.

One of the advantages of owning individual stocks is that I have learned how to build a portfolio, stock by stock. I have a pretty good idea of how to value a stock but if you go through my posts, I have admitted to a lot of mistakes. Check out my "Four Horsemen of Underperformance." Owning stocks directly has taught me a lot about business, the markets, and the economy. When you have your own money on the line, it is amazing the motivation it gives you to learn. But even at all of that, I have sometimes beat the market by a bit or trailed it by a bit with my individual stocks. This will not get me an interview on CNBC.

The thing with dividends are that they have to be paid with real cash. You can manipulate the earnings to a degree but you have to get it past the auditors if you are a public company and ultimately you have to fool the stock analysts too. It can be done, it has been done, but it is difficult to do. There is sort of a group think that can happen in the markets, you had almost like religious cults built around stocks and around celebrity CEO's. One great example was GE and CEO Jack Welch, GE stock got up to a P/E ratio of 45 for a company whose earnings were probably really growing at 6-8%. Welch had the analysts convinced that earnings were growing at 15%. The belief in GE and Jack Welch got to be so strong that it was almost a religion. Notice how GE's stock price has lagged badly since Welch left.

What I am trying to say is that it is far easier to manipulate earnings expectations and earnings than it is to fake a dividend. Pretty much, the cash flow either covers the dividend or it does not. I can think of Occidental Petroleum, a stock that I sold because it paid a high dividend which was paid by continually floating new stock. That, my friend was not sustainable. Armand Hammer pulled one of the great scams of all time, convincing the world that he was a Billionaire, when after his death it was learned that he was worth "only" tens of millions of dollars. He fooled people because he had absolute control of Oxy and ran it like his own piggy bank and thus convinced people he was far richer than he really was.

This cult effect also worked with companies like Pfizer and Coke. Coke was another company that convinced analysts that earnings growth was greater than it really was. Their former CEO was well known for calling up and chewing out stock analysts who dared suggest that Coke's earnings growth was less than 15% a year. Coke and GE created an illusion of faster growth with what I call financial engineering. Coke did it buy spinning off or selling its divisions that had slow growth rates and retaining the divisions that had higher growth rates. GE did it by essentially transforming itself from an industrial company into a bank. GE also spun off or sold slower growing businesses and timed the asset sales just right so that gains on the sale of businesses would boost earnings and make it appear earnings were growing faster than they really were.

So what really happened was that the CEOs of GE, Oxy, and Coke excelled at managing expectations. They also were great at managing the numbers. The jury is out in GE's case, how well Jack Welch managed the actual businesses. I will say Welch's star doesn't shine as brightly as it used to. Earnings growth was always strong looking forward. If actual results disappointed, there was always a good reason to explain why the problem was temporary.

The extreme cases of what I am talking about were Tyco, WorldComm, and Enron. In all three, actual fraud was involved. Again, the belief in these companies was so strong that few questioned what was really going on.

So back to the ranch. Dividends are attractive to investors because they have to be paid with real cash with real earnings. You can fake a dividend like Occidental Petroleum did, but it is harder to hide. Even a relative simpleton like me with only a Bachelor's Degree was able to notice that and sell. If you have a company that has a sustainable dividend that is increased every year, chances are pretty good that there are growing earnings behind it. There actually is a dividend discount model that is used to value stocks. So dividends are important. They seem much more real than earnings estimates.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 7:09 pm

Hoops 777, I have brought up the very same point about Jack Bogle and his comments on dividends many times. For some reason, income from investments is important to him whether it is bond yield or dividend yield. He has recommended using a slice of the stock portion of the portfolio for higher yielding dividend stocks, he also has recommended coupling Total Bond Index with an investment grade Corporate Bond fund, both recommendations are to boost yield a bit for a portfolio. He has said that one should stretch for yield a bit but not by too much. Ask yourself, why is yield important to Jack Bogle? My best guess is that actual cash payments cannot be faked or at least easily faked.

I also have kidded people here about bond yield. Pretty much, I ask why anyone would care about bond yields when a bond fund investor can "create their own yield" by selling shares. This is silly of course, as I am making a point. I suppose I could create my own dividend by taking cash out of my mattress.

I have brought up Bogle's comments about dividend yield on stocks and yield on bonds many times but I have never received a satisfactory answer. I even brought this up to Larry Swedroe on this forum and he never answered. I suppose he would say that Bogle is just plain wrong. Again, the question is why cash income from investments is important to Mr. Bogle? More specifically, why are dividends important to him?
A fool and his money are good for business.

Wakefield1
Posts: 640
Joined: Mon Nov 14, 2016 10:10 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Wakefield1 » Sun Nov 12, 2017 7:17 pm

Perhaps people are somehow mixing concepts having to do with individual stock investing vs. stock mutual fund investing? (As to where to reinvest dividends?)
It is tempting to (have done some of both) do some of both in spite of the (highly likely?) fact that the average person will see more success over many years with diversified index mutual funds instead of a handful of individual stocks?
It is still my experience that during the market decline that started about 2000-2001 that my stocks did/survived much much better than some of the high flying tech funds that were so much the rage then-and I think such funds as Windsor/Windsor II also did better than those NASDAC centric growth funds
most of my investable money these days goes to index funds or such as "Dividend Growth Fund" which might be taking a breather right now (and is not really a high dividend yielding fund but if I remember it does generate more Cap Gains to run up the taxes than such as "Index 500".
-------also remember some have their dividend yielding funds inside of tax deferred space while others have them in taxable space -------

dbr
Posts: 23676
Joined: Sun Mar 04, 2007 9:50 am

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by dbr » Sun Nov 12, 2017 7:24 pm

nedsaid wrote:
Sun Nov 12, 2017 7:09 pm
Hoops 777, I have brought up the very same point about Jack Bogle and his comments on dividends many times. For some reason, income from investments is important to him whether it is bond yield or dividend yield. He has recommended using a slice of the stock portion of the portfolio for higher yielding dividend stocks, he also has recommended coupling Total Bond Index with an investment grade Corporate Bond fund, both recommendations are to boost yield a bit for a portfolio. He has said that one should stretch for yield a bit but not by too much. Ask yourself, why is yield important to Jack Bogle? My best guess is that actual cash payments cannot be faked or at least easily faked.

I also have kidded people here about bond yield. Pretty much, I ask why anyone would care about bond yields when a bond fund investor can "create their own yield" by selling shares. This is silly of course, as I am making a point. I suppose I could create my own dividend by taking cash out of my mattress.

I have brought up Bogle's comments about dividend yield on stocks and yield on bonds many times but I have never received a satisfactory answer. I even brought this up to Larry Swedroe on this forum and he never answered. I suppose he would say that Bogle is just plain wrong. Again, the question is why cash income from investments is important to Mr. Bogle? More specifically, why are dividends important to him?
I think a lot of people on this forum are perplexed by this apparent position taken by Mr. Bogle. I just put it down to one more of many things where I am not sure what he really said or why he would say that if he did. The absence of a definitive answer from anywhere is typical of this sort of conversation. One thing to note is that an unexplained preference for something is not the same thing as being wrong, nor is it an indication of being right. The conversation also tend to feature strange and undefined metaphors such as a nonsensical creating of a dividend by selling shares.

User avatar
triceratop
Moderator
Posts: 3609
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by triceratop » Sun Nov 12, 2017 7:24 pm

nedsaid wrote:
Sun Nov 12, 2017 7:09 pm
Hoops 777, I have brought up the very same point about Jack Bogle and his comments on dividends many times. For some reason, income from investments is important to him whether it is bond yield or dividend yield. He has recommended using a slice of the stock portion of the portfolio for higher yielding dividend stocks, he also has recommended coupling Total Bond Index with an investment grade Corporate Bond fund, both recommendations are to boost yield a bit for a portfolio. He has said that one should stretch for yield a bit but not by too much. Ask yourself, why is yield important to Jack Bogle? My best guess is that actual cash payments cannot be faked or at least easily faked.

I also have kidded people here about bond yield. Pretty much, I ask why anyone would care about bond yields when a bond fund investor can "create their own yield" by selling shares. This is silly of course, as I am making a point. I suppose I could create my own dividend by taking cash out of my mattress.

I have brought up Bogle's comments about dividend yield on stocks and yield on bonds many times but I have never received a satisfactory answer. I even brought this up to Larry Swedroe on this forum and he never answered. I suppose he would say that Bogle is just plain wrong. Again, the question is why cash income from investments is important to Mr. Bogle? More specifically, why are dividends important to him?
In light of articles like this, maybe Bogle is actually "plain wrong" (or misunderstood, more likely? But not given his recent comments in discussion with Christine Benz) and not just according to Larry Swedroe: Shareholder Yields Are Higher Than You Think

Image

Image
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 7:33 pm

Wakefield1 wrote:
Sun Nov 12, 2017 7:17 pm
Perhaps people are somehow mixing concepts having to do with individual stock investing vs. stock mutual fund investing? (As to where to reinvest dividends?)
It is tempting to (have done some of both) do some of both in spite of the (highly likely?) fact that the average person will see more success over many years with diversified index mutual funds instead of a handful of individual stocks?
It is still my experience that during the market decline that started about 2000-2001 that my stocks did/survived much much better than some of the high flying tech funds that were so much the rage then-and I think such funds as Windsor/Windsor II also did better than those NASDAC centric growth funds
most of my investable money these days goes to index funds or such as "Dividend Growth Fund" which might be taking a breather right now (and is not really a high dividend yielding fund but if I remember it does generate more Cap Gains to run up the taxes than such as "Index 500".
-------also remember some have their dividend yielding funds inside of tax deferred space while others have them in taxable space -------
Just to be clear, I recommend diversified mutual funds, particularly index funds for investors. Individual stocks can be a real disaster for investors if they fail to buy stocks at reasonable prices, diversify across industry groups, and hold for long periods of time. It is the old curse of chasing performance. People like what has recently performed well and too often they enthusiastically buy in just before things cool off.

The best investments are steady and boring. Windsor is a Large Value fund and is boring as heck. Balanced funds like Wellington and Wellesley are also boring but darned good investments. Index funds are very cheap and very boring. Also boring doesn't get caught up in the hype and euphoria that you described above.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 7:37 pm

dbr wrote:
Sun Nov 12, 2017 7:24 pm
nedsaid wrote:
Sun Nov 12, 2017 7:09 pm
Hoops 777, I have brought up the very same point about Jack Bogle and his comments on dividends many times. For some reason, income from investments is important to him whether it is bond yield or dividend yield. He has recommended using a slice of the stock portion of the portfolio for higher yielding dividend stocks, he also has recommended coupling Total Bond Index with an investment grade Corporate Bond fund, both recommendations are to boost yield a bit for a portfolio. He has said that one should stretch for yield a bit but not by too much. Ask yourself, why is yield important to Jack Bogle? My best guess is that actual cash payments cannot be faked or at least easily faked.

I also have kidded people here about bond yield. Pretty much, I ask why anyone would care about bond yields when a bond fund investor can "create their own yield" by selling shares. This is silly of course, as I am making a point. I suppose I could create my own dividend by taking cash out of my mattress.

I have brought up Bogle's comments about dividend yield on stocks and yield on bonds many times but I have never received a satisfactory answer. I even brought this up to Larry Swedroe on this forum and he never answered. I suppose he would say that Bogle is just plain wrong. Again, the question is why cash income from investments is important to Mr. Bogle? More specifically, why are dividends important to him?
I think a lot of people on this forum are perplexed by this apparent position taken by Mr. Bogle. I just put it down to one more of many things where I am not sure what he really said or why he would say that if he did. The absence of a definitive answer from anywhere is typical of this sort of conversation. One thing to note is that an unexplained preference for something is not the same thing as being wrong, nor is it an indication of being right. The conversation also tend to feature strange and undefined metaphors such as a nonsensical creating of a dividend by selling shares.
I guess the point is, right or wrong, this issue is important to Mr. Bogle and it is important to other people whose opinions I respect. You can say a lot of things about Mr. Bogle but you can't say that he isn't very smart. The thing is, you can be very smart and wrong. In Bogle's case, if he is wrong, he is wrong to such a small degree that the degree of wrongness would be hardly noticeable.

I suppose he needs to be asked this question directly at the next Bogleheads Reunion in Philadelphia. We will have to wait a year for an answer, if the question is ever asked.
A fool and his money are good for business.

Da5id
Posts: 1500
Joined: Fri Feb 26, 2016 8:20 am

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id » Sun Nov 12, 2017 8:07 pm

nedsaid wrote:
Sun Nov 12, 2017 1:44 pm
Da5id wrote:
Sun Nov 12, 2017 11:40 am
nedsaid wrote:
Sat Nov 11, 2017 12:10 pm
Da5id wrote:
Sat Nov 11, 2017 8:59 am
nedsaid wrote:
Sat Nov 11, 2017 7:23 am
Man, I never went to parochial school but there are people here who see fit to enforce discipline on investing scofflaws.
If arguing against misguided ideas (like dividends investing > total return investing) is worthy of criticism, OK. I'd argue that letting inaccurate statements stand unchallenged is a bad idea in a forum on investing theory. I also think people who like dividends qua dividends should read Larry's article with an open mind. I think people should work on identifying their weaknesses -- which we all have, being human, and which can sabotage an investing plan --- and fight against them. But hey, that would take discipline of a different sort.
I own three of Larry Swedroe's books and I have read many of his articles. I also have interacted with him many times on this forum. I know exactly what Larry says about dividends. I have restated what he has said here many times. The thing is, this is going beyond pointing out factual errors, it is becoming plain old fussbudget behavior and I for one am getting tired of it.
Got it. But note that the back and forth in this thread has two sides, and it is (IMHO) odd to consider one side overly persistent and not consider the other side overly persistent, as your chastising of one side seems to imply. I for one prefer for incorrect notions to not win out. But chastise away.
Well, let me summarize once more my take on dividends. I have been discouraging people from dividend strategies, not because they don't work, but because they have been too popular. Interest rates have been low for 8 1/2 years now and investors have chased yields like crazy. One reason I have lost enthusiasm for REITs, the value just isn't there after all the yield chasing. I am concerned that once intermediate and longer term interest rates start rising, the yield chasers will be hugely disappointed. Low Volatility stocks last I looked were cheaper than they were before, but I suspect this factor is still overgrazed.

Dividend strategies have been successful to the degree that the underlying factors Value, Low Volatility, and Profitability/Quality have been successful. Adjusted for factors, dividend paying stocks have identical returns to non-dividend paying stocks. It is the factors that drive returns and not the dividends themselves.

Stock prices also adjust for cash paid out for dividends. One strong evidence for this is that high amounts of cash on the balance sheet tend towards higher P/E ratios and lower amounts of cash on the balance sheet tend towards lower P/E ratios. In other words, stock prices take cash on the balance sheet into consideration.

So I hope this clears it up, at least as where I stand.
Fair enough. I'd also note that where you are focusing on dividends stock buybacks have similar characteristics. That often isn't much acknowledged by those who are very focused on the positive feeling of having a dividend deposited in their account.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Sun Nov 12, 2017 8:14 pm

Da5id wrote:
Sun Nov 12, 2017 8:07 pm

Fair enough. I'd also note that where you are focusing on dividends stock buybacks have similar characteristics. That often isn't much acknowledged by those who are very focused on the positive feeling of having a dividend deposited in their account.
Yes, share buybacks should be considered also. Kudos to Triceratop for posting graphs and a link to an excellent article by Larry Swedroe.
A fool and his money are good for business.

User avatar
TD2626
Posts: 512
Joined: Thu Mar 16, 2017 3:40 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by TD2626 » Sun Nov 12, 2017 11:12 pm

Some of my current opinions and feelings about this topic:

It is important that an investor understand the implications Modigliani-Miller Theorem: dividends aren't magical - they are simply one component of total return. Capital gains are another component of total return. Whether one gets return from dividends or capital gains should be irrelevant in an efficient market without taxes or behavioral errors.

Taxes in a taxable account make returns from dividends somewhat less tax efficient than returns from capital gains (e.g. from share buybacks or retained earnings). However, Total Stock index funds are relatively tax-efficient to begin with, and the value of diversification among value vs growth companies is important enough to in my opinion preclude a large tilt towards either high or low dividend strategies.

An investor subject to behavioral constraints or emotional biases who tilts towards or away from high dividend yield would likely not experience serious negative outcomes provided the tilt was small, held for many decades, and conducted via diversified low cost stock index funds. Modigliani-Miller and Efficient Market Theory cut both ways - dividend strategies are presumed to neither help nor hurt on a risk adjusted basis, before taxes. So if taxes are very low (or the investment is in tax-deferred), then an dividend-tilting investor may be acting reasonably but would need to admit that their actions are largely due to behavioral issues.

That being said - behavioral issues are very real and do exist. If someone would find it difficult behaviorally to sell a sustainable amount of shares each quarter manually (without, say, being tempted to sell more than they can afford), they thus may consider dividend yield index funds as able to do their withdrawals for them; that might be reasonable in my opinion. The best thing to do, though, would in that case be to fully understand Modigliani-Miller, acknowledge known behavioral issues, and "tilt" towards dividend yield as little as is needed to ensure these behavioral errors aren't triggered. It's analogous to a situation in which a hypothetical investor acknowledges a behavioral propensity to panic-sell in crashes and thus puts more in bonds than would otherwise be recommended. Yes, it may not be ideal, but the hypothetical investor has acknowledged an innate, unchanging behavioral error they are prone to and corrected for it.

To argue that behavioral propensities should not be taken into account is equivalent to arguing that investors should not consider their own emotional willingness to take risk - which is unreasonable. Behavioral considerations should be taken into account. Ultimately, in my opinion, someone who rationally acknowledges a behavioral concern and corrects for it may be acting reasonably.

That being said, there are differences in degree of behavioral bias that result in differences in how that should be approached, in my opinion. Someone who says they are emotionally unable to take any risk and have all their money in a interest-free checking account despite it being a long term investment with a long term need should try to change their behavioral biases, if possible, as taking too little risk can be an issue if return is needed. On the other hand, someone who is simply behaviorally biased towards lower-risk investments can try to correct by increasing bond levels. Similarly, someone who is completely unable to invest in non-dividend paying companies should try to correct their behavioral errors as this is could result in serious non-diversification (while someone who simply wants a small tilt towards higher dividend yield may instead be able to make this work).

Caduceus
Posts: 1454
Joined: Mon Sep 17, 2012 1:47 am

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Caduceus » Mon Nov 13, 2017 5:02 am

I've been re-reading Buffett's letters to shareholders, and as usual, he's made some observations that few others in the financial world have made.

1. He agrees that share repurchases are more tax-efficient to shareholders, given the current U.S. tax regime.

2. But he says that managers of corporations often destroy value through share repurchases becauses they tend to buy back shares when they have strong cash flow (and when stock prices are usually at a high), as opposed to when their own stock prices are low (presumably they have less cash flow during that time.) On balance, Buffett says that companies tend to persistently mis-time their share repurchases because of the business cycle.

3. And he makes one more brilliant observation: Dividends can make sense for shareholders because they depress the value of stock options paid to CEOs and other executives. Executives often have substantial amounts of out-of-the-money stock options. One way executives can get the stock price up, even if overall earnings do not improve, is to do lots of share repurchases, thereby increasing EPS, and increasing the stock price. This means that even if Point 2 is true (the share repurchases have destroyed company value), the executives can still exercise their stock options.

Basically, Buffett is saying that it's not so easy to perceive if dividends or repurchases are better. It's company specific. What makes sense for one firm does not make sense for another.

Da5id
Posts: 1500
Joined: Fri Feb 26, 2016 8:20 am

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id » Mon Nov 13, 2017 11:18 am

Caduceus wrote:
Mon Nov 13, 2017 5:02 am
I've been re-reading Buffett's letters to shareholders, and as usual, he's made some observations that few others in the financial world have made.

1. He agrees that share repurchases are more tax-efficient to shareholders, given the current U.S. tax regime.

2. But he says that managers of corporations often destroy value through share repurchases becauses they tend to buy back shares when they have strong cash flow (and when stock prices are usually at a high), as opposed to when their own stock prices are low (presumably they have less cash flow during that time.) On balance, Buffett says that companies tend to persistently mis-time their share repurchases because of the business cycle.

3. And he makes one more brilliant observation: Dividends can make sense for shareholders because they depress the value of stock options paid to CEOs and other executives. Executives often have substantial amounts of out-of-the-money stock options. One way executives can get the stock price up, even if overall earnings do not improve, is to do lots of share repurchases, thereby increasing EPS, and increasing the stock price. This means that even if Point 2 is true (the share repurchases have destroyed company value), the executives can still exercise their stock options.

Basically, Buffett is saying that it's not so easy to perceive if dividends or repurchases are better. It's company specific. What makes sense for one firm does not make sense for another.
Interesting. As someone who knows far less that Buffett, my take on the 3 points:

1) Of course, can't dispute that deferring taxes or paying less current taxes is generally a win.

2) Hmm. But if are going to do buybacks under the same conditions, timing, and quantities as you'd issue dividends, is that one really a problem? Those who are buying and evaluating individual stocks (not me, just index funds is the way I roll), if you think a stock is "overpriced" for a repurchase, you have some options. You can sell the stock. You can "self dividend" by selling precisely the amount bought back, and pay less taxes than you would on a (presumably qualified) dividend. But if your stock selection criteria, whatever they may be, says that you have the right amount of stock in your portfolio after the repurchase and you don't need cash for current expenditures due to being retired or otherwise in a net withdrawal phase, you need do nothing. I do have doubts about ability of management to decide if their own stock is over/underpriced, and also think that management may have incentives to do buybacks as a signal regardless and as a separate issue from point 3 in the post above.

3) Seems like a plausible issue. Boards should always be aware of creation of perverse incentives for management to not act in long term shareholder interest and try to mitigate them. Options themselves can do this too, with or without buybacks, as they can create a shorter term focus. I wonder if there is a way to give options that discount any gains due to buybacks by some fair means, because simply converting the cash hoard -- which could have been accumulated by a prior management team -- to higher share price does seem like you aren't "adding value" by skilled management of the enterprise. To put it differently, it seems right if possible to largely take the decision to issue dividend/do a buyback out of the value of an options grant.

I'd tend to guess myself that dividends/repurchases are comparable in aggregate, but would be interested in what longer term studies have shown. Maybe someone has better data than this investopedia article I mentioned upthread (https://www.investopedia.com/articles/a ... better.asp), but the quote below suggests that the two strategies probably aren't far off. Over different periods they cite, buyback index was better in the bull market starting after the 2008 crash and ending (in the article) in 2015, but dividend index was better during the crash itself.

"In the 14½-year period from January 2000 to June 2015, the Buyback Index and Dividend Aristocrats Index were neck-and-neck, with an annual return of 9.90% and 9.89% respectively. Both trounced the S&P 500, which had an annual return of only 4.18% over this period."

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Mon Nov 13, 2017 12:59 pm

I will give you all a great and very simple example of why people get confused about investing.
As I mentioned earlier I own some Wellesley.
According to Swedroe,I am committing 3 mortal sins.Dividend stocks,corporate bonds and managed fund.
According to Bogle,I am just fine.
That’s all.
K.I.S.S........so easy to say so difficult to do.

User avatar
saltycaper
Posts: 2126
Joined: Thu Apr 24, 2014 8:47 pm
Location: The Tower

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by saltycaper » Mon Nov 13, 2017 2:46 pm

hoops777 wrote:
Mon Nov 13, 2017 12:59 pm
I will give you all a great and very simple example of why people get confused about investing.
As I mentioned earlier I own some Wellesley.
According to Swedroe,I am committing 3 mortal sins.Dividend stocks,corporate bonds and managed fund.
According to Bogle,I am just fine.
That’s all.
Larry takes an academic approach, while Bogle works by touch. The two approaches appeal to different people. The solution, IMO, is to understand why each person is making their recommendation so you can make an informed decision for yourself. After all, it's your money.

Also, I'm not sure Larry would say you are committing three mortal sins. It's a managed fund, but it's very low cost. It invests in corporate bonds, but they are investment grade. There are more than 50 dividend stocks spread out across many sectors. All sub-optimal, perhaps, but not mortal sins, IMO.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

Da5id
Posts: 1500
Joined: Fri Feb 26, 2016 8:20 am

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by Da5id » Mon Nov 13, 2017 2:58 pm

hoops777 wrote:
Mon Nov 13, 2017 12:59 pm
I will give you all a great and very simple example of why people get confused about investing.
As I mentioned earlier I own some Wellesley.
According to Swedroe,I am committing 3 mortal sins.Dividend stocks,corporate bonds and managed fund.
According to Bogle,I am just fine.
That’s all.
Experts disagree all the time, particularly in a somewhat squishy field like investing. Hopefully you evaluate your sources and in particular look at whether their positions have reasons you find compelling and can stick to. The farther their views differ from the "mainstream" hopefully the stronger proof you require to credit their position. Feeling confident will let you put your hard earned savings there and keep to the course you select.

I believe you are overdramatizing Swedroe's view. Please cite somewhere he describes it as a mortal sin. He thinks certain things are better than others. He thinks some tendencies are behavioral errors. He advocates for factor based investing strategies. I expect he'd say paying a huge sales load and a high expense ratio for a corporate bond fund is close to a mortal sin. He might say aggressive market timing is a mortal sin. I'd guess he'd call buying Wellesley in an IRA a venal sin. But since he doesn't post here any more who can say?

My personal view is that Wellesley is OK if you want a 40% stock/60% bond mixture. It is managed, but has a reasonably low expense ratio (0.15% for Admiral funds). Like all balanced funds, it helps mitigate behavioral errors that can creep in if you are forced to balance manually, which is a plus. The tax drag is kind of heavy (if you look at the https://personal.vanguard.com/us/funds/ ... =INT#tab=1) so I'd personally not advise placing it in a taxable account. I'd not choose it myself, but think it is a better choice than many in the investing community make. I'd argue against someone saying it is the "ideal" investment in a theoretical sense, but it is pretty good IMHO. For my taste, if it were my only investment I'd be unhappy more because of the lack of international stock (another controversial issue where Bogle/Swedroe would disagree). As to the new Global Wellesley, even Admiral version, seems like the expense ratio at 0.32% is starting to get higher than I'd be comfortable with...

hoops777
Posts: 1918
Joined: Sun Apr 10, 2011 12:23 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by hoops777 » Mon Nov 13, 2017 6:10 pm

Da5id wrote:
Mon Nov 13, 2017 2:58 pm
hoops777 wrote:
Mon Nov 13, 2017 12:59 pm
I will give you all a great and very simple example of why people get confused about investing.
As I mentioned earlier I own some Wellesley.
According to Swedroe,I am committing 3 mortal sins.Dividend stocks,corporate bonds and managed fund.
According to Bogle,I am just fine.
That’s all.
Experts disagree all the time, particularly in a somewhat squishy field like investing. Hopefully you evaluate your sources and in particular look at whether their positions have reasons you find compelling and can stick to. The farther their views differ from the "mainstream" hopefully the stronger proof you require to credit their position. Feeling confident will let you put your hard earned savings there and keep to the course you select.

I believe you are overdramatizing Swedroe's view. Please cite somewhere he describes it as a mortal sin. He thinks certain things are better than others. He thinks some tendencies are behavioral errors. He advocates for factor based investing strategies. I expect he'd say paying a huge sales load and a high expense ratio for a corporate bond fund is close to a mortal sin. He might say aggressive market timing is a mortal sin. I'd guess he'd call buying Wellesley in an IRA a venal sin. But since he doesn't post here any more who can say?

My personal view is that Wellesley is OK if you want a 40% stock/60% bond mixture. It is managed, but has a reasonably low expense ratio (0.15% for Admiral funds). Like all balanced funds, it helps mitigate behavioral errors that can creep in if you are forced to balance manually, which is a plus. The tax drag is kind of heavy (if you look at the https://personal.vanguard.com/us/funds/ ... =INT#tab=1) so I'd personally not advise placing it in a taxable account. I'd not choose it myself, but think it is a better choice than many in the investing community make. I'd argue against someone saying it is the "ideal" investment in a theoretical sense, but it is pretty good IMHO. For my taste, if it were my only investment I'd be unhappy more because of the lack of international stock (another controversial issue where Bogle/Swedroe would disagree). As to the new Global Wellesley, even Admiral version, seems like the expense ratio at 0.32% is starting to get higher than I'd be comfortable with...
Good points and I did exaggerate a bit about Swedroe.Believe it or not,I actually like Swedroe and have always believed him to be one of the best out there.Whether or not I fully understand all the small details of his analysis,I always walk away with a general understanding.Bogle is a lot easier to digest :happy
K.I.S.S........so easy to say so difficult to do.

User avatar
nedsaid
Posts: 8704
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Slaughtering The High Dividend Sacred Cow

Post by nedsaid » Fri Nov 17, 2017 10:42 am

Caduceus wrote:
Mon Nov 13, 2017 5:02 am
I've been re-reading Buffett's letters to shareholders, and as usual, he's made some observations that few others in the financial world have made.

1. He agrees that share repurchases are more tax-efficient to shareholders, given the current U.S. tax regime.

2. But he says that managers of corporations often destroy value through share repurchases because they tend to buy back shares when they have strong cash flow (and when stock prices are usually at a high), as opposed to when their own stock prices are low (presumably they have less cash flow during that time.) On balance, Buffett says that companies tend to persistently mis-time their share repurchases because of the business cycle.

Nedsaid: Good point, I had not really thought of this.

3. And he makes one more brilliant observation: Dividends can make sense for shareholders because they depress the value of stock options paid to CEOs and other executives. Executives often have substantial amounts of out-of-the-money stock options. One way executives can get the stock price up, even if overall earnings do not improve, is to do lots of share repurchases, thereby increasing EPS, and increasing the stock price. This means that even if Point 2 is true (the share repurchases have destroyed company value), the executives can still exercise their stock options.

Nedsaid: Great point. I don't know, I have an utterly crazy idea, so crazy it might just work. Why not run the actual business rather than time spent on financial engineering? It seems like executives are all about manipulating earnings expectations and the stock price, thus lining their own pockets.

Another crazy idea. Why shouldn't CEO's act as a steward of the business for the shareholders rather than acting as the sole owner of the company? Many of these executives are overrated and overpaid and companies would be better showing some of these folks the door. What obligation do shareholders have to make their CEO's worth hundreds of millions of dollars? Isn't the CEO just another employee? Too much ego, too little performance.


Basically, Buffett is saying that it's not so easy to perceive if dividends or repurchases are better. It's company specific. What makes sense for one firm does not make sense for another.
A fool and his money are good for business.

Post Reply