alex_686 wrote: ↑Fri Jun 24, 2022 8:06 am
HanSolo wrote: ↑Fri Jun 24, 2022 6:55 am
2. Wouldn't it be a better axiom that there isn't One True Investment Portfolio? And that different people make different choices because the nature of different choices are different, and some people want this and some want that? And as long as they understand the nature of what they're buying, and they aren't making any "big mistakes" (like going outside their risk tolerance, putting everything in one stock or sector, etc.), then they aren't doing anything "wrong" (or heretical, or illusory, or a palliative for their psychological situation)?
So axiom number 2 is correct.
Good so far.
Not that one can build a better portfolio than the one true portfolio.
Huh? That sounds like axiom #1.
The problem is not that the strategy is different than the one true portfolio or that the goals are illogical. That us all fine. The problem is that the strategy is based on flawed logic which has historically failed at what it is trying to do.
That's the claim axiom #1 fans usually roll out when discussing international, gold, sector funds, individual stock-picking... you-name-it.
As I said already, one of my holdings is Vanguard Equity Income. Saying that my portfolio is failing at what it is trying to do is false. I can confirm that my portfolio has been producing, and continues to produce, the performance and stability characteristics that were intended.
Perhaps that is new information for you.
CuriousTacos wrote: ↑Fri Jun 24, 2022 1:16 pm
I generally agree with #2, i.e. that there shouldn't be "One True Investment Portfolio" on BH, that there's quite a large range of alternatives that are reasonable, and that there are a variety of valid reasons for preferring these reasonable alternatives.
Good so far.
But, similar to what alex_686 said, one person can have valid reasons for choosing a portfolio, and someone else can have flawed reasons for choosing the exact same portfolio. I think it's appropriate for the community to discuss whether certain reasons for choosing/promoting/defending a particular portfolio are flawed or not.
You mean flawed according to you
. You keep asking for mathematical proofs of "optimality" (which does not exist). That's what brings us back to axiom #1.
Some people do look at it numerically (as you keep advocating) and have found that the performance/risk characteristics of a certain investment is adequate. They can't prove that it's, in your words, "optimal" (as in mathematically certain to beat total market in the future), but they have assessed that it's "good enough". How is that wrong?
Some people aren't mathematically inclined, but they've read what various well-known authors have to say about portfolio construction (including Bogle), and simply select something that's in line with what they've read (and equity-income was one of the model portfolios Bogle suggested for retirees). Assuming there's no new research that concludes that there's a "big mistake" in any of those portfolios, how is that wrong?
Some people have a stock-picking background and have moved to mutual funds for convenience and simplicity. They might look at various mutual funds of interest, and select funds that own the stocks they'd choose if they were still stock-pickers. How is that wrong?
Based on the perceived insult from the phrase "free money", perhaps we should avoid that phrase altogether and generally be more careful to mainly address overtly-stated reasons unless we're starting a thread for the sole purpose of discussing a particular reason that's out there in the world.
Moving to axiom #2 will help. And responding to what someone in the thread actually said (rather than hypothetical "people out there") will help. Nobody in the thread ever said they believe in free money.
Are you insulted by me saying that behavioral or psychological benefits are valid reasons for choosing a dividend-heavy portfolio? If so, are there better phrases for describing these things?
"Investor preference" might be a good start.
That being said, I'm starting to understand that the answer to my question #3 may be "yes".
dbr wrote: ↑Fri Jun 24, 2022 1:34 pm
I think it is a mistake to characterize something as a bad idea by dismissing it as a behavioral or psychological benefit when the real problem is that the reasoning behind the idea is a misunderstanding of investments or a selection of a less effective idea arrived at in ignorance of better ideas.
My axiom #2 presented a third option: that different people want to own different things. I also own gold and silver ETFs. The above kinds of pejoratives (e.g., "ignorance", or even "psychological benefit", which seems to allude to the investor's psychological condition) are regularly hurled at investors like myself.
A discussion that takes all this into account is going to require lot of nuance.
Or just move to axiom #2.
CuriousTacos wrote: ↑Fri Jun 24, 2022 2:17 pm
So, do you or JoMoney or anyone else think dividend funds are appreciably lower risk for retirees than the total market because of these expected dividends? If not, does JoMoney's comment translate into a reason for preferring dividend funds in some other way?
First of all, you're mixing up several different questions. One is dividend emphasis vs. not (this was the question posed by the OP). Another is total market vs. not total market. Another is indexing vs. active. Another is mutual funds vs. stock-picking.
Your question introduces the presumption that everything is being compared to a total market index mutual fund. That presumption is indicative of axiom #1.
I can't speak for JoMoney, but I'll just say that I can't prove mathematically (since that's the only thing you'll accept) that anything will have a better risk-adjusted return than anything else in the future. And neither can anyone else. What I can say is that, over the past several months that inflation has been raging, I've seen articles that have used the stock duration argument to explain why dividend stocks were not dropping as much as non-dividend-paying stocks. While I haven't seen a mathematical proof, I can accept it as a possible explanation for what we can plainly observe happening in the market. And I haven't seen a mathematical proof (from you, or anyone) disproving those articles.
I'll just close by pointing out that the "free money mystery" I referenced earlier remains unsolved. If anyone eventually solves it, then that may be the basis for further comment. It's interesting that there are people who claim to know how dividends work, but are unable to solve this one.