When the herd makes money, they think they're genius. The last one to leave the herd will be the fool of all fools like the last holders of Lehman Brothers, AIG, Stern...
The real genius is the one who makes money on the way up but leaves before the bubble bursts. Even a genius cannot predict the peak and the bottom but I'll call him/her a genius if s/he is right better than 80%.
It is our nature and bias to ignore others' ideas. We cannot be wrong, but usually we are.
We try to cover the entire sky by placing our hand between our eyes and the sky, so it is covered but every one else can see the sky. It is a rough translation from a Chinese proverb.
Now dividend growth stocks have the highest premium in last 30 years. It is a mild bubble when we've many retired or retiring folks seeking for income.
Same for internet bubble in 2000.
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(c) TonyP4 2012. Written in 12/02/11. Last updated in 12/02/11.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
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Jacob says:
ReplyDeleteYou said it well. The fact is because dividends are so misunderstood and relied upon as an indicator of corporate wellness rather then just an accommodation by companies to be friendly to share holders and cash out their investment saving them the hassle and expense, companies have often been able to use them to hide underlying business health.
Companies like kodak, gm, xrx , etc have all counted on investors staying with the company as long as they received their "dividend payment", its a true joke of investing and to stand by and watch this happening reminds me of the days when brokers had buy recommendations on 99% of the companies they followed and more recently the reliance on the ratings agency and the big one, that being how on avg 75% of companies beat earnings expectations (which are set by themselves essentially) to try and show how well a company is doing.
Earnings expectations are from analysts and for whatever reason they go along with and rather then try to pick what the earnings are, they build in a buffer and that leads to the earnings "beats" being reported in the media 100's of time each earnings cycle.
We clearly live in an era of volatilie earnings where the focus is on short term more then long term by a vast majority of companies and if dividends were really a return of profits to shareholders, they should have equal volatility and nothing should have been paid out by companies that lose money.
The fact that the majority of companies have mounds of debt like a verizon, shows that dividends are such a sham in terms of what they are understood to mean that its again painful to watch, but the market is slowly seeing this and that is a contributating factor for the compression of p/e ratios that will continue to erode.
I estimate high dividend stocks add about 1.5% (say S&P dividend yield is 1,5% and your h.d. stocks is 3%). So, the extra 1.5% is good for last 10 years of a flat market.
ReplyDeleteHowever, market timing on volatile market makes the 1.5% insignificant. In early recovery we usually have about 30% from the bottom to one year later. We experienced one in 2003 and 2009.
The total return of a stock is the ability to earn, so the expected earning yield (E/P) is important at least to me.
ReplyDeleteDividend yield to me is not important. It depends on how the corporate uses the earning: give dividend, plow back to research/development, buy back stocks, acquire companies, bonus to employees (good is they are reasonable), pay back debts...
The corporation should check how to use the cash for the stock holder's benefit. To illustrate, when the dividend tax rate is 30% and the long term capital gain is 10%, then dividend may not be a good idea.