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David Jackson

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  • Why I Love Dividends [View article]
    David, first of all - thank you for this article.

    The issue breaks down into two questions:
    1. Does it make sense for companies to pay dividends?
    2. Given the answer to (1), does it make sense for investors to buy the stocks of companies that pay dividends?

    Many of the pro-dividend articles focus on the second question without answering the first question. That doesn't make sense, because why would you want to own stock in a company that behaves irrationally? Your article, in contrast, addresses the first question head-on.

    Let's all agree (as Hester writes above) that companies should not pay dividends if they can either:
    (a) allocate the capital to projects that earn returns above the cost of capital or
    (b) return capital to investors in a more efficient way (including tax efficient), namely with buy backs.

    There is room to argue (as you did) that buy backs are not an efficient way for companies to return capital to shareholders for behavioral reasons: many companies may tend to buy back their stock at high prices and suspend their buy back programs when their stock price is low. I'd add that companies are notoriously bad at judging whether their own stock is undervalued or overvalued.

    But isn't the solution for companies to set buy backs using dollar cost averaging over extended periods of time? That's similar to paying dividends, but more tax effective. And it gives companies the choice of suspending the buy back if they discover they can invest the cash at a higher rate of return.
    Feb 10 02:00 PM | 5 Likes Like |Link to Comment
  • How Should We Improve Seeking Alpha's Comment Rating System? [View instapost]
    Just a quick note to say: I'm tracking this discussion carefully, and really appreciate all the suggestions so far. I wanted you all to know that even if I'm not yet responding to the ideas, I'm actively listening, and this thread is also being read and discussed by a bunch of other people in Seeking Alpha. There's a lot for us to think about here.
    May 14 03:58 AM | 5 Likes Like |Link to Comment
  • Trish Regan, Einhorn Apologist [View article]
    Re. Seeking Alpha "has been very, very quiet on the topic":

    Last week:
    Why Seeking Alpha Embraces Pseudonymity

    And today:
    Seeking Alpha And David Einhorn: The Real Story
    Mar 24 06:44 PM | 4 Likes Like |Link to Comment
  • Seeking Alpha fires a shot at Bloomberg, StreetAccount [View news story]
    Thanks everyone for the feedback and input. We'll carefully consider and circle back.

    One key change we've made is to introduce a headline to each market current. We found in the past that the subject wasn't obvious unless you read the entire paragraph. By introducing a headline, we make it faster to figure out the subject matter, and you can then decide whether or not to read the bullet points.

    Introducing a headline also makes it easier to provide a better subject line for email alerts -- and we have 1.1 million subscribers to real time email alerts -- and should improve the mobile experience.

    Right now, the iPhone app experience with the new format isn't great, because it will take time for us to get the app update through Apple's process. Changes to the Android app should be faster.

    For those reading on the main MC page (, have you noticed the headlines, and any feedback on them?
    Jul 29 09:48 AM | 4 Likes Like |Link to Comment
  • Buy Low, Sell High: Alcatel-Lucent Is A Steal At $1 [View article]
    It's fascinating how investors are so drawn to low price stocks, when in reality the share price is irrelevant - it's the market cap (or more accurately the enterprise value) which matters. You see this on websites which have newsletters like "Stocks Under $10!", as if that proves they're a bargain.

    The psychology is fascinating. If the title of this article had been "Buy Low, Sell High: Alcatel-Lucent Is A Steal At A $2.27 Billion Market Cap", it wouldn't have been nearly as alluring.

    Thinking more about this: Perhaps low stock prices do tell us something valuable, namely that the stock is beaten down, because no company does an IPO or a stock split intending its stock to be below $10. A low stock price therefore means that something has gone wrong, and that's attractive trawling ground for bargain hunters.

    Interested to hear others' thoughts - do low stock prices tell investors anything useful?
    Nov 5 08:24 AM | 4 Likes Like |Link to Comment
  • Why Apple Is Down From $700 [View instapost]
    Jehuda, methinks Steve Jobs would never have allowed a product to be named "the new iPad", knowing there would be subsequent versions, and the name would cause product confusion:

    "I have an iPad2. Which iPad do you have?"
    "I have a new iPad. The previous model."
    Oct 24 10:51 AM | 4 Likes Like |Link to Comment
  • The New Seeking Alpha Portfolio iPhone App [View article]
    Sean, we'll soon release an updated of the mobile website, with the same design as the apps. Hang in there!
    Sep 12 10:55 AM | 4 Likes Like |Link to Comment
  • Are Dividend Growth Stocks In A Bubble? [View article]
    Thanks for your kind comment, Berninvestor!
    Jul 22 03:29 PM | 4 Likes Like |Link to Comment
  • Are Dividend Growth Stocks In A Bubble? [View article]
    Dave, thanks for taking my comments seriously enough to write this article. The results are reassuring.

    I agree that there's little risk of a real bubble in dividend stocks. The reason is that dividend investors are intrinsically valuation sensitive due to their focus on yield (or future yield). As SDS put it here, a bubble requires a positive feedback loop (eg. rising house prices attract more people to buy houses, which leads to rising house prices...), and that positive feedback loop isn't possible when investors are looking for yield.

    But less extreme overvaluation is possible. I suspect that the hunt for yield in this interest rate environment will in future lead to overvaluation in an increasing number of higher yielding, slower growing stocks (utilities?), if it hasn't done so already. So far, the analysis from you and Chuck suggests that most dividend growth stocks aren't currently overvalued, but I suspect this is worth keeping an eye on.
    Jul 22 12:39 PM | 4 Likes Like |Link to Comment
  • New Highs, New Lows, Yield Greed [View article]

    Thanks for jumping in with such a great comment. Your observation that the 52 week high list doesn't say much about valuations is compelling.

    I actually agree that "determining valuation is all about doing it one stock at a time", because most investors purchase individual stocks (unless they are asset allocators buying broad indexes).

    But how do you ascertain whether an individual stock is cheap?

    Imagine you're a dividend growth investor whose stock picking universe is large-cap U.S. dividend-payers. You could value an individual stock by:

    1) Comparing this stock to other large-cap U.S. dividend-payers, for example by comparing the current dividend yield or the projected dividend yield;

    2) Comparing the stock's current valuation (eg. dividend yield) to its past valuation;

    3) Comparing the stock's (current or projected) yield to the yield on US Treasuries (similar to the earnings yield "Fed Model");

    4) Using a DCF valuation model, which is also sensitive to interest rates via the discount rate.

    Now, suppose that large-cap U.S. dividend-payers become expensive relative to non-dividend payers. Because you've limited your universe to dividend payers only, your stock selection process won't alert you to the fact that other stocks are cheaper.

    Of the four valuation approaches outlined above, only the second (comparing the stock's current valuation to its past valuation) may alert you to the fact that, while cheaper than its peers, this dividend paying stock is nonetheless expensive. But the problem with comparing a stock’s current valuation to its historical valuation is that the market's P/E and dividend yield often fluctuate, and knowing that this stock is more or less expensive than in earlier years might not help you in periods of sustained PE expansion or contraction.

    For this reason, comparing the valuation of your universe to other asset classes can be valuable. On its own, it can't tell you whether or not to buy an individual stock. But it can alert you to the fact that your universe has become generally expensive relative to other asset classes, saving you from the possibility that you'll pick a stock which is cheap relative to its peers but nonetheless expensive.

    For me, this isn't just a theoretical issue. Right now, interest rates are at historic lows, there's an unprecedented demographic increase in the number of income-seeking retirees, and taxes on dividends are historically low. Dividend investing has become a new orthodoxy. This means that there's a clear risk that dividend stocks may become overvalued.

    The goal of Seeking Alpha is to empower investors to make smart decisions by presenting them with varying opinions on investment issues. If Seeking Alpha readers pile into dividend stocks in 2012 and 2013 after reading articles that only discuss how great dividend growth investing is, and then find that their returns over the next 10 years are poor and that their dividend income in retirement is low because they bought stocks when they were expensive, I'd feel that we, and our contributors, had let our readers down.

    For that reason, I think it's crucial that there's an open and ongoing debate about whether dividend stocks are becoming expensive. Valuation data at the asset class level is a helpful reference point in that debate.
    Jul 16 05:05 PM | 4 Likes Like |Link to Comment
  • Debt is going to be the ending of the developed world, says The Smartest Man in Europe, according to Byron Wien. Politicians can keep staving off catastrophe, but not forever, and in the meantime, the standard of living in the developed world will continue to converge with that of the developing. What's he buying: IBM and Apple (AAPL). Go figure.  [View news story]
    His top pick was actually gold:

    "So what am I doing with my money? It is hard to hide in stocks. Even Danone is reporting disappointing earnings; people are so worried they aren’t even buying yogurt. The French auto companies are in trouble. I think gold is going much higher. I am buying energy stocks because I want to own something real. Preserving capital is my focus now, not making money, but I like IBM and Apple. Also some Swiss multi-nationals. If Obama wins in November the market will go down. A Romney victory will create a rally, but once he gets into office he will find there is not much he can do to make things better.”
    Jul 3 09:05 AM | 4 Likes Like |Link to Comment
  • Why We Don't Own China [View article]
    Excellent article. It's amazing how investors broadly ignore political, social and corporate governance risk in some countries until it's too late.
    Jul 2 10:10 AM | 4 Likes Like |Link to Comment
  • Investing For The Long Term: Dividend Growth Stocks Or S&P 500? [View article]
    poortorich, excellent point about the pressures faced by professional money managers, and how that may impact their performance. There have been studies about individuals' stock picking performance. I referenced one in the ETF Guide that showed that individual stock pickers underperform the market by about 2 percentage points per year. (See ). If you click through to the study, you'll find that the researchers attribute most of the underperformance to excessive trading. If there's one thing that dividend growth investors don't suffer from, it's excessive trading.
    Feb 8 07:37 AM | 4 Likes Like |Link to Comment
  • QuickChat #199, August 31, 2011 [View instapost]

    Our thinking about comments isn't driven by revenue considerations, but the simple question of how best to nurture high quality comments on the site, and enable readers to discover them.
    Sep 1 07:09 PM | 4 Likes Like |Link to Comment
  • What the Thumbs Up with That? [View instapost]
    DM, it's great to be drawn back to this post of yours and the discussion on it. Here's a quick update on the changes you and the others here helped us think through:

    Removing thumbs downs: As many of the commenters here predicted, this massively reduced the level of acrimony on the site. Some high quality commenters who were driven away by thumbs downs are now back as active commenters.

    Moderating first-time comments: This almost entirely eliminated spam from the site. No more shoe ads and SEO spam...

    Removing the ability to "like" your own comments: There's still some ratings manipulation from people with multiple accounts, but this change meaningfully cut the volume of self-boosting and generally raised the perceived credibility of comment ratings.

    Allowing instablog owners to delete comments on their own instablogs: The QuickChatters and others are now able to control their own communities, and it looks as though this has reduced or eliminated frictious exchanges on their instablogs.

    Whether or not as a result of these changes, the number of comments on the site has grown dramatically. In August we had 72,500 comments vs. 58,200 in July and 54,000 in June.

    We're now grappling with the issue discussed here

    ... and are thinking more about how to help readers discover the best discussions in instablogs and other parts of the site.

    Our thinking about comments isn't driven by revenue considerations, but the simple question of how best to nurture high quality comments on the site.

    Sep 1 07:01 PM | 4 Likes Like |Link to Comment