The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
Jm, You are correct, I have done the same thing. But an important point is, taking profits was done as part of an overall plan to improve your overall business. Companies do this too, of course, all of the time. In my corporate experience, there were always interesting questions to consider about how much (if anything) to take out of the cash cow businesses in order to fund investments in newer business lines with presumably better futures. My observation was that the continuing importance of the cash cows was often underrated. Dave
The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
In a recent article, I talked about treating your investing like a business. What do real businesses do when they make a profit? Do they book it, and then let go of the assets and strategies that allowed them to make that profit? Of course not! They are already thinking about next year, and further down the road, about how they will make even more profits.
Good article, Tim. I have thought about that old saw, "you never go broke by taking a profit," a lot, but I never was able to put into words what bothered me about it, until I read this article.
Again using the business analogy, the problem with booking the profits and exiting the investment is, now what? While many times that's the right thing to do (you may be sitting on a profit that is unrealistic and almost sure to evaporate), just going to cash gives you nothing to sustain your profit-making. I suppose a business model can be predicated on finding a continuing series of profitable investments, taking profits, and then moving on to the next one, but the chances of being right over and over again seem small.
As someone said a few days ago, the next Coke may be Coke. What's required is the ability to assess ongoing business opportunities for companies you already own, without getting distracted by the stimulus of market prices, which receive such intense focus that they become hyper-stimuli that can drown out all the other considerations.
The Dow Hits All-Time Highs, But The Truth Is It Remains Cheaply Valued [View article]
Chuck, perhaps I misunderstand, but since FASTGraphs compares current price to earnings and projected earnings, any FASTGraph time frame would show the exact same valuation relationship as of RIGHT NOW. Wouldn't it? While the historical graphs show an interesting perspective, the question of valuation is in the present tense. It is what it is, no matter where it has been. Dave
The Dow Hits All-Time Highs, But The Truth Is It Remains Cheaply Valued [View article]
I copied the exact same sentence, intending to use it as the springboard for a comment. I guess the rise of the indexes is the headline. The valuation of an index may be important to those who invest in indexes. But if you are investing in individual stocks, you have to dig beneath the headlines.
Well, since I went to the trouble of copying it, I'll paste it here, since it is so important:
"Personally, I believe there is a great deal more insight in reviewing these companies as individual entities than there is in thinking about them as the market in the general sense."
The Business Model Of The Dividend Growth Investor [View article]
It's good being your own boss. I'll make another point about it: You are accountable, to yourself if no one else. There is an unfortunate tendency among some investors to try to sidestep accountability, to blame others when things don't go their way. They complain about bad information, poor "calls" on which they relied without doing their own due diligence, and so on. When you accept the mantle of CEO of your investing business, you realize that the buck stocks with you. That can be sobering, and frankly some are not ready for it. Dave
The Business Model Of The Dividend Growth Investor [View article]
Maybe I can save you both from some work. Here's my perspective. Earnings, earnings growth, and earnings sustainability have always been part of my dividend growth investing. They have been elements in my stock scoring system from the very first grading system that I drafted.
That said, when you write an article or a comment, you tend to emphasize certain things over other things, depending on the scope, purpose, and target audience of your article. Partly because of Rich's prodding, I have consciously in the past year or so increased my mentions of earnings and how earnings (or cash flow) are the source of dividends. I think it is a point worth emphasizing once in a while.
Once you have written as much as I have (not only here, but in other forums and in my annual eBook), you tend to rely on your body of work to "cover" some things that are not mentioned in a particular article. Usually that works for most readers most of the time; they mentally plug in missing pieces based on things they know thoroughly or have read elsewhere. They bring their own baseline of knowledge to their reading and comprehension.
Occasionally, it does not work, and a commenter will post a comment that either criticizes or complains about a missing piece. Or someone will post a comment that makes it clear that they don't understand a point, because it's dependent on a missing piece. I try to fill in those gaps with responses to their comments.
I will add, you do get a different perspective on these issues when you post articles and see through the comments how people react. I comment prolifically, and I can state without hesitation that it is easier to pick your spots and simply comment than it is to conceive, research, and prepare a coherent article. At least that's been my experience.
Kimberly Clark: An Underrated Teacher For Dividend Investors [View article]
Tim,
That's exactly how I do it. I don't drip. Rather, I let the dividends accumulate to a trigger amount (currently $1000 in a $65k portfolio), then make one single purchase. I don't like to automate the reinvestmetn process for the reason you cite: I want to make all my purchases - even small ones with dividends received - at attractive valuations. Many people are very happy with the automated reinvestment via drips, and I have no quarrel with that approach. But over time, the amount in dividends that I reinvest will be a large sum. I want each purchase to optimize valuation (and other) factors that I look for in any satock purchase. Dave
Kimberly Clark: An Underrated Teacher For Dividend Investors [View article]
You could page through various companies on FASTGraphs and look at their Morningstar star ratings (which are a proxy for valuation). Or wait for Chuck Carnevale to write another one of his never-ending articles on stocks that are decently valued right now. Chuck has given away more free pre-computed valuation "finds" in the last year than anyone else that I know. Dave
The Big Temptation For Dividend Investors Right Now [View article]
With all the focus on "the market," isn't the basic principle of looking at stocks one at a time being forgotten? A good high quality stock can be undervalued even in an overvalued market, and vice-versa. Unless you move all or lots of your money into and out of the market in a "risk-on, risk-off" approach, it comes down to making decisions about each stock one at a time.
PS: Morningstar's Market Fair Value, which I consider to be a sound tool (formerly used it as a swing trader), shows the market as 3% overvalued right now. Not exactly nosebleed territory.
The Big Temptation For Dividend Investors Right Now [View article]
Agreed. I would go so far as to say this is part of normal portfolio maintenance for income-focused investors. You will often run across opportunities to increase your income stream without lowering the quality of your portfolio. I like to make a holistic decision, one that "improves the portfolio" in toto (not just focusing on dividend amounts, but also on things like diversity, overall portfolio quality, perhaps improving likely dividend growth, etc.) Dave
The Business Model Of The Dividend Growth Investor [View article]
Rich, I didn't act to censor anything. Please don't be so sensitive. I introduced my thought with humor, just like the other veerings off that you mentioned. I think my body of work shows that I recognize that dividend growth principles are used by different investors to pursue different goals, that it is a big tent. I always put goals first, and I resist efforts by anyone to tell anyone else what their goals should be. Dave
The Case For A 100% Dividend Stock Portfolio [View article]
"Yes, your number of shares are compounding but your overall investment is compounding at a slower rate than if you held a static number of shares in a company that was compounding earnings and/or book value. "
How can you possibly know that? Are we back to the old argument that retained earnings are always used more efficiently than when they are paid out as dividends? That every payment of dividends reduces the company's ability to grow? Those debating points do not reflect the real world.
The Business Model Of The Dividend Growth Investor [View article]
Sounds like you guys are veering over into total-return territory, where you can play Mine's Bigger than Yours games. That is not normally the principal goal of dividend growth investors, which is what this article is about. Dave
The Business Model Of The Dividend Growth Investor [View article]
After I wrote the article, I realized we are also the CIOs = Chief Investment Officers. Isn't running your own business fun? I even have a reserved parking space...in my driveway.
If David Crosetti sees this, perhaps he will add something on his investing with his kids, where decisions are made (I think) by committee. I think he's still "chief," though.
Chowder, you invested with your kids too, right? It sounds like you pulled rank on them all the time, even taking their lunch money...I mean, gift money. How do you reach decisions with your adult son on P3M? Still pulling rank?
The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
Dave
The Most Misleading Words In Investing: You Can't Go Broke Taking A Profit [View article]
Good article, Tim. I have thought about that old saw, "you never go broke by taking a profit," a lot, but I never was able to put into words what bothered me about it, until I read this article.
Again using the business analogy, the problem with booking the profits and exiting the investment is, now what? While many times that's the right thing to do (you may be sitting on a profit that is unrealistic and almost sure to evaporate), just going to cash gives you nothing to sustain your profit-making. I suppose a business model can be predicated on finding a continuing series of profitable investments, taking profits, and then moving on to the next one, but the chances of being right over and over again seem small.
As someone said a few days ago, the next Coke may be Coke. What's required is the ability to assess ongoing business opportunities for companies you already own, without getting distracted by the stimulus of market prices, which receive such intense focus that they become hyper-stimuli that can drown out all the other considerations.
Thanks for an excellent article.
Dave
The Dow Hits All-Time Highs, But The Truth Is It Remains Cheaply Valued [View article]
Dave
The Dow Hits All-Time Highs, But The Truth Is It Remains Cheaply Valued [View article]
Well, since I went to the trouble of copying it, I'll paste it here, since it is so important:
"Personally, I believe there is a great deal more insight in reviewing these companies as individual entities than there is in thinking about them as the market in the general sense."
Picking An All-Star REIT Team To Defend Against Interest Rate Risk [View article]
Dave
The Business Model Of The Dividend Growth Investor [View article]
Dave
The Business Model Of The Dividend Growth Investor [View article]
That said, when you write an article or a comment, you tend to emphasize certain things over other things, depending on the scope, purpose, and target audience of your article. Partly because of Rich's prodding, I have consciously in the past year or so increased my mentions of earnings and how earnings (or cash flow) are the source of dividends. I think it is a point worth emphasizing once in a while.
Once you have written as much as I have (not only here, but in other forums and in my annual eBook), you tend to rely on your body of work to "cover" some things that are not mentioned in a particular article. Usually that works for most readers most of the time; they mentally plug in missing pieces based on things they know thoroughly or have read elsewhere. They bring their own baseline of knowledge to their reading and comprehension.
Occasionally, it does not work, and a commenter will post a comment that either criticizes or complains about a missing piece. Or someone will post a comment that makes it clear that they don't understand a point, because it's dependent on a missing piece. I try to fill in those gaps with responses to their comments.
I will add, you do get a different perspective on these issues when you post articles and see through the comments how people react. I comment prolifically, and I can state without hesitation that it is easier to pick your spots and simply comment than it is to conceive, research, and prepare a coherent article. At least that's been my experience.
Dave
Kimberly Clark: An Underrated Teacher For Dividend Investors [View article]
That's exactly how I do it. I don't drip. Rather, I let the dividends accumulate to a trigger amount (currently $1000 in a $65k portfolio), then make one single purchase. I don't like to automate the reinvestmetn process for the reason you cite: I want to make all my purchases - even small ones with dividends received - at attractive valuations. Many people are very happy with the automated reinvestment via drips, and I have no quarrel with that approach. But over time, the amount in dividends that I reinvest will be a large sum. I want each purchase to optimize valuation (and other) factors that I look for in any satock purchase.
Dave
Kimberly Clark: An Underrated Teacher For Dividend Investors [View article]
Dave
The Big Temptation For Dividend Investors Right Now [View article]
PS: Morningstar's Market Fair Value, which I consider to be a sound tool (formerly used it as a swing trader), shows the market as 3% overvalued right now. Not exactly nosebleed territory.
Dave
The Big Temptation For Dividend Investors Right Now [View article]
Dave
The Business Model Of The Dividend Growth Investor [View article]
Dave
The Case For A 100% Dividend Stock Portfolio [View article]
How can you possibly know that? Are we back to the old argument that retained earnings are always used more efficiently than when they are paid out as dividends? That every payment of dividends reduces the company's ability to grow? Those debating points do not reflect the real world.
The Business Model Of The Dividend Growth Investor [View article]
Dave
The Business Model Of The Dividend Growth Investor [View article]
If David Crosetti sees this, perhaps he will add something on his investing with his kids, where decisions are made (I think) by committee. I think he's still "chief," though.
Chowder, you invested with your kids too, right? It sounds like you pulled rank on them all the time, even taking their lunch money...I mean, gift money. How do you reach decisions with your adult son on P3M? Still pulling rank?
Dave