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David Van Knapp

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  • 'Buying Dividend Stocks For Income' Arguments Don't Make Sense [View article]
    Wow. Where to start? A complete responsive comment would require a complete article.

    I'll just cherry-pick.

    (1) Attitude. Words like "fixated," "slippery," "unaware," "refrain," "I don't care," "[not] rational," "confusion." You have joined the parade of dividend dis-beilievers who not only make their cases, but who feel the need to pepper their comments with condescending phrases and try to establish dividend investors as not very well informed.

    (2) Assumptions. You assume that when a d-g investor says that he's waiting for the price of Intel to drop to a point that it yields 4%, that that is all he knows about the company. It does not seem to have occurred to you that such investor may have studied Intel for months, done all his due diligence about the company, and concluded that the only thing preventing it from being a really good investment is its price. So he sets his price (which, as you point out, is simply the same as setting a dividend yield), and if the price comes down to that level, he buys. All his requirements have been met. That's just value investing in action. Dividend investing is a form of value investing.

    (3) Misrepresentation. >>"In any case, simply declaring that buying stocks with high dividends is a winning formula doesn’t seem logical to me."<< Who said that? You did. I don't recall seeing it in any recent dividend-growth article. Plus, as in (1), it implies condescension: Anyone who would say that is a shallow thinker and has not done proper due diligence, right? Doesn't know anything about risk?

    (4) >>"If the value of the stock falls that’s an economic event..."<< You keep using the word economic(s) in a way that's not clear to me. If the value of a stock falls, that's a market event. It may have zero to do with economics, either macro or the economics of that company. In my understanding, markets are part of economics, but in no way do markets define economics.

    (5) Exclusive focus on capital value. >>"And of course I’ve increased my risk by buying more of those shares."<< Risk of what? If you buy a sound company at a better price, haven't you improved the odds of better total returns? Isn't that what Buffett and other value investors DO?

    (6) Unwarranted generalizations. Equating the correlation of DLN to the market is spurious. DLN does not represent a well-selected set of dividend-growth stocks. Most of the latter have correlations that are much lower than 1.0. They fall less in bear markets (part of their charm) and rise less in bull markets. Buffett's Rule #1 is "Don't lose." The reduced correlation in bear markets is a good thing.

    (7) Continued reference to "high dividend." Do you think that all dividend-growth investors are interested in high dividends? It's fair to say that we're almost all interested in a decent dividend, but how do you define "high"? Greater than 4%? 5%? 6%? Personally, I accept 3%. Higher-yielding stocks have different characteristics and require their own special study. And to my knowledge, the best writers on this site about high-yielding stocks have engaged in those special studies and have an inkling about what they are doing.

    I was hoping that this article would explain why higher price = lower yield is good in the bond world but bad in the stock world, which seemed to be implied by your comments on another recent article. I'm disappointed that you did not address that subject here.
    Aug 31, 2011. 01:15 PM | 59 Likes Like |Link to Comment
  • 19 Things I Like About Dividends [View article]
    SDS, Your boss called from Silicon Valley. He said that since they paid you for Monday and Tuesday, they are not going to pay you for Wednesday. They don't see why they should.
    Jan 31, 2013. 04:15 PM | 47 Likes Like |Link to Comment
  • 'Buying Dividend Stocks For Income' Arguments Don't Make Sense [View article]
    Stock picking is bad, because who says so? What's the evidence? Are you implying all stocks have performed exactly the same for the past 10-20 years?

    With well-selected dividend-growth stocks (and if you spent a little more time poking around the Investing for Income section and actually read the articles, you'd know what that means), you get very reliable RISING cash flow. You also get a chance at return of more than 100% of capital; a bond's return of capital is after it's been eroded by inflation.

    Hardly any of the best dividend-growth stocks are in any danger of bankruptcy. Maybe a few banks, so don't invest in banks. The "superior" position of bond-holders to stockholders is a straw man argument for investment-grade companies. And I don't mean as determined by the ratings agencies. I mean as determined by skilled investors who do their due diligence.

    Larry, with all due respect, you seem so steeped in the common wisdom of MPT, asset allocation, and index funds that I really think you have difficulty thinking outside those boxes. That's why you think a statement like " an argument for stock-picking" is enough by itself to be convincing. It's just a statement. Where are the facts and reasoning to back it up?

    Dividend-growth investing is outside those boxes.
    Aug 31, 2011. 01:42 PM | 43 Likes Like |Link to Comment
  • What Business Is Wall Street In? [View article]
    I think this is one of the top 5 articles I have ever read on SA. The hacker-trader analogy is dead on. The description of what business Wall Street is in is dead on. The description of product invention by the big banks to allow institutions to play in games they don't understand is dead on. The statement that individual investors and conventional hedge funds are not the ones that crash the market is exactly correct.
    May 10, 2010. 10:48 AM | 43 Likes Like |Link to Comment
  • What's a Safe Withdrawal Rate? These 10 Dividend Stocks Are the Answer [View article]
    I read the article, all the comments, and your replies to the comments. With all due respect, I think the article is misleading, mainly for this reason: It judges the "high dividend strategy" (and I am not sure what this means) by total return only, then presents statistics showing the high year-to-year variability in return from the "high dividend strategy" compared to an all-bond strategy. In one of your comments, you state flatly that "the only RIGHT WAY to manage a portfolio is for total return [emphasis yours]."

    I cannot tell whether "high dividend strategy" is similar to what we here have been referring to as a dividend-growth (d-g) strategy. But in any event, the article misses several key points:
    --The idea behind a d-g strategy is to build the income stream up to a point that one does not need to make withdrawals from capital to live on in retirement. One lives off the income stream itself.
    --The income stream is independent of price. Therefore the total return ( a snapshot at any given time) is neither a measure of nor a proxy for the income stream's safety and growth.
    --No one would dispute that an all-bond portfolio will have lower volatility and fewer years of negative total returns than even the "safest" equity portfolio (two of the statistics in the article to support its thesis). But those selected statistics ignore other qualities of a d-g portfolio, such as the fact that the dividends from the dividend portfolio increase each year (bond payments stay flat), the d-g portfolio has no term (bonds have to be laddered for an intelligent long-term trategy), and the strong liklihood that over time the d-g's nominal value will increase (bonds return principal only).
    --When you buy d-g stocks, you obtain the right to receive dividends for as long as the company issues them. That right does not waver no matter what happens in regard to the stocks' subsequent price changes. In a well-selected portfolio of d-g stocks, the only variability in the dividend stream is upward variability--relentlessly upward. While an occasional stock here and there will cut or suspend its dividend, that has never happened to all the stocks in a d-g portfolio.

    I obviously disagree with the concept that the only right way to measure a portfolio is by total returns. Total returns are perhaps the only right way if your strategy is to withdraw from capital to fund retirement. But that's not what a d-g strategy is all about: As explained in the article here, it is about living off the rising income stream from the d-g stocks. What they could be sold for at any particular time becomes close to irrelevant.
    Dec 30, 2010. 09:15 AM | 40 Likes Like |Link to Comment
  • Dividend Aristocrats vs. Bonds: Not All Yields Are Created Equal [View article]
    This article sets up a strawman argument, then burns it. The key words are "high yield" and the false contradiction set up between sensible dividend-growth investors and "A value-focused investor [who] would get better returns and better risk-adjusted returns investing in stocks with low price to earnings ratios, low price to book value ratios or low price to cash flow ratios, than he would get chasing dividends."

    I am not naive; I know that some people chase yields, thinking that any 9% or 10%-yielding stock is a good investment. But that doesn't give you a portfolio of "well-selected dividend-growth stocks." The fact is, in filling out an intelligent, low-risk portfolio of dividend-growth stocks, the investor WILL investigate "low price to earnings ratios, low price to book value ratios or low price to cash flow ratios." I prepare an e-book each year called "The Top 40 Dividend Stocks," and I use every one of those ratios, plus many others, in evaluating stocks.

    And doing that does not consign you to tiny yields. I haven't quite completed the selection process for the 2011 edition yet, but in my group of finalists for the Top 40, I see yields of 5.9, 6.6, 5.7, 6.5, 5.7, 6.3, and 7.0 percent. There are several others in the 5-6% range.

    The idea that you have to go to highly risky stocks to get decent yields is a myth.
    Dec 19, 2010. 09:50 AM | 40 Likes Like |Link to Comment
  • Periodic Table of the Dividend Champions [View article]
    WACG, Do you have a screener that will produce a table and visual presentation such as is presented here? Limited to Dividend Champions? Obviously a series of screens can cull stocks by dividend yield and another set of screens can cull them by dividend growth rate. And yet a third set by payout ratio. I use the plural "screens"'d have to use multiple screens to walk through each layer of yields and dividend growth rates. Then you'd have to arrange the results in a visual presentation that itself adds value. That's the point of this article--I did that work.

    Any analysis is based on information available elsewhere. The value comes from the analysis, comparisons, contrasts,and presentation.
    Dec 21, 2010. 09:55 AM | 34 Likes Like |Link to Comment
  • The Absurdity Of Not Investing In Dividend Stocks For Retirement [View article]

    In the 5-6 years I have been doing this, one of the fascinating things to me is the resistance of the "establishment" to even acknowledge dividend growth investing as a field or as a legitimate strategy.

    In addition to the several comments about how no brokerage ads encourage DGI or pointing out that brokers do not get paid for self-directed accounts, I have had these experiences personally:

    --I submitted a detailed, point-by-point proposal to AAII Journal to write an article about DG investing, since I saw that it was getting no coverage at all. This waqs after I had an established reputation here. They sat on the proposal for months, once asking me to touch it up, then just letting it sit. Then AAII introduced their own dividend investing service! I wrote to the Journal's editor and told him how unprofessional I thought they had been. (I come from an editorial background and know how author proposals ought to be treated professionally.) He wrote back, didn't really apologize, and said the proposal had gotten buried on his desk.

    --I have written several messages to Christine Benz at Morningstar, and commented on her articles, without once receiving a reply or acknowledgement. Each of my communications has related to DGI in one way or another. She has commented on her own articles, sometimes replying to others' comments, but never to mine.

    The common thread, I think, is that both AAII and Morningstar have a "house view" about what investors should be seeking: Total return fueled by MPT. While some DG investors use the DG strategy to achieve total return as their primary goal (and it works great for that), I suspect that both AAII and Morningstar know that I come from an income focus and that I also question (or outright reject) several tenets of MPT.

    Given their house view, I don't think that either organization wants to dilute their overall message with the kind of thinking that I would bring to the table. Both AAII's and Morningstar's dividend subscription services have total return as their stated goal. All of their retirement literature is about "withdrawing" from assets upon retirement age. I don't believe they want to consider a different way.

    So in addition to the obvious brokerage disinterest in a self-directed strategy that generates no fees, I believe that the overwhelming "victory" of MPT over value-investing principles (where Buffett is an anomaly that no else can hope to emulate), combined with a lack of understanding about how DGI can be used to generate a livable income stream in retirement (that beats inflation to boot), makes even seemingly neutral organizations like AAII and Morningstar reject DGI out of hand.

    The DG community here on SA is unique as far as I know. Occasional commenters here routinely criticize DG, and when they do, they usually use MPT principles to bolster their criticisms. They often cannot distinguish between facts and MPT premises, stating the latter as if they were the former. We have all seen that.

    Jul 27, 2013. 01:54 PM | 32 Likes Like |Link to Comment
  • I Love My 'Magic Pants' And My Partners Wear Them Proudly [View article]
    I think that what is going on here is clear. One practicing advisor (Larry) relies on the ever-changing and growing quant field as a way to design and recommend funds. Another practicing advisor (Chuck) relies upon individual company analyses to select stocks with characteristics that he believes will help meet individual needs.

    Larry's approach, backed by reams of data and studies, carries a certain patina for people who are impressed by academic studies and Nobel prizes. Chuck's approach, since it is stock-by-stock and person-by-person, is never going to match Larry's in sheer volume of data.

    On the other hand, that does not mean that Larry's approach is better. Because of his confidence and academic backing, Larry puts himself out on limbs through overstatement. He is willing to tell anyone that only his way - indeed only his goal - is "correct." He tries to bulldoze intelligent people by discarding their points as, well, pointless, or as being based in ignorance or stupidity. He has repeatedly criticized DG investing by presenting arguments against "high yield" investing, which he knows (or should know) is not the same thing. He has stated that he can explain 96% of your returns, then refused an invitation to do exactly that (with a dismissive "I am not going to do your work for you"). He has even stretched at times to offer lifestyle advice to people that he does not know at all.

    Chuck takes a more measured and individualized approach, with both stocks and people. I have not known him to do more than to offer example after example, principal after principal, without overstepping what he believes the evidence shows.

    Most everybody knows where I stand. I used to debate endlessly with Larry, but have mostly stopped, as it is of no use. He has refused to answer the simplest of questions about the data upon which he relies. I find Chuck's approach to be far more agreeable and constructive than Larry's.

    (Disclosure: I have a small but meaningful business relationship with Chuck. Seeing him through that lens has only caused me to admire his approach even more than I already did.)
    Mar 19, 2014. 03:25 PM | 31 Likes Like |Link to Comment
  • Yield On Cost: A Vitally Important Consideration For Retired Investors [View article]

    Chuck hasn't responded yet, but let me take a try at your question, because I think that it goes to the heart of the article.

    Yield on cost is actionable, because it can lead to an action called "hold" when every fiber in an investor's body is screaming "sell." That was perfectly illustrated by Chuck's clients. They retired in the Great Recession and the Crash of 2008. They were able to do that and to hold on largely because Chuck was getting them to look at another number besides their portfolio's total market value, upon which they had previously been fixated.

    Yield on cost is another way of stating total dividend dollars received. Although it is expressed as a percentage, it is an amount, just as if it were stated in dollars. If seeing that amount as a percentage helps an investor appreciate what his/her dollars are accomplishing - i.e., growing the cashflow output of their investments year in and year out - then YOC has value. It has the value of preventing the investor from panicking when they should be taking a businesslike attitude.

    With 5+ years of a bull market under our belts, it is easy to forget what 2007-08-09 were like before the crash reversed itself in March, 2009. I know that personally, building my income sream while the crash was going on helped me to focus on my investing goals and mute the noise of the crash itself.

    If one is thinking of selling, then "holding" is an action. It is a decision not to sell. If YOC helps someone reach that decision, then it is an actionable metric.

    As always, if someone is not helped by YOC, they are free not to use it, calculate it, or consider it. But I don't see why they should criticize others who find it useful, or berate it as a "feel-good number," if it helps them be better investors and reach their goals. That seems to be exactly what happened with the couple described in the article. They FOUND a way to feel better about what was happening, and that turned out to be really important.

    Sep 4, 2014. 10:51 AM | 30 Likes Like |Link to Comment
  • Master Limited Partnerships Get Pounded (Again). What's Going On? [View article]
    Welcome to the world of fact-haters. You wrote a beautifully reasoned and fact-checked comment, and you get 5 thumbs down, but not a single reply stating why anyone disagreed with your comment. That's typical.

    Happily, according to sources at SA, this kind of nonsense will be stopped around the end of the month. I fully expect to get 3-5 thumbs down for this comment form the nameless dividend-haters that follow me around.

    By the way, thanks for your educational, well-documented comment.
    May 13, 2011. 02:21 PM | 29 Likes Like |Link to Comment
  • 31 Beaten-Down Dividend Growth Stocks: Part 2 [View article]
    Mike, Put down your beer. Yurn off the TV. Look into every one of these stocks. In other words, do my due diligence for me. Then write it up in a nice concise article. Mark each stock with "Mike says yes" or "Mike says no." If you think it's a maybe, mark it "no."

    You can leave out all other words of explanation. Just tell us the yes or no.

    Then you can go back to your beer.

    Thank you.

    Dave (and dividend growth investors worldwide)
    Oct 15, 2014. 02:57 PM | 28 Likes Like |Link to Comment
  • I Love My 'Magic Pants' And My Partners Wear Them Proudly [View article]

    That's an interesting observation. What do you suppose motivates someone (anyone) to repeatedly post articles in an area of SA called "Dividends and Income" blasting dividends as an investment goal?

    Do you think the motivation is truly a desire to teach and to help? To get page views? To round up more clients for an advisory business? To show off? Other reasons?

    Anyway, your mention of egos causes me to ask that question.

    Second question: If someone, such as Chuck, writes an article in the "Dividends and Income" category, and is then greeted a few days later with an article in the same category naming him personally and purporting to refute several of his points, what is the best thing for Chuck, as the one whose ideas were attacked, to do?

    Personally, I think that the way Chuck has handled himself here is perfect in both tone and content. Are egos involved? Of course they are. But that's not necessarily a bad thing, would you agree?

    The personalization is unfortunate, and actually IMO stunts the discsussion as people dig in their heels, but nevertheless many parts of the discussion have been enlightening.

    Mar 19, 2014. 02:50 PM | 28 Likes Like |Link to Comment
  • Dividend Growth Investing: An Introduction To Creating Wealth [View article]
    I tend to use "I" a lot too, because I want to make it clear that I am not speaking for anyone else, just for myself. If readers want to generalize out and say to themselves, "That makes sense," or "That's just like my situation," that is great.

    In contrast, some writers use "you" a lot. As in "If you would read the peer-reviewed papers that I gave you, you would learn something. Maybe you would learn simple math."

    I prefer the former to the latter. By a mile.

    Mar 19, 2014. 09:35 AM | 27 Likes Like |Link to Comment
  • What Stocks Are Most Commonly Held By Dividend Growth Investors? [View article]
    I've only seen from the comments above one person say that they removed EXC from their portfolio. One of the interesting learnings from last year was that even though EXC's dividend was frozen, lots of people apparently held onto it anyway.

    So, please click "Like" on this comment (mine) if you removed EXC from your portfolio in the past 12 months.

    Thanks, everyone.
    Apr 18, 2013. 07:25 AM | 26 Likes Like |Link to Comment