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Smarty_Pants

Smarty_Pants
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  • Debunking The 'Dividends Don't Add Shareholder Value' Myth [View article]
    "There is only one way to validate any model in finance: statistical analysis." - varan

    At best, the application of statistical analysis in 'finance' as a tool will allow the user to show correlation between controlled inputs and results. What it does not do is validate any sort of causation.

    When a TR adherent claims that any certain number of factors "explains" 96% of returns what they are really saying is that selecting stocks based on those factors correlates with the eventual return. But as any scientist will tell you, correlation is not causation. Often times it is a logical fallacy.

    cum hoc ergo propter hoc

    http://bit.ly/10RuykH

    For example: Every morning my neighbor's sprinkler system turns on when the hour hand on my clock passes the number 6. In TR-speak, having the hour hand pass the number 6 "explains" 100% of the activity of my neighbor's sprinkler system.

    But as a simple example will show, the hour hand on my clock certainly doesn't cause that sprinkler system to turn on. If my clock stops at 4 am, does that mean his sprinkler won't run?

    This is the slippery slope of statistical inference. It is very easy to use statistical methods and claim causality when it's not a valid conclusion.

    That being said, since the preferred approach for TR / MPT adherents is to diversify across thousands of stocks the only way they can do any sort of closed form analysis is to use statistics, 'prove' correlation, and then improperly claim causation via the use of a logical fallacy. It's all they have to work with.

    Per wikipedia:

    "The cum hoc ergo propter hoc logical fallacy can be expressed as follows:

    ---A occurs in correlation with B.
    ---Therefore, A causes B.

    In this type of logical fallacy, one makes a premature conclusion about causality after observing only a correlation between two or more factors."

    I find it amusing that the term "factors" shows up in that explanation, even though I know it is a non-causative coincidence. ;-)
    Mar 22 07:29 AM | 4 Likes Like |Link to Comment
  • What Do I Do With My Stocks If The Market Crashes? Part 1 [View article]
    "Not too long ago, I had purchased WAG and within about 18 months I had 100% gain ... so I sold. Might get back into WAG if the yield improves a bit ... I ... still don't know if I made the right decision" - SteveTheHawk

    I did something similar. I also had a 100% gain on WAG. But, I sold half and used the procedes to buy another DGI that was undervalued at the time and yielding more than WAG's 2.1%. Now I have two good DGI stocks, a higher total income on the original investment, and my risk is spread between two businesses instead of one. I feel, for my case, that I got greater overall benefit by selling half of WAG and buying a new, and undervalued, position with the proceeds.

    I'm still establishing my DGI portfolio. I have 31 stocks currently and would gladly add more new positions if they were worth holding. Under those conditions, selling half of my WAG and buying something else helped fill out my portfolio, so it was not a difficult choice. If I already had 50+ positions I'd probably be closer to just letting WAG keep chugging along (or trimming off only a small percentage of the holding).
    Mar 21 03:53 PM | 3 Likes Like |Link to Comment
  • The Positive Psychology Of Dividend Growth Investing [View article]
    DVK. If you already own the bond, rate increases should make you unhappy. You'll continue to collect the same interest, but the market value of your bond is lower.

    If you're bond shopping you would be happy as the price you pay will be decreased and therefore the relative income / yield will be higher.

    Rising rates are not a good thing for current bond holders unless they are very short maturities. The longer until maturity, the larger the change in price for the bond with a given change in rates.
    Mar 21 08:37 AM | 1 Like Like |Link to Comment
  • FOMC: Rate hikes coming sooner and faster [View news story]
    "13 of 16 members expect the first rate hike next year, with 10 seeing a Fed Funds rate of 1% or higher by the end of 2015."

    I love how the FED's predictive powers regarding economic events extends over 20 months into the future, yet they can't tell you what they themselves will do next month with any level of certainty.

    Even at $55 Billion a month, the FED is expanding the base money supply (and therefore also the federal debt) by over 4% annually in order to expand the economy by less than 2%. Personally I don't think that's a sustainable situation. Expect them to reverse tapering when the economy slows down again in 6 to 9 months.
    Mar 19 04:11 PM | 8 Likes Like |Link to Comment
  • Dividend Growth Investing: An Introduction To Creating Wealth [View article]
    Nicely done Dave. Those are some impressive results.
    Mar 19 07:56 AM | 2 Likes Like |Link to Comment
  • Rich And Retired? Why Buying Dividend Growth Stocks Might Not Be Your Best Move [View article]
    "Try to imagine sitting at your desk and turning on the computer and then placing orders for 15 million dollars worth of stock." - David Crosetti

    Sure, why not? Even if it was $15 million of after tax money spreading it among 50 quality DGI type stocks would imply around $300,000 per stock. That's less than 10,000 shares each for most of my current holdings.

    I could do that in a single day. It would be awesome. I'd want to establish that $400,000+ pre-tax annual income stream, watch it for a year (barring any dividend cuts), and only then start to think about making changes to it.

    I believe that the principles underlying a DGI investing style are reasonably insensitive to the scale of operations, so why not?

    I'd be more nervous about leaving $15 million sitting around on the liability side of some bank's ledger sheet. Yikes!
    Mar 18 05:26 PM | 3 Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    ON AVERAGE I would rather own two companies that earn $0.75 each, productively reinvest the $0.25, and send me the remaining $0.50 of those earnings than to own one company that's earning $1.00 alongside a second company that's losing $1.00 through poor investment.

    Why allocate money "ON AVERAGE" if any significant portion of it's earnings might be used wastefully at worst, or less productively at best?

    The only way to increase the ON AVERAGE returns in that case is to take on greater risks, ON AVERAGE.
    Mar 18 05:10 PM | Likes Like |Link to Comment
  • What's Your (Dividend Growth) Number?: Part 3 [View article]
    "But I heard (HSY) has a nice park that contributes to my dividends." - AaronFunding

    Yes they do! I visited it several years ago. Very quaint. The tour of the chocolate factory was awesome as well. In addition there is a bit of the history not only of Chocolatetown, but the charitable school that sits across the valley which was established and funded by the entire personal fortune of the founder. He was an incredibly generous man. Makes me proud to buy Hershey chocolate bars.

    http://bit.ly/1fUfcrF

    Anyone who goes near Hershey, PA should plan to spend some time there when the park is open in the summer.
    Mar 17 07:56 PM | 2 Likes Like |Link to Comment
  • Total Dividend Return Will Guide My 2014 Decisions - Part 2 [View article]
    "Failing that, there is the Gomer Pyle method of seeing which finger hurts the most when you slam two fingers against the table. " - Dividend Sleuth

    Goo-uhoooolly! +1 for making a lucid point with a Gomer Pyle metaphor.
    Mar 17 07:30 PM | 1 Like Like |Link to Comment
  • Debunking The 'Dividends Don't Add Shareholder Value' Myth [View article]
    "If they reinvest the dividends back into the same group of companies (divided payers) then it's a wash? Simple take and give back." - Cranky

    I'm not so sure about that. If we accept the claim that receiving a dividend reduces the capital at risk (for the sake of the argument), then reinvesting the dividend into the same stock puts you in a position where the same dollar amount is at risk on that position.

    However, the income going forward is higher due to owning more shares. You have increased your income without increasing your dollars at risk.

    Certainly there could be an equivalent effect for the case where there is no dividend as the price could increase an to produce an equivalent TR at the end. However those price increases could be reversed in a market swoon sometime in the future.

    Those extra share can't be taken away by Mr. Market. Once they are purchased they become a permanent 'gain' for that stock position (presuming the business doesn't go bankrupt).
    Mar 17 06:36 PM | 1 Like Like |Link to Comment
  • Dividend Challengers: 13 Increases Expected By May 30 [View article]
    "last year's increase was small, so I hope they are more generous this year." - David Fish

    TGH has been making small dividend increases every quarter since 2007. Each increase was only a few percent but YoY it was much better. The CAGR since I bought my shares in 2012 is over 12% and the CAGR since mid-2011 exceeds 16%. Payout ratio is a tad over 60%.

    http://bit.ly/1gw8kR3

    As I noted earlier, any perceived economic weakness results in a knee-jerk punishment for cargo container stocks. I recall TGH has over 90% of their containers on long term leases so short periods of economic weakness have a much less significant impact on their business model than many of their competitors. Those price dips are usually good entry points.

    The big risk for the company is their debt load. They often borrow to buy more containers, then lease them out. They've managed to handle that debt pretty well over the last 7 years and have plenty of cash flow to cover debt payments.

    The company has a nice collection of financials on their website:

    http://bit.ly/1gw8iZn
    Mar 16 12:25 PM | 2 Likes Like |Link to Comment
  • Debunking The 'Dividends Don't Add Shareholder Value' Myth [View article]
    "First, Stockholders have no right to a dividend."

    "Second, A company's purpose is not to pay (and increase) it's dividend--a company's purpose is to meet (maybe create) demand for a product or service and, if they are sensible, to earn some profit (perhaps no more than the salary/"pay" for a sole proprietor) in the process." - gjg49

    I respectfully disagree. I believe your clarifications are incomplete.

    First, Stockholders have the right to elect a Board of Directors which pays a dividend if they so choose. So Stockholders, in aggregate, do have an indirect right to receive dividends and they have the legal authority to arrange the company's structure to achieve that end for any purpose they can agree on when voting. If Shareholders want 'excess' profits returned via dividends, then by definition, that is one of the primary goals of the business. The same can be said of having the business focus on a core competency instead of diversifying.

    Second, as a person who has actually formed a company I can tell you the first and foremost reason people go into business is to make money for the owner(s) and investor(s). That is the prime purpose of the business. Meeting customer's wants or needs for a particular product or service that is in demand is only the means of achieving that purpose, not the purpose itself.

    In summary, I don't feel that your points invalidate David Fish's claims. Bottom line is that companies exist to make their shareholders a profit by providing products or services to the public within limits that are ultimately set by the shareholders via the BOD; and, if a controlling block of shareholders want dividends, then the company will eventually distribute a part of those profits as dividends. (The fact that such events rarely happen does not invalidate the fact that it can happen.)
    Mar 15 07:22 PM | 3 Likes Like |Link to Comment
  • Total Dividend Return Will Guide My 2014 Decisions - Part 2 [View article]
    "I don't have the answer, but it would seem that seeing where earnings have grown over the last five years, might on whole give you an indication of where those growth rates of dividends will be in the future." - ScottU

    Perhaps one could calculate the Chowder Rule using the smaller of the 5 year DGR and the 5 year Earnings (or free cash flow) growth rate though even that might turn out to be misleading in the case where earnings grew a lot in one year then slowed down.

    Still, I like the idea of 'watering down' the DGR if the EGR doesn't support continuing the same DGR going forward. That would reduce the impact of a company that is boosting dividends by simply increasing the payout ratio.
    Mar 15 10:52 AM | 2 Likes Like |Link to Comment
  • Dividend Challengers: 13 Increases Expected By May 30 [View article]
    Thanks for the timely update David.

    I picked up some TGH back in 2012 at 31. Since then the dividend is up 27% and the price is up 17+% with a current YOC a tad above 6%. I'd be lying if I said I wasn't interested to see what sort of increase might be in store for Q2 or Q3.

    If you buy TGH on a temporary price weakness the high beta is bearable. In the long run cargo will continue to be shipped around the world and TGH is the market leader at supplying the containers for the job. You just have to realize that every time there is an indication of the global economy slowing down TGH shares get punished in a knee-jerk fashion. That's the best time to pick up a few shares in my experience.
    Mar 15 10:42 AM | 8 Likes Like |Link to Comment
  • What's Your (Dividend Growth) Number?: Part 3 [View article]
    "I am far more interesting than that dude!" - Mike Nadel

    (camera pans, shows Mike sitting poolside in his Hawaiin print shirt and sunglasses ... two bikini clad attendants approach, one with a tray of umbrella drinks the other with a phone ... Mike takes a drink and the phone and viewers hear his broker tell him that his income this year is up 12% over last year)

    Mike to camera: "I don't always reinvest my dividends, but when I do I DRIP them. (raises a fancy umbrella drink) Keep compounding my friends."
    Mar 15 10:19 AM | 5 Likes Like |Link to Comment
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