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  • What's Your (Dividend Growth) Number?: Part 3 [View article]
    Congrats Mike! Now that you're "practically guaranteed" to reach, and likely to exceed, your goal you should have more free time to begin planning the post-retirement fun purchases:

    Reclining beach divans, grass skirts, giant oversized sunglasses, mega-sombreros, and a few gross of tiny umbrellas for your afternoon drinks. If any of that stuff is manufactured or sold by your DGI companies then so much the better!!

    You might want to begin preparations for the potential phone call to replace the Dos-Equis' "Most Interesting Man in the World" in the commercials one day.

    Mar 13 03:05 PM | 2 Likes Like |Link to Comment
  • Hilsenrath: New Fed exit plan taking shape [View news story]
    "The primary dealers are the ones who purchase directly from the treasury" - JJTV

    Knowing full well they can sell the vast majority of that new issue to the FED. Quoting an early December 2013 Bloomberg story:

    "the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month ... [to] ... it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co."

    So yeah, if you wan't to split hairs to that degree, the FED isn't purchasing any treasury debt directly from the US Government, they're just winding up as the final owners of 90% of the new issue. In reality it's a semantic argument and there's little to no difference in the end result. They might as well be buying it directly, and, in fact, they are funding the US deficit indirectly.

    "More importantly, QE removes interest income from the private sector" - JJTV

    Only temporarily. By law the FED must turn over all excess interest collected each year to the US Government, keeping only that which they require to pay the FED's expenses of operation. Then:

    1) Any interest spent on FED operations (utilities, supplies, travel, etc.) goes directly back into the economy;
    2) Any interest turned over to the Treasury is spent back into the economy by Congress;
    3) The FED's employees / contractors spend a good portion of their paychecks directly back into the economy;
    4) The only FED interest that doesn't go directly back into the economy is what the FED's employees / contractors save out of their paychecks, which indirectly re-enters the economy as an investment of some sort. The only exception I can think of off the top of my head is money the FED employees / contractors stuff into their mattresses (or equivalent cash holdings), which cannot amount to more than "a million or two" at any given time, and is probably much less than that.

    So I would wager that any portion of the interest collected by the FED which doesn't directly or indirectly return into the economy is a minute fraction of the total; ie. nearly zero.

    FWIW, the FED currently owns $2.288453 Trillion of US debt. At ~3% interest they collect ~$68.65 Billion of interest annually. The 12 FED banks' 2013 budget totaled around $3.69 Billion, so they returned nearly $65 Billion to Congress, which immediately spent every penny of it (that's 94.6% of all interest collected by the FED). Any claim that the FED is 'removing interest' from the economy is being incredibly generous.
    Mar 10 04:54 PM | Likes Like |Link to Comment
  • Hilsenrath: New Fed exit plan taking shape [View news story]
    Truth be told, the FED cannot stop adding to its balance sheet until the US Congress adheres to a budget which spends less than it collects in tax revenues annually.

    Until then, the US Treasury will sell Bills / Notes / Bonds to cover the shortfall in revenue and, in all likelihood, the FED will buy a significant portion of those debts with freshly created money. Where else is the nearly $1 Trillion going to come from each year to buy those new issues? If the non-government / non-bank market is the buyer (meaning those of us who can't create our own money), then you can expect interest rates to rise due to the glut of new debt supplied.

    Take a look at the recent history of the FED's balance sheet:

    A quadrupling of base money in the past 6 years, and that's what they claim has been necessary to "sustain" the post 2008 economic recovery. If it takes a six year, 26% annual increase in base money to eke out sub-3% GDP growth then the odds of a significant slowing in the expansion of the FED's balance sheet are likely on the low side, unless you believe the FED wants to see economic growth stop or reverse.

    And ... that's probably not the way to bet.
    Mar 10 02:09 PM | 1 Like Like |Link to Comment
  • Dividend Champions For March 2014 [View article]
    Mike, If you're contemplating some small semi-speculative holdings take a look at PSEC, if you don't already own some.

    Their shares are getting beaten down due to the removal of BDCs in the S&P indices. The business seems to run well and currently pays 12+%. Talk about some divvies to gather up and invest elsewhere...

    Not for everyone, but maybe for someone who's got an itch to scratch in a small way. ;-) I picked up a 1/3 size position myself recently for grins.
    Mar 6 06:49 PM | Likes Like |Link to Comment
  • Why Dividends Matter: A Review Of Recent Research [View article]
    "Thus any excess buying pressure due to dividend capture activity seems to be off-set by selling activity by shareholders wanting to avoid receiving the dividend." - Henker - Buying The Dividend paper.

    That's too funny. Is Henker really claiming that people actually sell a stock (and pay any capital gains tax due) in order to AVOID receiving the dividend? That doesn't even begin to make sense. How can anyone take that seriously? Do they sell the same stock 4 times a year and then buy it back after the price drops? Who can't do math now?

    Secondarily, I don't see what a microscopic examination of price action around the ex-dividend date proves one way or another. If a stock pays a growing dividend and returns 10+% CAGR over a span of many years the so-called "truths" derived from that analysis of a one month period don't mean a thing. It would suggest that either Henker is clueless, or the purpose of the paper is not strongly related to the topic at hand in a meaningful manner.
    Mar 5 08:03 AM | 5 Likes Like |Link to Comment
  • Why Dividends Matter: A Review Of Recent Research [View article]
    "First there are hundreds of studies using factor models." - Larry S

    And I've yet to see one which actually evaluates a Dividend Growth model as described by those who practice it.

    "So you're saying basically the whole field of finance is wrong--but you're right." - Larry S

    No, I'm saying you are claiming something is inferior that hasn't been evaluated yet. I'd like nothing more than to see an honest evaluation of an actual DGI approach (instead of the strawman "high yield" you claim represents DGI). My opinion on whether it will outperform any other method doesn't prove anything, nor does yours prove it doesn't. Actually performing the evaluation will and as far as I can tell it hasn't been done in an intellectually honest manner.

    "And btw Geoff himself validated it by showing the dividend strategy showed no alpha." - Larry S

    I beg to differ. Geoff did a wonderful job evaluating a "high yield" portfolio, but not one that was composed of Dividend Growth stocks. There's a difference and no amount of conflating on your part will change that fact.

    I am somewhat at a loss to watch you continuously claim that DGI has been studied when it hasn't. Picking a group of stocks which reflect a single characteristic (such as high yield, or dividend growth) and claiming that it represents an approach which uses a handful of simultaneous qualifying characteristics falls short of an honest evaluation, regardless of the number of times you claim otherwise.

    Based on your responses, it appears to me that you don't even understand the point that DGI practitioners are trying to make. Every time you equate the process of selectively evaluating an individual company's business model, finances, and business performance with the ranking and selecting many hundreds of stocks by a single metric like size, value, beta, or yield.

    That's so far from a DGI approach that it's borderline amusing to watch you endlessly repeat the attempt to conflate the two and thereby evade an evaluation of a true DGI approach.

    It appears you have put your thinking into such a restrictive straight-jacket that you cannot (or will not) consider any other methodology outside the use of "factors" as a means of judging an investment, which would appear to me to be a sad place for a professional money manager to inhabit.
    Mar 4 11:30 PM | 8 Likes Like |Link to Comment
  • Why Dividends Matter: A Review Of Recent Research [View article]
    "So your criticism doesn't hold up" - Larry Swedroe

    Neither do your proclaimed strawmen Larry. How many stocks were included in your 'growing dividends' test group? 500? 1,000? 3,000? 5,000? Are you claiming that it's not possible to find a way to choose a subset of 50 of those same stocks that will outperform the entire ensemble via the application of more strict fundamental evaluations that weren't a part of your factor study?

    Once again, oranges and orangutans with no possibility of considering any alternative.

    Naturally opinions vary on the matter and if Geoff is so inclined I, for one, would be interested in seeing the results for the exercise I propose above. If Larry's factors are true to form, as he claims, then the results should show that is the case. I should think Larry would be eager to have his point further validated by such a simple example.

    Then again, perhaps the opposite will emerge to be the case. The only way for an unbiased person to determine the reality is to do the evaluation and see what happens.

    I mean, really, why did Carhart continue searching for a 4th factor when Fama-French already had successfully developed a 3 factor model that worked? In my experience it's a rare thing to discover the best and only way to do something "right". There's always a chance that someone will find a better way if they set aside the pre-existing beliefs that limit their universe of possibilities.

    As an example, in the early 1600s the Catholic Church declared the belief that the earth went around the sun was heretical. They should know, right? What better reason to sentence Galileo to life imprisonment. Yet eventually science won out and by the mid 1700s the Church changed their tune, after 142 years of refusing to consider alternate possibilities.
    Mar 4 08:23 PM | 6 Likes Like |Link to Comment
  • Why Dividends Matter: A Review Of Recent Research [View article]
    "The point of these results is that portfolios formed on the basis of [highest] dividend [payments] outperform the broader market on a risk-adjusted basis." - Geoff Considine

    "The dividend 'camp' [in the comparison] was represented by "high dividend" stocks ... However, this provides NO EVIDENCE about the ... subset of ... Dividend Growth stocks." - David Fish

    I second David's point. This is one of the areas which is very frustrating to those of us who would like to actually compare approaches like the ones Larry promotes with an actual DGI approach using financially sound stocks which pay and grow their dividend on an annual basis.

    I haven't actually seen anything like a DGI representation actually evaluated by the TR/MPT crowd. They usually create some form of a straw man like "high dividend" consisting of the 'top 30% of dividend payers' (what we in the DGI crowd would call high yield and which definitely is NOT a DGI approach. Not even close.)

    Problem is, none of the "factor" studies ever takes into consideration those items which DGI adherents promote. A safe, reliable, consistently growing dividend stream. Instead they use simplistic dividing lines like Large vs. Small, or Value vs. Growth, then lump all such stocks together and evaluate regardless of any individual stock's business performance like earnings growth, debt loads, or consistency / growth of the dividend. They continue to insist on comparing oranges and orangutans of their own choosing because they have already decided that apples aren't an important factor (due to the prior analysis of the strawman).

    Geoff, is there any chance you could take some of the dividend or "high dividend" stock data you have and weed out the stocks that aren't members of the Dividend Aristocrats (or alternatively David Fish's CCC list) then run your performance comparisons on those subsets in order to compare to both the original 'high dividend' and TR type data sets you have already presented to something more like a DGI approach (say for the past 25 years)?

    I know the results will be skewed by survivorship bias and probably a host of other maladies, but it will be something more like DGI than what is generally evaluated in any 'factorized' study I have seen discussed. I believe the results may produce an interesting discussion.

    Thanks for considering the idea anyway. I can understand any reluctance as it will likely be quite a bit of work and I can't say I'd blame you for declining.
    Mar 4 07:31 PM | 3 Likes Like |Link to Comment
  • Why Dividends Matter: A Review Of Recent Research [View article]
    Thanks for putting in all the work and posting it Geoff. Good stuff to mull over.
    Mar 4 04:52 PM | 1 Like Like |Link to Comment
  • Dividend Champions For March 2014 [View article]
    "38 "NEW" notations, bringing the number of Near-Challengers to a new high of 215 companies, suggesting that the CCC universe could expand over 700 companies by the Spring of 2015."

    I wonder if they aren't all trying their best to get on the CCC list?

    Once again, thanks for your heroic contributions David. Your persistence and generosity are empowering investors to change their lives for the better.
    Mar 2 10:16 AM | 9 Likes Like |Link to Comment
  • Are VYM And SDY Good Dividend Growth Investments? [View article]
    "It seems self-evident to me that one should look at opportunities wherever they exist. Not just inside the DGI box. In the long run, that should produce a better result." - LarryMelman

    Thank your for expressing your opinion as an opinion. What is "self-evident" to you may or may not be true. I don't know. We can debate its veracity by providing examples or by doing comparisons. Absent that, we are simply arguing over our differing opinions.

    I can accept that many SA posters have a different opinion than I do, even those who espouse TR as the 'best' way to invest. If they post their opinions as a given fact however, then I'm going to ask for the evidence to back up their claim.

    Instead of claiming that TR's out-performance is a given by saying:

    "having a $2 million portfolio in retirement is better than having a $1.4 million portfolio in retirement. I think we'd all agree there."

    Why can't Cranky word his post like this?:

    "I believe that you could build up a bigger retirement balance by using TR in the accumulation phase."

    The first case implies the unstated assumption that by using TR you will get something like $2 million instead of $1.4 million as a FACT, not an opinion. Well, show me the money. What basis does Cranky have to back up that claim?

    Dave Crosetti has stated that he used a DGI approach to turn ~$20,000 into $1.7 million over a 30 year span, which is a 14.6% CAGR. Granted Dave hasn't posted his brokerage statements and the evidence is anecdotal, but at least it's an example. Where is the TR example showing a 30 year span of 14.6% CAGR or anything remotely close?

    I've seen opinions, but little in the way of actual data. Maybe seeing the data will convince me that TR is better than DG, I don't know. What I DO know is that my own experience with DG has worked out a LOT better than all the TR investing I have been attempting over the past 25 years and that's what I base my opinion on. And it IS an opinion.

    If you're going to state that I'd be better off using TR, then please either indicate that it's your opinion, or provide some sort of evidence for making your claim.

    Arguing over opinions doesn't provide anyone a chance to learn and improve.
    Feb 28 08:34 AM | 12 Likes Like |Link to Comment
  • Are VYM And SDY Good Dividend Growth Investments? [View article]
    "Cranky is comparing apples to oranges because he assumes everyone has a high concentration of bonds to tamper risk. ... When 40% bonds are added to VYM it makes it that much more likely [DVK] will outperform." - Bob Wells

    I agree. Based on a simple estimate using 30% IEF and 70% VYM I get a final value of around $68,500 for a TR portfolio which uses bonds to moderate risk. As you can see, that result falls short of DVK's DG portfolio final value so on a risk-adjusted basis DVK is outperforming VYM.

    Maybe that's fine for some investors. If you are willing to accept more risk then you might get more return using TR. But that's not the same as a blanket claim that you can get a bigger pile after 30+ years because TR outperforms DG. There's still a non-zero chance that the TR portfolio experiences a significant drawdown due to the extra risk it accepts.

    Seems to me that's an important piece of information for undecided readers to know before they choose one method over the other. To make claims without acknowledging that extra risk seems "incomplete" to me.
    Feb 27 11:46 AM | 2 Likes Like |Link to Comment
  • Are VYM And SDY Good Dividend Growth Investments? [View article]
    "But again having a $2 million portfolio in retirement is better than having a $1.4 million portfolio in retirement. I think we'd all agree there." - Cranky

    Cranky's unstated implication is that by following a TR approach one will outperform so well that they will wind up with 40% more money at retirement, all other things being equal.

    This claim is repeated as truth relentlessly, yet when asked for concrete proof the best you will see is a reference to an academic paper whose modeling of DG investing is misrepresentative at best.

    Where are the model portfolio examples being run in real time to parallel those by DGI adherents? I never see them. Even Dave Crosetti's anecdotal DG portfolio over the past 30 years is something to analyze, but there's never anything from the TR folks but generalities regarding how factors are important.

    DVK's DG portfolio TR comparison to VYM and SDY can be entirely explained by the differences in beta for the three portfolios. Given that the majority of the time examined has been a strong bull market, I'd say that his DGP has done very well. It remains to be seen how the three will perform during a couple years of declining markets. It is entirely possible that over a 30 year span his DGP will outperform both after performance during bear markets is included.

    I for one don't buy the assertion that it is a self-evident fact that you will wind up with $2 million instead of $1.4 million by going the TR route, especially if funds or ETFs are involved.

    I've yet to see conclusive proof to the contrary, just unbacked claims or opinions stated as fact.
    Feb 27 08:21 AM | 10 Likes Like |Link to Comment
  • Are VYM And SDY Good Dividend Growth Investments? [View article]
    "having any focus on income prior to retirement is, as you say, a misuse of energy. ... it logically follows that having a maximum portfolio _at retirement_ is the goal.

    [By relying on an income focus prior to retirement] many things can go wrong. Too much focus on the income during the years when it isn't needed, poor stockpicking, and just bad luck are examples." - LarryMelman

    With all due respect Larry, those exact same problems can beset total return (TR) investors as well. Claiming that "bad things might happen" if you rely on methodology X without saying the same about any other methodology implies that you feel the alternative method won't suffer from those same problems, which is a mighty big, and unproven, claim.

    In truth, "bad things" can happen to anyone using any methodology. Ask someone who was loaded up on safe, solid Lehman Brothers, GM, AIG, Enron, LTCM, Worldcom, Citi, Conseco, Chrysler, Thornburg Mortgage, PG&E, Texaco, Madoff Securities, or WaMu stock as long term investments (whether TR or DG style).

    If we're going to have the pot call the kettle black, then we should also honestly point out that no single style has a magical way to avoid a bad investment. Just as many things can go wrong using a TR approach as with DG investing.

    I'd hazard a guess that a TR style would be slightly more likely to see those kind of problems myself because of the high standard set on the quality of the company before investing in DGI (which may not be true to the same extent for the average TR investor), but that's just a personal opinion and it's only backed by my own beliefs at best.

    I fail to see how the difficulties you point out are any worse for DG than they are for TR, and thus I would respectfully be unwilling to agree that your claim is very relevant for that comparison.

    Why exactly do you believe that DG investors would be more likely that TR investors to pick bad or unlucky stocks?
    Feb 25 08:23 PM | 4 Likes Like |Link to Comment
  • Hasbro Shows Why Patience Is Critical In Investing [View article]
    Patience is also critical on the front end of investing. I waited in order to buy HAS on a dip to $32.50 several years ago when the quarterly dividend was $0.30. Since then the company has performed quite well and my investment has done well too.

    HAS now pays $0.43 per quarter and the stock price is up more than 65% since I bought. I recently sold off ~60% of my HAS to fund the purchase of another out-of-favor undervalued DG stock. I will hold on to my remaining HAS shares to participate in the company's growth, but I won't be adding any shares unless the price again drops down to undervalued territory again.

    Owning a good company is easy. The places where patience is required is when you are buying or selling shares. Starting off on the right foot makes waiting for anticipated price appreciation a lot more bearable.
    Feb 25 10:08 AM | Likes Like |Link to Comment