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Smarty_Pants

Smarty_Pants
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  • Are VYM And SDY Good Dividend Growth Investments? [View article]
    Why not turn the telescope end for end?


    Start with an equal value portfolio for all three approaches in 2008 and begin withdrawing an amount equal to your DGP portfolio dividends in 2008 (and grown by 3% each year thereafter). I choose the DGP income as the metric because it's YOUR retirement and the ETFs need to produce the same income as you have generated in your DGP.


    Sell shares in the ETFs when their dividend income is insufficient to meet the necessary quarterly / annual amount. Any excess dividends get reinvested.


    See how things turn out in 2014 under those conditions. At first glance, it seems the DGP will keep adding shares through excess dividend reinvestment where the ETFs will have to sell off a few shares here and there to generate income. Those sold shares will reduce future performance a bit and may cause the ETFs to fall behind the DGP in the long run. It certainly makes for an interesting exercise anyway.


    Can the ETFs "keep up" during distribution phase as well as during accumulation phase?


    Also, out of curiosity, what are the comparitive Betas for the ETFs and your DGP? If the ETFs have significantly higher betas, it would stand to reason that they would outperform the DGP in TR for 2013.
    Feb 24 04:30 PM | 11 Likes Like |Link to Comment
  • Why Realty Income's Dividend Is Poised For Growth [View article]
    O has a 20 year CAGR over 21% compared to SPY at 8.8% over the same span.

    I figure if you can buy on a meaningful dip of ~20% (like the recent one) you should do reasonably well over the long term, especially if O is only a small portion of your portfolio.

    In the meantime, those growing dividend checks keep showing up every month.
    Feb 23 11:38 AM | 3 Likes Like |Link to Comment
  • More dividend cuts could be in store at Newmont Mining, Citi analyst says [View news story]
    Meanwhile the Market Vectors Gold Miners ETF is up nearly 25% YTD.

    http://yhoo.it/1fjAAHk;range=6m;

    It may be that NEM is struggling, but the sector seems to be improving recently.
    Feb 22 02:05 PM | Likes Like |Link to Comment
  • My Fourth Quarter Portfolio Review [View article]
    "Why not just add up the 3 beta's and divide by 3? -- to get the overall beta?" - maybenot

    You have to weight the relative betas by the amount of stock you own in each.

    If instead of equal weighting you had $2,800 of SO and $100 each of HAS and MCD the overall portfolio beta would be much closer to 0.20 because the change in dollar amount for the whole portfolio would be driven primarily by the SO shares.
    Feb 22 01:12 PM | Likes Like |Link to Comment
  • My Fourth Quarter Portfolio Review [View article]
    "would you mind sharing how you calculate beta for your portfolio?" - Debthedivestor

    Easy to do with a spreadsheet:

    1) For each stock multiply the stock value x the stock's Beta
    2) Add those products together for all your stocks
    3) Divide by the total portfolio value

    So if you have $1,000 current value each of HAS, MCD, and SO you would get the following:

    HAS:.. $1,000 x 0.89 = $890
    MCD:.. $1,000 x 0.40 = $400
    SO:.... $1,000 x 0.19 = $190
    ----- ---------- ------------
    Total .......... ........... = $1,480

    Portfolio Beta = $1,480 / $3,000 = 0.49333
    Feb 22 11:28 AM | 1 Like Like |Link to Comment
  • My Fourth Quarter Portfolio Review [View article]
    "I didn't realize we started are DGI adventure at about the same time." - Bob Wells

    Yep. I had picked up the first few of my DGI stocks when I read your early articles. I must admit you had put a lot more concentrated effort into the exercise than I did. That's understandable given you are already retired and I still look forward to another decade or more of paychecks (knock on wood).

    Being a lazy opportunist, I have borrowed liberally from your work to advance my own cause. To date I have been quite pleased with myself for being bright enough to recognize the potential benefits of that approach. I can only hope that something I posted has or will be of benefit to you as well.
    Feb 22 11:13 AM | 1 Like Like |Link to Comment
  • Why Realty Income's Dividend Is Poised For Growth [View article]
    Many thanks for the detailed update on Realty Income.

    I added a full position in O a couple weeks ago at a 5.3% yield point when the price was coming off prior lows. I'm looking forward to a continuing steady Eddie performance and that growing dividend income.
    Feb 22 10:52 AM | 3 Likes Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "I go where the safe dividend and adequate dividend growth can be found. If that means changing sectors, then so be it." - Chowder

    I do more or less the same thing. When I buy a ne stock I usually wind up with one from a sector that is out of favor at the moment. Funny thing is that over time I get a little from every sector and every one of them at a good price.

    I've found that regardless of which sector is outperforming now, I usually hold a member stock which I picked up cheap. There always seems to be a couple of my stocks doing well at any time.
    Feb 22 10:33 AM | 2 Likes Like |Link to Comment
  • Dividend Portfolio Rebalancing Smarty-Style [View instapost]
    The positions sold were my entire stake in those companies. I've been watching BMY keep marching higher too, but their dividend growth was abysmal so I decided it was time to gather my gains and redistribute them elsewhere. The price was going up a lot faster than the underlying income growth should support so eventually there was going to be a limit to that.
    Feb 18 08:10 AM | Likes Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "a viewpoint that I find not infrequent amongst DGI adherents ... is that there is no way that a non-DGI investor can achieve the same income as a DGI investor if he converts at a later age." - streakmarine

    First of all, thanks for a reasoned response. I agree that there are many different ways to skin the investing cat and be successful. I adopted DGI only three years ago and use it for a small part of my holdings, for now. I do however see that it is a viable and generally reliable method for investing successfully. I've done better using DGI than any other approach, but I would have a difficult time using it exclusively at this time. Maybe in a few years.

    I can understand Dave Crosetti's response after discussing the same topic over several years. He has been very successful with DGI over a long time, and he's a pretty sharp fellow. His reaction is likely from the frustration of dealing with folks who insist that TR is the one and only "best" method for investing.

    Larry Melman comes very close to this, based on what I see in his posts. DGI'ers simply want to discuss ways to improve their personal approach. Usually it's the TR folks who declare that anyone using any other approach must be nuts (paraphrasing) and attempts to compare finer points (like whether personal investing goals might favor a DGI approach over TR) are met with escalating rancor.

    I've been in Dave's shoes before and it eventually becomes very frustrating when the other party refuses to admit the possibility of DGI being a better approach for somebody else for any reason.

    If you go back to the first exchange in this dialog you'll see that Left Banker fired the first shot by claiming that DGI was for "oldsters". I can see this being somewhat of a backhanded insult to Dave C, who has been using DGI since his 30s and has been very successful at it. His portfolio stands as an example of why Left Banker's statement is an untrue generalization.

    By any measure compounding at 14.6% over 30 years is a tremendous accomplishment for a self directed investor regardless of approach and I've yet to see anyone claim to have equaled it using TR (without falling back on Warren Buffett - as if everyone put all their savings into BRK over the last 30 years).

    I'm still wondering why TR adherents have such a difficult time acknowledging that DGI can work for many folks. What drives them to continually insist that you could "do better" with TR? Maybe you could, but I've never seen a TR adherent claim to achieve the returns that Dave C claims over 30 years. I know I haven't by any method, though my most consistent returns to date have been via DGI.

    As I posted above, it's certainly possible to use TR and outperform a DGI portfolio, but I still believe that to be the exception rather than the rule over a long time frame. DGI harnesses successful behavior to your benefit while TR generally falls to the weaknesses of human nature (buy a the end of a bull run and sell after a large drop), in my experience.
    Feb 17 10:04 PM | 6 Likes Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "Why did you use 3%, is this your best guess at what the inflation rate will be in 30 years down the road?" - Gratian

    I had to use something. 3% is not unreasonable for producing a "ballpark" number. For an exercise like this the process is more important than the exact variable values. The point of the exercise is to determine how much to save and invest today in order to fund retirement tomorrow.

    For any 30 yr. old who is just starting to save and invest for retirement this exercise shows he/she will need to save between $1,000 and $1,500 per month and grow it at 8.5% to 10.0% in order to fund a modest retirement, without relying on pensions or social security.

    Certainly there may be a need for adjustments in the future, but there's no way to "adjust" for not starting that doesn't add extra risk or a lower current standard of living after you do start. The values above are close to the bare minimum necessary for a 30 year old to reach retirement using a slow and steady approach like DGI.

    And FWIW, I believe DGI can generate those kinds of returns fairly reliably, and a good chance of doing better.
    Feb 17 04:03 PM | 3 Likes Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "I find it hard for a 30 year old to even come up with an educated guess, about the amount of income they will need when they retire" - Gratian

    They could pretty easily come up with a ballpark number as a starting point.

    Current median income in US = $50,000

    Adjust by 3% inflation over 35 years = 1.03 ^ 35 * $50,000 = $141,000

    Assume 4% portfolio yield and the portfolio necessary to generate that income is:

    $141,000 / 0.04 = $3,518,000

    That's a good starting point if you're just getting underway. To get an idea what it will take to reach that goal one could review Chowder's Project $3 Million blog:

    http://bit.ly/rBJkXG

    Starting out at age 30 would probably require a monthly investment of $1,500 and and a CAGR of 8.25% (Chowder's target) to reach ~$3.5 Million.

    Other ways to get there:

    CAGR Monthly Investment
    -------- -------------------------
    8.50% .... $1,400
    8.75% .... $1,325
    9.00% .... $1,250
    9.25% .... $1,175
    9.50% .... $1,100
    9.75% .... $1,050
    10.0% .... $1,000
    Feb 17 02:52 PM | 3 Likes Like |Link to Comment
  • My Fourth Quarter Portfolio Review [View article]
    "What I am getting at is -- would it be better to have a smaller group of stocks who are more of the blue chipper nature?" - maybenot

    That's a good question. It's a personal comfort issue I believe. If you are still collecting a paycheck and can replace lost value or income by saving more then a smaller number of positions might not seem so risky.

    If you have no other income, then losing more income / capital is really bad. Instead of trimming from 50 to 40, why not 50 to 20? Because if one stops paying a dividend and drops 80% in price (granted a black swan event - but so were GM, AIG, LEH, WaMu, etc. in 2008) and you don't have any other income your quality of life might suffer significantly for a long time and there's not a lot you can do about it except "un-retire".

    It's all about risk and reward. If the reward is the same (sufficient income) then I would rather have the lowest risk possible. And really, the added cost of extra trading might be $100 annually (5 sells and 5 buys at $10 per trade), which is a small price to pay (on rare occasion) than suffering a large drop in your only source of income by perhaps thousands of dollars per year.
    Feb 17 02:27 PM | 1 Like Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "Part of my reason for not moving "all in" on DG is that I feel a sense of opportunity cost in doing so. I'm not prepared yet to sit on "ridiculous" gains when I know that selling or selling call options and rotating elsewhere will (or could) magnify my gains and income." - Adam Aloisi

    There's nothing preventing you from personalizing your DGI approach. I have done exactly what you say you would like to do in my DGI holdings. I've sold off parts of some original holdings to redeploy when they show 'oversized' gains and put the money into better stocks that increase my total income as a result.

    In late January I made a wholesale swap of 4 old stocks for 4 new stocks which increased the income from those old stocks by 60+% and also increased the Dividend Growth Rate significantly. I posted an Instablog detailing the exchange:

    http://seekingalpha.co...

    I've also recently captured my initial investment in HAS (leaving the remainder in my portfolio) and used the money to start a new position in O. This also increased my total income.

    DGI doesn't lock you into passively watching your stocks unless that's what you want it to do. My income has increased by over 15% each year for the last 3 years and I've only added 4 or 5 percent of new money over the entire span. The rest has been dividend growth, reinvesting dividends, and "focused rebalancing" with an eye toward improving the income and/or income growth.

    Investing for income via DGI doesn't mean you can't take advantage of opportunities that arise from time to time.
    Feb 17 01:30 PM | 3 Likes Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "by foregoing all that dividend income over the years which wasn't needed ... someone with your exact same income over the years might well have more than your $2.7M present value. ... Guaranteed? Of course not. ... But the higher present value is certainly possible, I'd say even probable." - LarryMelman

    As NV_GARY notes, it seems that Larry and streakmarine are both incorporating underlying assumptions regarding the out-performance of investing for total return (TR) over Dave's DGI. As Larry's comment states, he believes this feat is "probable" (certainly it is possible, but that's another discussion).

    Dave C on the other hand is pointing at the actual performance achieved in his own holdings. 100 shares each of five DGI stocks grew to $1.2 million over the span of 30 years.

    So the crux of the debate boils down to:

    Can a TR investor start with the same amount of money in 1984 as Dave did and produce a final value in 2014 of $1.2 million?

    In 1984 Dave got 100 shares each of KO, PG, CL, KMB, and JNJ. The total cost for those shares at the time was $20,000, give or take.

    Fast forward to 2014 and Dave's shares are worth $1.2 million. Pulling out my trusty calculator I can determine Dave's CAGR over the past 30 years as:

    (1,200,000 / 20,000) and take the 30th root = 1.146+

    So Dave's investment grew at 14.6+% annually, compounded.

    The SPY over that same time frame grew at 8.9% CAGR, so an S&P 500 index investor would have (at most) a final value of

    1.089 ^ 30 * $20,000 = $258,147.00 (rounding up to the nearest dollar)

    Therefore, we can assume that a passive indexing approach would have a difficult time eclipsing Dave's results over the same time span (unless you want to argue that periodic rebalancing will increase the final result by more than 400%).

    So what Larry and streakmarine are positing is that the average TR investor would have been able to grow their capital at a rate higher than 14.6% annually (after capital gains and dividend taxes) by actively managing their investments over the entire 30 year span, as Dave did by holding those five stocks (without capital gains taxes but with dividend taxes). If they managed to do so they would have more than $1.2 million and could easily replicate Dave's income generating portfolio today.

    Is it possible that someone could use TR to grow their capital at a rate faster than 14.6% annually over 30 years? Yes. I'm sure you could find people who managed to do so (excluding people who made fortunes by going public with their privately held business) but I'd be willing to bet that they are the exception and not the rule.

    The question of the day, however, is whether it is probable. Based on Dave's example it would seem that it is not probable.

    Further, I note that nearly every MPT adherent repeatedly claims that most investors cannot beat a passive indexing approach, while simultaneously insisting that it is 'probable' that they will beat a DGI approach over the long run.

    Dave has provided a concrete example to the contrary where a simple DGI approach applied over a long time span soundly beat an indexing approach, and by extension most individual investors who relied on TR over that same time span.
    Feb 17 01:02 PM | 13 Likes Like |Link to Comment
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