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  • Retirement Strategy: ETF Portfolio Versus The Stock Only Portfolio, A Glaring Update [View article]
    "It is truly mind boggling how different is the mindset between DG investors who seek to LIMIT the number of companies they hold (in order to get the best), compared to MPT advisers who consider one of the weak points of DG investing to be the loss of diversification" - DVK

    In truth Dave, the MPT crowd is forced to use that approach because their academic justification relies on aggregate statistics. Given that their proof is generated by dividing the world into subsets of stocks based on 'factors', once they find a combination that 'explains' better returns the only way they can implement their findings is to buy all those stocks in aggregate.

    The fact that an even smaller subset of those stocks will outperform the initial subset doesn't matter because they can't identify the last factor to use in further dividing the pile (apparently a history of increasing dividends is too subtle a factor to study, based on the continual use of a) high yield, and b) dividend / no dividend as dividing lines).

    In order to sell MPT to the masses they have to implement what their research has identified. Since the research relies on aggregate statistics, so must their stock selection methodology. It's the only way they have to justify charging their fees. How else can you convince unwary investors to place their trust in the advisors but to strictly adhere to the methods which were used to construct the pie charts in the flashy 4-color sales brochure?

    If they had to actually construct a portfolio based on each investor's individual goals, they would have a difficult time being profitable because they would have to do the work for each client. It's much easier to persuade many thousands of investors that their goal is to "beat the market" by all doing the same thing based on aggregate statistics. That way the advisors only do the research once and charge for the work thousands of times over. The business model dominates the end result by necessity.
    May 5 07:25 AM | 4 Likes Like |Link to Comment
  • Are Any High Quality Companies Decently Valued At The Moment? [View article]
    Steve / Arma / others,

    It took me over three years to deploy all my DGI money into the 32 current stocks I hold, and I'm still looking to add more positions going forward when and if they are at a good value. Don't be in a rush.

    When I started I tried to find one stock to buy each month. Sometimes it was easy, sometimes it took 6 weeks to find one that was suitably priced. There will always be new prices to consider tomorrow if you can't find one today. Several of my buys came after earnings disappointments where the stock dropped in response only to rebound after several more months. Look for the bargains and give them time to adjust to business conditions.

    Given the generally overvalued state of the market, you might even consider making half-sized buys as a practice run to "see how the shoes fit". Taking a small loss if you're not comfortable with your choice may be a small price to pay for reconsidering and/or changing your approach.

    Each choice you make is an opportunity to learn and adapt while finding a style that suits you. Be deliberate, have patience, and things will work out in the end.
    May 4 01:20 PM | 6 Likes Like |Link to Comment
  • Retirement Strategy: ETF Portfolio Versus The Stock Only Portfolio, A Glaring Update [View article]
    "will RS rebalance to match the average allocation of the ETFs over time?" - Be Here Now

    My guess would be that he won't. He's labeled his portfolio as self-directed, so I would think he would do what he believes will provide the desired performance going forward. As I understand it, that's his point, self-directed stock pickers can match or beat ETFs over the long run with a bit of 'extra thinking' in their selection and a lot lower overhead.

    I personally hope that turns out to be the case. In my mind, showing that you can beat the ETF itself by carefully choosing a subset of the ETF's stocks and monitoring them would go a long way toward deflating the MPT'ers insistence that passive investing via ETFs is the best way to achieve total return based on stock selections using aggregate factors and large, all-inclusive groups of stocks.

    To me it has always seemed counter-intuitive to say that an ETF with 390 stocks will outperform a well chosen subset of 20 to 30 of those same stocks in an individual account over the long term.

    If 10% of the ETF's money goes into stocks which go nowhere or decline then how do the better stocks make up for the difference and still cover expenses and fees? I'm sure they can in some years but it would be a tough row to hoe most of the time and I think the financial drag would compound over time.

    But those are just my thoughts, which is why I'm interested in seeing how RS' portfolios fare over the next few years.
    May 3 07:54 PM | Likes Like |Link to Comment
  • Retirement Strategy: ETF Portfolio Versus The Stock Only Portfolio, A Glaring Update [View article]
    OK. After some digging through each of the ETF issuer's websites and aggregating the data here's what I've got.

    I determined the percentage of money each ETF put into each of RS's stocks, then I averaged across all the ETFs (RS is using equal dollar weights across the ETFs). The average allocation of money to each stock across the entire ETF portfolio are as follows:

    Stock ...... Avg %

    T ............ 2.47%
    XOM ....... 3.73%
    JNJ ......... 3.08%
    KO ......... 2.59%
    PG ......... 2.14%
    GE ......... 1.11%
    MCD ....... 1.25%
    CVX ....... 2.34%
    AAPL ...... 1.92%
    GM ......... 0.00%
    F ............ 0.24%
    MSFT ...... 2.29%
    WMT ...... 2.38%
    PFE ........ 1.75%

    TOTAL .... 27.28%

    By de-selecting the lowest 72.72% of stock allocations in the ETFs and concentrating his DG money into the top 27.28% of allocations plus one other stock(GM), DS has matched, if not beaten, the multi-ETF approach both in terms of income and TR (well, at least for the first two months).

    It will be interesting to see how things go in the future and whether the ETF approach can overcome the extra costs of implementing the ETF structure and of all that 'extra' diversification.
    May 3 05:33 PM | 2 Likes Like |Link to Comment
  • Retirement Strategy: ETF Portfolio Versus The Stock Only Portfolio, A Glaring Update [View article]
    Off to a good start RS. Thanks for putting in the effort to make a side-by-side comparison and documenting the ongoing results for the rest of us to examine.

    Can you provide an estimate of the percentage of holdings within the ETFs represented by your individual stocks? (For instance, X% of all the money in those ETFs is being put into the stocks you hold in the BTDP.)

    My personal belief is that, in addition to lower costs, the individual stocks you pick will be the more consistent performers over time and will provide better results than the "watered down" ETFs with many hundreds of stocks, but that's just a theory of mine. It appears your exercise may shine some light on the topic.
    May 3 12:22 PM | Likes Like |Link to Comment
  • Are Any High Quality Companies Decently Valued At The Moment? [View article]
    (cue the Vikings ...)

    Lovely SPAM! Wonderful SPAM!
    Apr 28 08:24 AM | 7 Likes Like |Link to Comment
  • Is The Vanguard High Dividend Yield ETF Primed For Dividend Growth? [View article]

    I like your approach for estimating the dividend growth of the VYM ETF. It makes a lot of sense for a worst case what-iff''ing exercise in anticipated income growth for the ETF.

    It would also be interesting to see an estimated total return comparison / estimate generated by the same methodology. My personal belief is that you will find an investor will get better performance by simply buying equally weighted positions in those top ETF holdings. See below::

    "In this article, I pull out the top 25 holdings of VYM, as reported by Morningstar, ... These holdings represent roughly 59% of VYM's portfolio." - FinancialStorm

    This is one of the aspects of ETFs that are infrequently discussed. Most ETFs are cap weighted, and so the concentration of money is in the largest holdings. The smaller holdings contribute such a small percentage of performance that they could be ignored and the results would not vary enough to notice.

    Using VYM as an example, the ETF holds 391 different stocks, but 59% of the money is in the top 25 holdings, leaving 41% for the remaining 366 holdings. The value of the bottom half (196 holdings) is less than 8% of the total. An individual could come close to replicating the ETF's performance by simply holding a handful of the largest individual ETF holdings, and eliminate the overhead costs of buying, tracking, and managing the rest of the pile.

    An equal weighting of the top 10 VYM holdings (aapl xom msft jnj wfc ge jpm cvx pg pfe) would have returned a CAGR of 10.9% since the inception of VYM (November of 2006) if held individually.

    The ETF itself returned a CAGR of 6.4% over the same interval according to the Vanguard VYM information page:

    If an investor wishes to use an ETF to avoid the stock selection process, they might find they will do better by simply buying equally weighted individual positions in the top several holdings within the ETF and be done with it. It's as simple as finding the ETF's webpage detailing all the fund's holdings and reading off the top 20 to 50 holdings (based on the investor's diversification needs):

    The difference between a 10.9% CAGR and a 6.4% CAGR over a 30+ year investing period would be immense.

    Thanks again for putting in the effort to dissect and analyze the VYM ETF's top holdings.
    Apr 27 10:52 AM | 1 Like Like |Link to Comment
  • John Hussman: The Federal Reserve's Two-Legged Stool [View article]
    "The question is, when are investors going to stop drinking the Kool-Aid?" - David at Imperial Beach

    When the margin calls start flowing. Keep an eye on the bubble in margin debt that's been inflating for the past 12 months:

    When the margin debt bubble begins deflating in earnest, you can expect the stock market will follow soon after, as it did in 2000 and 2008.

    Once the snowball starts down that hill, it won't be stopped easily.
    Apr 21 02:20 PM | 4 Likes Like |Link to Comment
  • What If My Stocks Crash And Burn? Part 2 [View article]
    What-If'ing various market circumstances in the future and how you will handle them is a great idea Faye, sort of a portfolio pre-view. As long as the actions you take or decide to take under changing circumstances remains within the confines of your plan it should prove to be a big plus by minimizing the emotional reactions you encounter under duress.

    I'm flattered that you found one of my comments worth including as part of the discussion.
    Apr 13 10:46 AM | Likes Like |Link to Comment
  • Dividend Growth Portfolio: Spring Checkup And Semi-Annual Review [View article]
    "You do know that I was just kidding my buddy chowdah, right?" - Mike Nadel

    As ridiculous as my comment was, you had to ask that?

    Check off the 'Just the right amount of subtlety' box ...

    Apr 9 12:18 AM | 5 Likes Like |Link to Comment
  • Dividend Growth Portfolio: Spring Checkup And Semi-Annual Review [View article]
    "Why aren't you 4 years ahead of schedule?!?!?!" - Mike Nadel

    Because he's two years ahead with half the beta. It's called risk-adjusted aheadedness. Look it up.
    Apr 8 05:37 PM | 12 Likes Like |Link to Comment
  • Dividend Growth Portfolio: Spring Checkup And Semi-Annual Review [View article]
    Nice review DVK. I would suggest that you also mention the portfolio Beta in the Total Performance section. While it's great to see you are beating SPY in TR, I feel it is equally as important to show you are beating SPY with lower risk, as (represented by the Beta).

    It seems that all the academic papers use the risk adjusted return as the metric of choice, and based on that comparison you are beating SPY handily.

    For SJR replacements to consider I might suggest VNR or DLR. Either one would boost your income immediately without slowing down the DGR. Then again, perhaps a nice steady-eddie utility would fit the bill.
    Apr 8 08:06 AM | 2 Likes Like |Link to Comment
  • The Most Important Article I Could Ever Write On Dividend Growth [View article]
    "Bonds could do anything, including stay low and range bound for a decade or two. Or not. ... They are as impossible to predict as stock markets." - Dale

    That's entirely true Dale. But it's also possible that inflation, and rates, could spike much higher given the highly expansionary effects of QE on the money supply. Foreign exporting countries are already taking measures to mitigate their exposure to the US dollar. If you look into the matter, you'll discover that the FED has been buying 90% of new government debt (indirectly, through the primary dealers) for at least the past two years.

    Per Bloomberg (December of 2012): "the Fed, in its efforts to boost growth, will [buy] about $45 billion of Treasuries a month ..., effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co."

    At some point funding a majority of federal deficit spending by printing money will result in higher inflation and higher rates. You may be correct in saying we can't know exactly when that might happen, but the odds of having continued low rates for "a decade or two" are likely at the low end of the scale. But if you're comfortable taking that bet then good for you. You might want to study how it turned out when Zimbabwe tried it.

    If I were interested in parking money in a bond vehicle like TLT I would probably put it in a solid REIT like O instead. Realty Income has a lot going for it as an effective bond-like holding:

    1) debt maturity of around 10 years (half of TLT duration) so less sensitive to interest rate changes
    2) Average duration of leases exceeds the debt maturity duration so debt defaults are very unlikely
    3) earnings exceed debt coverage by 6x so defaults are unlikely even in a slowing economy
    4) its yield is 50% higher than TLT
    5) a long history of increasing the dividend (vs a fixed bond payment)
    6) O owns a lot of real estate, which would appreciate significantly under an inflationary environment and put a floor under the book value

    A quick comparison of O vs TLT charts shows that over the past decade O has returned ~12.5% CAGR vs. TLT's ~6.1% CAGR. Wouldn't that be more amenable to a TR approach over the long run?

    It might make an interesting excursion to your investigations to substitute O for the bond fund of the day and see how it compares.
    Apr 7 08:59 AM | 2 Likes Like |Link to Comment
  • Periodic Table Of Dividend Champions [View article]
    For those who don't have excel or would be interested in checking out Open Office you can download the Windows version here:

    The Open Office website is here, for those who prefer to read a bit before they download:
    Apr 6 12:45 PM | Likes Like |Link to Comment
  • Periodic Table Of Dividend Champions [View article]
    "But each plotted point needs to have its symbol as a label, for example when the mouse hovers over it." - Be Here Now

    If I had to guess, I would think that in order to get a label to show for each data point you would have to add each stock one at a time and/or manually add the symbol. It's likely that excel can't do it automatically for a large number of rows at once.

    When I make a scatter plot using Open Office Calc and hover the mouse over the plotted point the pop-up identifies which data point I am viewing with a label "Data Point 4". I then have to go back to the spreadsheet and count down to the 4th row to see which stock that represents.

    I'm not sure what you're trying to do with the plot, but being able to figure out which stock correlates with which plotted point, even manually, is good enough for my purposes.
    Apr 6 11:15 AM | Likes Like |Link to Comment