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AuCoaster

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  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    I like buying at lower prices, but not owning as prices go lower.

    And, like you, I do like the few pennies paid as dividends.

    But, I really like the many dollars of price appreciation.

    And, I really like selling at high prices.
    Mar 25 06:48 PM | Likes Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    The company chooses to distribute money as dividends.
    The amount of those dividends is based on earnings of the company.
    But, the company pays the dividends, they do come out of the company.
    If the dividends are not paid the money stays in the company.
    Pay them to me as dividends, or accumulate them for me in the company.
    Either way, I am happy because I have a stake in those earnings.
    Mar 25 06:38 PM | Likes Like |Link to Comment
  • The Housing Price Mirage [View article]
    The borrower can get pre-approved. But, the house does not.
    And appraisals have been low and cautious, often killing a loan.
    When that happens the borrower has to get a new lender because the lender is not allowed to try again for a better appraisal - even if the lender thinks the appraiser is wrong.

    I saw one deal die because the appraiser used small houses on small city lots in a different neighborhood to use as comparbles for the purchase mortgage on a larger 4br house on 4 acres fronting on a golf course and next to a large nature preserve. The lot alone was worth more than the appraisal opinion. Stunningly bad appraisal. The buyer (who was pre-approved) had to start over with a new lender to get a new appraisal.
    All went well the second time.
    Mar 25 05:33 PM | 2 Likes Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    If the company keeps the money internally then the value is retained by the company instead of being sent to the owners. The company will have more value per share. I don't need as many shares.

    I also will only pay taxes on the portion of my sale that is a gain.
    So, I can keep a larger share of the distributions that I take by selling.

    Dividends are nice. But on average they barely cover taxes and inflation. Without price appreciation you likely do not make much, if any, real gain in purchasing power.

    Dividend reinvestment works well because the stocks enjoy price appreciation.
    Mar 24 11:35 PM | Likes Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    If a business makes $100 a year and pays no dividend it accumulates that $100. If they pay $30 in dividends they accumulate only $70.
    The business would accumulate more value if it did not pay the $30.
    So, the business is diminished from where it would otherwise have been. There is no magic source of money for dividends. It comes out of the company.
    Mar 24 11:25 PM | 1 Like Like |Link to Comment
  • The Housing Price Mirage [View article]
    Sellers often take the certainty of cash over the uncertainty of the mortgage lender who might deny the loan.

    When I as an experienced buyer make my offer with no loan contingency, and I tell them I fully understand the process, and I do not expect them to fix any of the little stuff, and that I have the cash ready to go and can close as fast as they can do the paperwork.
    The competition is a buyer who can only close if the lender is happy. And lenders have been difficult. And the buyers must do what their lender allows, and could withdraw if the lender gets a weak appraisal, or the buyers might expect everything to be perfect (please fix this, that, and that...).

    So, as the seller, do you want $500,000 now in cash, or would you prefer to wait it out for an extra month or more (with an extra monthly payment or two) to see if the other buyer will (or even can) make good on their offer of $510,000. I don't have to outbid them. They have to outbid me.

    The buyer's realtors also like the certainty and speed of all cash.
    And I always use the same realtor as the seller. So, the realtor gets both sides of the commission if their selling client chooses me.

    Even at a lower price my offer is better.

    Once I own it I use a professional manager to handle it all from there.
    There is an entire industry of professional managers for such rentals.
    Mar 24 11:10 PM | 1 Like Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    If I take dividends out of my own business, I diminish the value of the business, and diminish its ability to pay those dividends in the future.

    An exception would be if the business has more cash than it can employ for the business. In which case I do want to take money out to be more productively reinvested elsewhere.

    But, if you need that cash to live, then you are forced to drain cash from the business. This is not good for the business, but perhaps unavoidable for most owners, and investors.

    But, my earlier comments are oriented to the long-term profit maximizing strategy - not the short-term cash needs of an investor. If you can afford it, leaving the money in the company is better than taking it out in dividends. If you can't afford to do that, then profit maximizing is a moot point for you.
    Mar 23 03:29 PM | 1 Like Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    Unless you reinvest your dividends, you receive no further gains on that money. Selling a little stock is about the same as getting dividends.
    Mar 22 07:02 PM | Likes Like |Link to Comment
  • 3 Reasons Not To Tap Into Home Equity To Buy Stocks [View article]
    Yes, MOST people should NOT borrow money to buy stocks.
    You should have very secure financial strength to take that risk.
    If you do choose to borrow money, then you should use the cheapest cost debt. And that is likely to be a loan against your house.

    Debt is a powerful wealth building tool. Borrowing at 4% and reinvesting at 10% is a great way to build wealth. All those cautious bank depositors and bond holders getting their few pennies of return are financing the debt-based spreads that higher risk investors are enjoying.

    I use debt to finance stock purchases. Since the market peak in late 2007, I have averaged over 20% annual return in the stock market, while my cost of funds has been only 4%. So, you are saying I should not do this?
    Mar 22 01:14 PM | 1 Like Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    Unrealized is not the same as unreal.
    It is not so hard to realize.
    Mar 22 01:59 AM | Likes Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    I see the value of dividends. And I like dividends.

    But, I disagree with the erroneous interpretation of the data that leads to the magical thinking that dividends are the majority of return.
    Dividends could be the majority of return if companies paid out the majority of their earnings in dividends. But, they do not.
    Mar 20 10:36 PM | Likes Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    Robert,

    Without price appreciation the total return would only be around 3%.

    This not just in my reality, it is everyone's reality.
    But, not everyone understands their own reality.

    Price appreciation on those reinvested dividends is the key to those strong "dividend" returns.

    But, in the long run, earnings are the source of all total return.
    Earnings are what ultimately fuel dividends and price appreciation.
    How much is paid in dividends vs price appreciation is just a matter of the how those returns are distributed.

    I prefer unrealized gains because they compound tax free. Besides, I can realize my unrealized gains at anytime with the click of a mouse.
    Odd that you fail to see the value of capital gains.
    Mar 20 10:11 PM | Likes Like |Link to Comment
  • Do Dividends Add Shareholder Value? What Buffett Says [View article]
    Fun with math, and compounding.

    Sure, dividends reinvested vs spent makes a big difference in accumulating value. But the vast majority of that dividend reinvestment return came from price appreciation on the reinvested dividends.
    This shows the value of keeping your money invested in the companies.

    Dividend returns without that price appreciation would not have been anything close to the combined result. In fact, dividends without reinvesting would have been much less than the price appreciation on capital.

    The two combined is what gives you that eye-popping number.
    This is simply due to the strength of compounding a higher return.
    Price appreciation was about 7% and dividends were about 2.5%.
    The combination of the two is 10.5%, and that is what gives the 10x return. Dividends are only a small part of total return.

    Had those companies not paid dividends, and retained that capital in the companies, the result should be about the same. Probably a little better due to the draining of capital to pay taxes.

    So, the reality is that investors gain much more from price appreciation than from dividends.
    Mar 20 12:39 PM | 1 Like Like |Link to Comment
  • The Scariest Margin Call Since 1792 [View article]
    In 1792 an agreement was signed (under the Buttonwood tree on Wall street) that is the origin of what became the New York Stock Exchange.
    Mar 18 12:42 AM | 1 Like Like |Link to Comment
  • Warren Buffett's Politically Incorrect Investments Underperformed The S&P 500 Over The Past 5 Years [View article]
    I got LunchBuffet's point. But, it is not really relevant to the real issue, which is meaningful relative performance.

    The fact is BRK has been a mediocre performer for a very long time.
    And there is no good reason to expect that to change.
    Mar 17 05:01 PM | Likes Like |Link to Comment
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