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The Greatest Trade Of The Decade Part 1

I have authored over 300 articles in my three years of participation on Seeking Alpha. My experience on the platform has been rewarding. Those rewards have come in droves as I've garnered over 70 hedge fund clients through my Seeking Alpha publications one of which being one of the largest hedge funds in North America. These publications, as I've been told, denote a unique ability to produce analytics that lead to short and long-term profits more than 75% of the time. But I would be remised if I didn't add some level of candor regarding my participation on Seeking Alpha.

The platform has thousands of contributors and I am just one of the many obviously. Some contributors are better than others and as such some materials are more appreciated than others from a content perspective. My works/reports are generally offered to the institutional level investor through Capital Ladder Advisory Group, which maintains accounts with some of the largest hedge fund and portfolio managers in the United States.

Many articles in the media are merely regurgitations of headlines and transcripts. They offer little expert industry knowledge from genuine industry participation. On Seeking Alpha I have offered many firsts for the platform as a whole, but below are just two contributions for reference:

  • The first time a publicly traded company participated with its members of management was first introduced by me and to all concerned investors.
  • The first real-time channel checks in publication, direct from retailers came through my publications and to concerned investors.
  • The first 3-year dedicated research, analytics and prognostications that all, completely became realized for any stock. (Keurig Green Mountain)

My resources are bountiful and shared openly on Seeking Alpha and as such so are my many successes and very few failures. With this in mind and in this two-part series of publications, I aim to pose a grand question and offer a grand opportunity. You won't find this question anywhere else, unless you are within my circle of friends and family and you won't find this opportunity anywhere else as the media largely voids this opportunity from investor sight. I've positioned this series of publications for the reasons you'll recognize within the content, but most importantly because the grand opportunity may not be available for eternity. That's just not the way opportunities exist, unfortunately.

Investors and traders, heck, research agents and analysts are all looking for the same thing, a return on capital with relatively low risk. With that there is absolutely and inarguably only one thing that matters when an investment/trade is being considered and that is future returns relative to risk. Nobody is investing to lose money and nobody is investing to ensure they can't sleep well at night. The benchmark we set for ourselves depicts our success or failure and to varying degrees. But one thing is a constant within the investment world and that is the simplistic goal of achieving a return on capital through minimizing risk.

Investors comb through quarterly transcripts, perform channel checks, read various publications, notes and headlines hoping to support their predetermined sentiment toward an investment idea. Most have the same goal, to validate their thesis or improve their sentiment. The very few are able to take the gathering of information and accept it for what it is be it favorable or unfavorable and take appropriate action based on the analysis. Moving toward marriage or accepting a divorce is never easy! Within all the due diligence and process undertaking and ultimately leading to implementing an investment or trade, a lot of work and a lot of time are being displaced. Oh yes, displaced with only a limited possibility of ever maximizing the potential of the investment thesis and invested capital.

Unfortunately, if you are experiencing some outrage over my statements, settle back in, step back for a moment and ask yourself when was the last time you bought a stock at the low end of its valuation and sold it at its peak valuation. By definition, this would render the investment as having achieved its maximum potential. It happens so rarely, so very rarely. Secondly, why should that not be the goal, to maximize an investment's potential? Why would we be seeking modest or underperformance with our investment strategies? Everything below maximum performance is by definition an underperformance whether or not we like to concede the point. It simply defies logic to seek out underperformance. It essentially defines a desire to not finish first, but to also not finish last or lose if you will. This is what "dividend seekers" do, participate not to win but also not to lose. Displaced! But that was somewhat of a blanket statement when taken literally. I'm not absent the understanding that many dividend and general market participants do participate "just because" or "just for fun". I am guilty of the same thing from time to time. Sometimes I will trade just because I enjoy the thrill of it.

Dividends, risk/reward, risk management, dollar cost average, balancing assets in a portfolio, due diligence, balance sheet statements, industry average analysis, DCF analysis…stop, stop, stop! How much more work do you really want to do? How many times do you want to pay for other peoples' bills, educations, cars, boats and houses? In this day and age, this is just nonsense. But you have to know your options to understand that it is truly nonsense. There are portfolio managers out there, hedge fund managers, bond fund managers and so much more of the like that do nothing more than manage risk with the hope of beating the market, but for the most part they simply hope to not come in last place or lose invested capital. Hope, hope they beat the market? Is that really where you want to align your hope, with beating the market. I wake up every morning hoping that my daughter and wife, friends and family all make it thorough the day safely, happily and within my religious beliefs or anybody's religious beliefs for that matter if they are willing to provide what I'm hoping upon my friends and family. Do we really want to waste our hopes on beating the market? And especially when it is unnecessary. Once again, you have to know your options to recognize, accept and appreciate it is unnecessary.

I do love to behold the ramblings of dividend seekers though, I truly do. It's those dividend seekers that hope to provide themselves with a quarterly paycheck for participating in a stock offering quarterly incomes. It's the lowly leveraged dividend portfolio that hopes to eliminate greater volatility than other investments or trades and hopes to offset any losses during a stock downturn with a minimal flow of income in a risk adverse portfolio. Still with the hope? Very simply put, dividend investing works in one way and one way only. It serves to underperform the potential ROI in the long run while locking the investor in a "box" of false and/or assumed relatively lower risk. One can't expect a simple strategy to give you superior investment performances over the long run. It just doesn't make any sense any which way you look at it. And if you are of a different opinion you might desire to find yourself better understanding the Efficient Market Hypothesis. In short, if the strategy really did work, other investors will follow the same strategy themselves. More and more investors will follow the strategy until the strategy doesn't work anymore because everyone's doing it. The "FANG" stocks have been exhibiting true Efficient Market Hypothesis principals in 2016. If you don't believe me, take a gander at the trending articles of the day and the specific Dividend Investing list of the day for most any given day. Opportunities are not eternal!

Most unfortunately this is increasingly the norm, dividend investing. With three major market crashes taking place in less than 10 years, investor "fear and loathing" has resorted to perceived greater risk management through dividend investing. What has also boosted dividend investment participation is the bull market rally that began post the Financial Crisis of 2008. Regardless of the sentiment, the Efficient Market doesn't change. The only thing it has the ability to do is shift where it is represented in the market place and to locations of greater confluence based on investor activity volume.

They do find audiences don't they, the dividend-bound authors. Oh do they ever find an audience. Take a look at one of Seeking Alpha's most followed authors. Most publications from the author define dividend investment strategies for retirement. And with that most publications update the authors actions or actions to be taken. In large part, many of the articles could be regarded as diary or daily journal entries. Some articles are quite insightful while others offer no analytics whatsoever and a soliloquy on why you should follow this author. But the investment philosophy of dividend investing is a constant regardless; it serves to ensure less than maximum potential and operates under a false assumption of presumed limited risk. But in terms of validating how the Efficient Market Hypothesis works, where there is this many investors that follow, they simultaneously reveal that maximum opportunity can only be found elsewhere. In other words, where the greatest confluence of investors participates, the greatest opportunity cannot be achieved. If there is one piece of pie on the table and 6 people out of 6 people want that piece of pie only one person will find success and maximize the desired outcome. I'm sure those who have invested in Microsoft (NASDAQ:MSFT) over the last 3 years, with its very nice yield, would disagree with me but there are hundreds of dividend stocks that have done magnificently over the last 3 years and an equal amount that have been decimated. For those whom invested in lesser performing dividend stocks, again, all that work seems pointless when the goal is to limit the potential return on invested capital through a false notion of limited risk.

Dividend investors promote the value of the managed risk and income yield in their strategy. They can even look back over their respective shoulders at the performance of dividend payers versus non-payers and tout the outperformance. But nonetheless, the time they waste in their endeavor generally proves to do exactly what it is supposed to do, fail to achieve maximum returns on investment or at the very least generate the greatest of opportunity. And for these investors the failure rate is usually more pronounced than those with greater risk as proven by the very definition provided through the goal of investing. Why have we not realized what a waste of time this dividend-bound activity is? And why do we not realize the majority of dividend promoters continue to do so into their later years because they've actually underperformed their potential using the "dividend methodology" for so many years? If when investing over 50 years your average annual return was 20% while the average return of the market was 15%, that doesn't mean you outperformed; it simply means you outperformed the market and not the potential. Dividend investors box themselves into a lower performing strategy and force its forever viability. Fear; it's an amazing emotion isn't it? And when you know not of an alternative, the "dividend box" actually becomes a place of comfort.

Why deal with risk in the first place if you don't have to and you are obviously highlighting as an investor great concern for risk? And if you know you are entering a risky environment, why do so? Have you not weighed the alternatives? Based on the proliferation of dividend-focused publications, the answer is very clear I would verify, validate and leave available no objection. In short, dividend investors like most, continue to do what they know. And in spending all that time managing risk and seeking greater dividend investments they failed to seek out less risky options. It's pure disregard for seeking alternatives, tunnel vision if you will. Well intentioned as they may be and I certainly expect them to be, why are you following a lesser investment strategy that still carries risk? The answer is generally related to comfort. A paradox is being presented, but I'll get to that a bit later.

Surely I've said a mouthful and with a great deal of adjectives describing the erroneous "participation" of dividend seekers and investors. It is not an opinion to offer that as a dividend investor, one subsequently relegates themselves to minimizing the ROI potential; the facts speak for themselves and are in abundance for individual discovery. Do we run races to ensure we don't finish first? Certainly nobody wants to finish last, but for the masses, those risk adverse who constitute the masses, they generally don't even participate. Less than half the working, tax-paying population invests in the market. It doesn't make much sense to participate in a race with the hope of not finishing first now does it, unless of course you simply want to do your best when participating. So again, we find the enigmatic reality of dividend investing, simple participation. And based on pure logic defined by the example above, (and I could list a dozen more metaphoric examples) dividend investing is a futile exercise that ensures its illegitimacy from the ultimate goal of investing already discussed. If you desire to participate with a goal of minimizing your potential, seek out dividend aristocrats and they will lead you along that path. And there are plenty to choose from given the nature of fear. Dividend investing is actually investing with fear and preconceived notions of risk that may not be verified in measurement. It is in the forefront of the investment consideration as exampled throughout history by dividend seekers and promoters.

Moreover, there's more! Never once have I stated dividend investing doesn't hold value. It should be recognized that it holds a lesser value when juxtaposed to the potential and what generates great wealth. For this there is no refutation. Dividend investors are not seeking great wealth and their participation holds a value so far as what they define as worthwhile and valuable to them as a class of investors. Risk and income are of greatest concern to this class of investor with wealth creation being toward the bottom of the list of concerns. I'll concede that may be an opinion, but it would be mighty difficult to argue otherwise. As stocks tend to rise with the market over time, such collecting of income while the market plays out over time only adds to returns on capital invested. I can certainly see the value in dividend investing, but understand its potential more importantly. And there is no denying that the potential is limited and that is the key word and key principle with dividend investing. It's all about limitation. The unfortunate part is that most people only focus their understanding on how it limits risk and not subsequent limitation of potential or opportunity for wealth generation.

Look, I get it. Investing hasn't been easy and history is believed to be "the guide". But imagine if something broke the historic trend. Again, truth be told, you don't have to imagine as it happens daily, weekly and annually. We thought many years ago that telephones had to have a cord or an electrical input. So much for that historic understanding. We thought in order to open a door a key was necessary and so much for that theory. Times they be ever-a-changing! And so dividend investing and risk management profiled investment strategies, well to be blunt, they must change as well. I don't desire to see my world participate for the sake of participation.

Ok, so maybe that last paragraph will prove to be the wordy and/or seemingly irrelevant part of my narrative, but to come back to center here is the grand question in all its… grandeur. Given the limitations and seemingly illegitimate form factor of dividend investing, is there a risk-free or less risky investment vehicle that exists? If change is ever-present and dividend investing focuses on limiting risk, why hasn't this class of investor sought out such an investment vehicle and again why are you following this class of investor and strategy if they have not. It's the paradox I spoke of earlier. Daily combing through of quarterly dividend structures and entities I get if you don't know any better. It's the box that I discussed earlier. Dividend investors and seekers get trapped in a box. But there you have the grand question and for that investors should be keenly observant going forward. I would encourage investors and readers to understand and commit to the following bullet points.

  • Appreciate that I fully understand dividend, income investing for what it is; it is a less risky form of investing that generates income while historically outperforming many non-payers. These stocks or instruments are generally lesser in volatility as well and hold with their construction a greater comfort than instruments that are of greater volatility.
  • Volatility is a scary thing for many investors and we can all respect the notion of seeking out investments that are less volatile. With that said, some of the most volatile investment vehicles are the ones that carry the potential for maximum returns on capital. One such extremely volatile investment vehicle actually carries even less risk than any dividend paying stock available today. Contradictorily, it also pays no dividend and carries with it no sales or earnings history. You've probably guessed it by now, this instrument is an ETF.

I certainly understand this narrative to be quite controversial given its outlined "certain" style of characterizations through deductive reasoning, but nonetheless the points are proven valid. This article and series is about the limitations from dividend investing that are proven to be less affective measures of generating the maximum potential return on invested capital or at least the greatest of opportunity. We don't dive into the investment world to lose money, we do so in order to make money and with limitations placed on capital one should recognize they are handicapping the opportunity. With that said, in Part 2 of this series I will offer readers/investors the grand opportunity that I understand would be of great benefit to all types of investors be them dividend seekers, risk tolerant seekers and everyone in between. There are less risky investment vehicles even as I can sympathize with the belief to the contrary. While this opportunity may not prove relevant to the masses for a variety of reasons, it aligns itself with everything dividend seekers hope to achieve, lesser risk with a high level of returns on capital. Please partake in Part 2 of this series linked!