8 ms·

Chickens' eggs are worth way more in proportion to the chicken than dividends are to a stock. The only way you're capturing appreciable amounts of money in divi

by tomc1985 7y ago

Chickens' eggs are worth way more in proportion to the chicken than dividends are to a stock. The only way you're capturing appreciable amounts of money in dividends is with a very large portfolio. This kind of advice doesn't help folks trying to build a portfolio from nothing because $25 in monthly dividends doesn't really do or mean much. I mean, of course don't try to time the market, but this story only further propagates the lie that everyone(tm) can make money on the stock market without gambling aggressively

H8crilA 7y ago
In the long run it's only dividends that matter. Using Robert Shiller's long term stock market data we find that s&p returns without dividend reinvestment is about 2%, after inflation. With dividend reinvestment it's about 6%. That's a 2x difference in 20 years.
- tomc1985 7y ago
  But, again, you need to making enough money from dividends to be able to reinvest. What about the guy with a $1,000 portfolio, or all the retail rubes with small portfolios on Robinhood?
  - H8crilA 7y ago
    If your income is lower than spendings then you can't invest as successfully as someone who has the opposite situation. More income = more money, what's weird about that? A $1000 will not get you anywhere. You can maybe turn it into $2000 after inflation within 5-10 years, on average.
- alasdair_ 7y ago
  >In the long run it's only dividends that matter. Stock buybacks are a thing, and are generally better than dividends for the owners of stock since they can choose whether or not to have a taxable event.
  - H8crilA 7y ago
    Yeah a stock buyback is just a fancy dividend, automatically reinvested.
  - mcguire 7y ago
    Unless the stock price boost from the buyback is temporary.
    - gruez 7y ago
      Why wouldn't it be permanent? You permanently reduced the number of outstanding shares in the company. All things being equal, having less outstanding shares would mean each share is worth more. I guess you could argue that maybe the buyback was a bad decision (ie. sacrificing long term gains for short term gains), but the logic could be applied to dividends as well.
      - gscott 7y ago
        It's temporary because these companies create shares every month to give out as incentives to their corporate suite.
        nostrademons 7y ago
        ...which are both predictable and included in the company's income statement ("stock-based compensation" is a line item). Stock prices move based on unexpected information. If you've done your homework on the company's fundamentals, dilution from stock-based compensation has already been factored into earnings per share. (Bad acquisitions are another matter - a much more common failure mode for dumb companies is to blow a lot of money on acquisitions and then fail to integrate the acquisition in a way that increases the bottom line.)
      - mcguire 7y ago
        Say we're talking about company X, currently valued at $20/share. X buys back half of their outstanding shares, resulting in their valuation going to $40/share. Six months or a year later, the business cycle turns a bit causing all stocks to go down, the business environment changes to make the business less attractive (buggy whip manufacturers are no longer a growth industry), an outside event (tariff changes?) costs X money, or X's CEO publicly abuses a service worker causing X to be disliked by the market. In whatever case, the valuation of X which was still about $40/share goes down to $30/share. Or $15/share. The share price of a stock has essentially no attachment to anything in the real world, and can and will fluctuate according to real-world events, whims, or just randomly.
- panarky 7y ago
  Amazon stock doesn't pay any dividends, and they don't buy back shares. Therefore, your statement "only dividends matter" must be incorrect since Amazon stock has a non-zero value.
  - keymone 7y ago
    Amazing analysis, only problem is n=1.
    - panarky 7y ago
      n >> 1 84 companies in the S&P 500 index do not pay dividends. https://www.dividend.com/investor-resources/sp-500-companies-that-dont-pay-dividends/ https://www.dividend.com/investor-resources/sp-500-companies...
  - liara_k 7y ago
    The price of Amazon stock is ultimately supported by expectations of future dividends. The same is true for other stocks too, of course. Whether or not the company has paid out dividends in the past is a good predictor of whether they'll do so in the future, but it's not the only such predictor. Having accumulated a mountain of cash but using it to invest in the business (buildings, equipment, and other productive assets) is another. Probably better, at least in some sense/cases. The other way in which the stock is supported is by other people's expectations of other people's expectations of future dividends, and so on. I.e., speculation. Still tied to dividends, just in an unhealthy and volatile way.
    - ericd 7y ago
      Or it's underpinned by the value of controlling Amazon and its wealth, rather than the expectation of dividends.
      - TooSmugToFail 7y ago
        Ultimately, value of a stock rests on the expectation of future earnings of the company.
- dragontamer 7y ago
  > In the long run it's only dividends that matter. Strong disagree. I put my money into other companies because those companies create more money with that money than I can. I don't give money to companies for them to give it back to me. I give money to companies because their investment decisions are superior than my investment decisions. Amazon can spend $5000 on new computers (and make more than $5000 back) in the long term. Better than anything I put $5000 in on. All shares are created from either the Initial Public Offering (which raised money for the company), or secondary offerings (an additional raising round after the IPO).
  - H8crilA 7y ago
    I'm talking about data since 1870 till the present (courtesy of Robert Shiller). It shows very clearly that dividends > price action over periods of 20yrs or longer. You have an opinion against data.
    - novaleaf 7y ago
      one could argue that the stock market of today is vastly different beast from that of 1870, or even comparing to 1970.
      - H8crilA 7y ago
        Markets have existed for a long time. The Dutch were trading stocks in 1600s already. It's actually more likely that it is still the same thing. http://bilalhafeez.com/the-oldest-book-ever-written-on-trading-stocks-its-330-years-old/ http://bilalhafeez.com/the-oldest-book-ever-written-on-tradi... They even had options, called "opsies".
    - dragontamer 7y ago
      > You have an opinion against data. And when your data runs contrary to Amazon, Apple, Facebook, and tons of other points of data in today's market... I think its reasonable to question the data. Is data from 1870s still relevant today? The USA was still on gold + silver (silver standard!!), and the Fed didn't even exist yet. Case in point: maybe your data is only relevant during the times when the gold standard was still being followed (before the 70s, when Nixon finally ended the gold standard). The economy of today's market is grossly different than 1600s era Dutch traders.
- soperj 7y ago
  Doesn't really make sense when you consider some amazing stocks (ie: Berkshire Hathaway) that have never given a dividend.
  - H8crilA 7y ago
    They reinvest it for you, it's a holding/portfolio company (P/B ~= 1). Also BRK buys back its stock.

H8crilA 7y ago

In the long run it's only dividends that matter. Using Robert Shiller's long term stock market data we find that s&p returns without dividend reinvestment is about 2%, after inflation. With dividend reinvestment it's about 6%. That's a 2x difference in 20 years.

tomc1985 7y ago
But, again, you need to making enough money from dividends to be able to reinvest. What about the guy with a $1,000 portfolio, or all the retail rubes with small portfolios on Robinhood?
- H8crilA 7y ago
  If your income is lower than spendings then you can't invest as successfully as someone who has the opposite situation. More income = more money, what's weird about that? A $1000 will not get you anywhere. You can maybe turn it into $2000 after inflation within 5-10 years, on average.
alasdair_ 7y ago
>In the long run it's only dividends that matter. Stock buybacks are a thing, and are generally better than dividends for the owners of stock since they can choose whether or not to have a taxable event.
- H8crilA 7y ago
  Yeah a stock buyback is just a fancy dividend, automatically reinvested.
- mcguire 7y ago
  Unless the stock price boost from the buyback is temporary.
  - gruez 7y ago
    Why wouldn't it be permanent? You permanently reduced the number of outstanding shares in the company. All things being equal, having less outstanding shares would mean each share is worth more. I guess you could argue that maybe the buyback was a bad decision (ie. sacrificing long term gains for short term gains), but the logic could be applied to dividends as well.
    - gscott 7y ago
      It's temporary because these companies create shares every month to give out as incentives to their corporate suite.
      - nostrademons 7y ago
        ...which are both predictable and included in the company's income statement ("stock-based compensation" is a line item). Stock prices move based on unexpected information. If you've done your homework on the company's fundamentals, dilution from stock-based compensation has already been factored into earnings per share. (Bad acquisitions are another matter - a much more common failure mode for dumb companies is to blow a lot of money on acquisitions and then fail to integrate the acquisition in a way that increases the bottom line.)
    - mcguire 7y ago
      Say we're talking about company X, currently valued at $20/share. X buys back half of their outstanding shares, resulting in their valuation going to $40/share. Six months or a year later, the business cycle turns a bit causing all stocks to go down, the business environment changes to make the business less attractive (buggy whip manufacturers are no longer a growth industry), an outside event (tariff changes?) costs X money, or X's CEO publicly abuses a service worker causing X to be disliked by the market. In whatever case, the valuation of X which was still about $40/share goes down to $30/share. Or $15/share. The share price of a stock has essentially no attachment to anything in the real world, and can and will fluctuate according to real-world events, whims, or just randomly.
panarky 7y ago
Amazon stock doesn't pay any dividends, and they don't buy back shares. Therefore, your statement "only dividends matter" must be incorrect since Amazon stock has a non-zero value.
- keymone 7y ago
  Amazing analysis, only problem is n=1.
  - panarky 7y ago
    n >> 1 84 companies in the S&P 500 index do not pay dividends. https://www.dividend.com/investor-resources/sp-500-companies-that-dont-pay-dividends/ https://www.dividend.com/investor-resources/sp-500-companies...
- liara_k 7y ago
  The price of Amazon stock is ultimately supported by expectations of future dividends. The same is true for other stocks too, of course. Whether or not the company has paid out dividends in the past is a good predictor of whether they'll do so in the future, but it's not the only such predictor. Having accumulated a mountain of cash but using it to invest in the business (buildings, equipment, and other productive assets) is another. Probably better, at least in some sense/cases. The other way in which the stock is supported is by other people's expectations of other people's expectations of future dividends, and so on. I.e., speculation. Still tied to dividends, just in an unhealthy and volatile way.
  - ericd 7y ago
    Or it's underpinned by the value of controlling Amazon and its wealth, rather than the expectation of dividends.
    - TooSmugToFail 7y ago
      Ultimately, value of a stock rests on the expectation of future earnings of the company.
dragontamer 7y ago
> In the long run it's only dividends that matter. Strong disagree. I put my money into other companies because those companies create more money with that money than I can. I don't give money to companies for them to give it back to me. I give money to companies because their investment decisions are superior than my investment decisions. Amazon can spend $5000 on new computers (and make more than $5000 back) in the long term. Better than anything I put $5000 in on. All shares are created from either the Initial Public Offering (which raised money for the company), or secondary offerings (an additional raising round after the IPO).
- H8crilA 7y ago
  I'm talking about data since 1870 till the present (courtesy of Robert Shiller). It shows very clearly that dividends > price action over periods of 20yrs or longer. You have an opinion against data.
  - novaleaf 7y ago
    one could argue that the stock market of today is vastly different beast from that of 1870, or even comparing to 1970.
    - H8crilA 7y ago
      Markets have existed for a long time. The Dutch were trading stocks in 1600s already. It's actually more likely that it is still the same thing. http://bilalhafeez.com/the-oldest-book-ever-written-on-trading-stocks-its-330-years-old/ http://bilalhafeez.com/the-oldest-book-ever-written-on-tradi... They even had options, called "opsies".
  - dragontamer 7y ago
    > You have an opinion against data. And when your data runs contrary to Amazon, Apple, Facebook, and tons of other points of data in today's market... I think its reasonable to question the data. Is data from 1870s still relevant today? The USA was still on gold + silver (silver standard!!), and the Fed didn't even exist yet. Case in point: maybe your data is only relevant during the times when the gold standard was still being followed (before the 70s, when Nixon finally ended the gold standard). The economy of today's market is grossly different than 1600s era Dutch traders.
soperj 7y ago
Doesn't really make sense when you consider some amazing stocks (ie: Berkshire Hathaway) that have never given a dividend.
- H8crilA 7y ago
  They reinvest it for you, it's a holding/portfolio company (P/B ~= 1). Also BRK buys back its stock.