Re: Investing styles
Posted: 01 Jun 2015 09:04
We keep approx. 5 years of expenses in Cash/Short term FI. That includes discretionary spending.
Where Canadian Investors Meet for Financial Education and Empowerment
https://www.financialwisdomforum.org/forum/
https://www.financialwisdomforum.org/forum/viewtopic.php?t=116872
I know that some people invest in dividend-paying stocks for the income stream, and say that they don't much care how the price changes, as they are buy-and-hold and only care about the dividends. But I wonder how these people would react if the prices of their shares fell by, say, half, even while the dividend stream continued. Would any of them be panicked into selling?Interest-rate jitters are taking their toll on one of the stock market’s big success stories in recent years: high-dividend stocks.
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Much like bonds, higher-yielding stocks—a stock’s yield is calculated by dividing its annual dividend by the share price—have been prized for their stability and steady dividends, a lure for buy-and-hold investors looking to earn income while preserving their original investment. They often trade at a discount to the market in terms of price/earnings ratio, reflecting their slower growth.
But a rally in the shares has inflated their P/E multiples and reduced yields. Utility stocks recently traded at 18.5 times the last 12 months of earnings, up from 17 at the start of last year, according to FactSet. Their yield fell to 3.7% from 4.1% over the same period.
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“Equity investments that are kind of masquerading as a bond…are going to be the most vulnerable,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors, a $1.4 billion financial adviser based in Oklahoma City. “They’ve had a huge run and now they’re going to have competition” from bond investments as rates rise.
Mr. Courtney said he thinks that the investments most susceptible to a rate-induced selloff are those with dividend yields of around 3%—a basket that includes many utilities and REITs—because these investments will compete most directly with corporate and government bonds as rates start to rise.
You can find some investors that will say anything. How about having a look at an individual stock like Proctor and Gamble, has its price been bid up?More generally, even good investments become poor investments if the price rises too much. Has this happened with high dividend payers? Some investors seem to think so.
You are basically alluding to the same Dividend investor versus Total Return investor observations earlier in this thread, where my answer was:ghariton wrote:I know that some people invest in dividend-paying stocks for the income stream, and say that they don't much care how the price changes, as they are buy-and-hold and only care about the dividends. But I wonder how these people would react if the prices of their shares fell by, say, half, even while the dividend stream continued. Would any of them be panicked into selling?
I didn't have you in mind, particularly. Rather, my thoughts were a consequence of the Wall Street Journal article to which I linked.like_to_retire wrote:You are basically alluding to the same Dividend investor versus Total Return investor observations earlier in this thread, where my answer was:
Of course it works. Indeed, it worked especially well since the financial crisis (some over performance) as investors bid up the valuations of dividend paying stocks. Once bond yields start to rise, dividend investing is likely to underperform for the simple reason many, not all, dividend stocks have become overvalued. It's a question of relativity and if slight overperformance, or underperformance, to the broad market is of no consequence, dividend investors will remain relatively happy. Total return folks do not live on total return alone so not sure why you are pursuing that well worn 2008/2009 story.like_to_retire wrote: 'What lesson was learned in 2008? All my dividends continued to pay, while the lower share prices that had no effect on my income allowed for some nice purchases. Compare this to the Total Return followers who had to sell depressed stocks to feed their income needs. I know the lesson I learned - dividend investing works..
Agreed. To fund a new car, I wound up selling several other dividend stocks, which seem to be (or have been) overpriced.With yields currently in the 4% range and assuming a reversion to the historical relationship, long bond rates could rise to 6% and we would still be in a reasonable relationship. Also, increased rates will improve bank earnings and further drive div growth. Don't panic.
OK. Here goes: I have no idea what stocks I own.
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Really! I can’t name a single one, and I have a lot, almost 100.
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Is This Approach REALLY Prudent?
Yeah, it is. Actually, I’ll go one up. I think it’s more prudent than focusing on the individual names. Doing it this way, while I may not know specifically WHAT I’m buying and selling, you can bet your you-know-what I know exactly WHY I’m trading as I am. And that, I believe, is where the money is: It’s in “why,” not “what.”
Imagine that. What your financial advisor thinks of you is more important than the return you earn.ELLEN REMMER had wanted to align her investments with her values for years, seeking to put her money into stocks and bonds that would have an impact beyond the returns. For her, this meant investing in organizations that either improved the lot of women and girls or helped the environment.
Doing so took longer than she expected. Even though it was her money, it was held in trust. She said it wasn’t easy to persuade the trusts’ advisers to change their investment policies.
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Ms. Remmer’s experience typifies the struggle of many wealthy people who want to make impact investments in a particular area but fear their money will not earn as much as traditional investments. Worse, they worry that family, friends, even hired financial advisers will dismiss what they’re doing.
Some people have a lot of money and can afford to redirect it to various good causes. I guess that qualifies as an investment style too.One of the areas Ms. Remmer is interested in, so-called gender lens investing — investing that considers the benefits to women and girls — has gained considerable popularity within the impact-investing world.
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Najada Kumbuli, who leads a gender investing initiative at the Calvert Foundation (which is separate from the mutual fund company Calvert Investments), said the foundation had a $20 million fund that allowed the 900 investors in it to pick the length and return of their investments. A one-year investment will return one-half of 1 percent, while a 10-year investment will yield about 3 percent a year.
“Paying back investors full principal and interest is important,” she said. “But so, too, is the data. It’s not just that we lent to 10 organizations but also, how are we shaping the sector and how are we investing in women?”
Proponents say comparable returns can be achieved, and when they are — and even when they’re missed — there is the added benefit of helping an organization trying to achieve a goal beyond maximizing profit.
Agree. Well said.Chuck wrote:I've always thought investing in this kind of "ethical" style is silly. Most corporations are interested in the bottom line and that's it. I suppose there may be some industry sectors an investor might disapprove of more than others, but I doubt how one allocates one's equity has a meaningful impact.
Corporations exist (in theory) for the sole goal of making profit, charities exist (in theory) for the goal of doing good. If you are inclined towards good causes, trying to do your charity work through for profit corporations is probably not an effective strategy. I think you would be much farther ahead by investing in the general market and giving any excess returns to properly screened charities.
GeorgeIn short, value investing the past few years has been a bad experience, but things can get a lot worse before they can get better. Sadly, this is the lot of the value investor. Value investing is really a tragic story of pain, anguish, and heartbreak that never really has a happy ending. The expected gains are almost always offset with extreme relative performance pain. For instance, we asked here if investors were prepared for 6 years of tragic underperformance. But why stop there? Cliff Asness traded a live value strategy and lived through a 50%+ drawdown in the late 90’s when the market was cranking out 30% CAGRs. To say that Asness had brass balls would be an understatement–he had diamond crusted platinum balls (or as a reader suggested, diamond crusted tungsten carbide balls)!
Value investing is quite possible the worst decision you will ever make — even at the current relative spreads. The pain will be unbearable and you will be forced to sell. Therefore, value investing is quite possibly the worst idea…EVER.
I hope Norm Rothery does not read that. It would r e a l l y wreck his Christmas.ghariton wrote:I think this tongue in cheek but I'm not sure...
GeorgeIn short, value investing the past few years has been a bad experience, but things can get a lot worse before they can get better. Sadly, this is the lot of the value investor. Value investing is really a tragic story of pain, anguish, and heartbreak that never really has a happy ending. The expected gains are almost always offset with extreme relative performance pain. For instance, we asked here if investors were prepared for 6 years of tragic underperformance. But why stop there? Cliff Asness traded a live value strategy and lived through a 50%+ drawdown in the late 90’s when the market was cranking out 30% CAGRs. To say that Asness had brass balls would be an understatement–he had diamond crusted platinum balls (or as a reader suggested, diamond crusted tungsten carbide balls)!
Value investing is quite possible the worst decision you will ever make — even at the current relative spreads. The pain will be unbearable and you will be forced to sell. Therefore, value investing is quite possibly the worst idea…EVER.
I might have retweeted the article when it was first published. I also invested in the period in question and have some familiarity with it. Value has had many 10+year periods of underperformance as I mentioned in ...GreatLaker wrote:I hope Norm Rothery does not read that. It would r e a l l y wreck his Christmas.
These results are for U.S. equity markets. As NormR has suggested on another thread on dividend investing, results for U.S. markets don't necessarily hold for Canadian markets. Still, I find this suggestive.Over the last 10 years (June 1, 2007 to June 30, 2017) a generic portfolio of the cheapest stocks (labeled “Generic Value (P/B)” in the chart below) based on price-to-book ratios earned a compound annual total return of 2.44%, compared with the S&P 500’s total return of 7.10%. And to make matters worse, the generic value portfolio achieved the returns with nearly twice the volatility (29% vs. 15% annualized).
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I looked at the performance of a generic value strategy that buys stocks based on price-to-earnings ratios (as opposed to price-to-book) over the past 10 years. P/E ratios have been shown to be more effective than P/B ratios. Surprisingly, this portfolio actually beat the S&P 500 total return index–earning a compound annual return of 8.24% vs. the S&P’s 7.10% performance.
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The debate as to why value investing generates higher expected returns than other forms of investing will rage on, but one thing is clear: Value investing is extremely painful and difficult to hold through thick and thin.
Code: Select all
Name Symbol 5 Year 10 Year
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2012 2013 2014 2015 2016 2016
iShares CDN LargeCap 60 XIU 0.2 10.6 7.1 2.7 8.8 4.7
DenisD Canadian Large Value 3.8 14.5 12.6 7.0 11.1 7.3
Vanguard Large Cap VV 2.0 15.1 17.8 20.1 21.1 8.6
DenisD US Large Value 7.2 23.7 25.0 24.7 24.6 11.7
Vanguard Mid Cap VO 3.2 18.8 19.4 19.1 20.9 9.2
Vanguard Small Cap VB 5.2 19.3 19.2 18.0 21.4 9.7
DenisD US Small Value -6.0 9.3 20.7 19.1 23.5 7.5
Maybe you should. I find it very rewarding.
deaddog, provided you like the company and fundamentals etc..., how do you (technically) time your entry? for example, do you favour stocks that had been in a downtrend and then showing signs of reversal, like as soon as weekly/monthly closing price jumps above 200SMA?