Investing styles

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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Re: Investing styles

Post by Stan » 01 Jun 2015 09:04

We keep approx. 5 years of expenses in Cash/Short term FI. That includes discretionary spending.

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Re: Investing styles

Post by ghariton » 02 Jun 2015 13:26

U.S. Dividend Stocks Lose Luster:
Interest-rate jitters are taking their toll on one of the stock market’s big success stories in recent years: high-dividend stocks.

<snip>

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.

<snip>

“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.
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?

The other point is that, if one were to sell (or not buy) a dividend payer before a significant fall in its share price, one could use the same amount of capital to buy a greater number of shares, and so a greater dividend stream, after the fall. So keeping an eye on the share price may be worthwhile even if all that matter to an investor are the dividends.

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.

George
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Re: Investing styles

Post by BRIAN5000 » 02 Jun 2015 14:54

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 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?

PG is trading at around $80 yielding @ 3.4%, over the last 5 years (during the hunt for yield) it's low has been around $60 yielding @ 3%. Five year avg PE @ 17 now trading about 19.

So has it's price been bid up, even with a 25% hammering to earnings is it going to drop 50%, I don't think so unless we have a correction ala 2009 or multiple contraction as well as earnings decrease, all possible. I can see an easy 20-25% selloff but getting 20bp on TDB8152 as opposed to 3.4% on PG looks pretty good to me.
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Re: Investing styles

Post by AltaRed » 02 Jun 2015 15:30

Yield comparisons at different market prices is not that meaningful. But mulitples, e.g. P/E, are in my opinion. The fact PG P/E is at 19 rather than 17 is telling. Investors may have bid up the price in an attempt to get yield (as compared to business momentum, i.e. earnings growth). I have not examined PG to make that assertion so that is speculation on my part.

Companies fall into the trap too, growing dividends too quickly in their addiction for market price growth when the underlying business may not justify it, i.e. payout ratio. I think George is right. When bond yields turn up in a meaningful way, stock prices of "hot" dividend companies will become disproportionately under pressure. No doubt I will be negatively affected along with many others with current holdings in some of my dividend stocks. Trying to hold my powder dry with all the cash I have on hand, i.e. not buying into more dividend stocks until prices (and multiples) become more realistic.
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Re: Investing styles

Post by CROCKD » 02 Jun 2015 15:53

Following on from above,this article on dividend investing appeared in the G&M yesterday.
Now might be a good time to rethink dividend investing in Canada
This got me thinking my strategy in my non registered portfolio which is mainly banks and ZDV.
As most of my income comes from RRIF/LIF fully taxed, and some fixed deposits also fully taxed, I have constructed this non registered portfolio to take advantage of the dividend tax credit. Nearly everything is in a capital gain position and no holding paying less than 4% yield.
I really do not see the need to do anything precipitously as a result of these two articles.
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like_to_retire
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Re: Investing styles

Post by like_to_retire » 02 Jun 2015 16:11

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?
You are basically alluding to the same Dividend investor versus Total Return investor observations earlier in this thread, where my answer was:

'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.. :)

ltr

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Re: Investing styles

Post by ghariton » 02 Jun 2015 17:47

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:
I didn't have you in mind, particularly. Rather, my thoughts were a consequence of the Wall Street Journal article to which I linked.

As to the debate upthread, I took the opportunity to reread it. I think I can now summarize my position quite briefly.

(1) At every point in time, the market values your portfolio. If you think the market is undervaluing it, buy more (borrowing if you have to). If you think the market is overvaluing your portfolio, sell some. If you are not sure, stay put.

(2) Diversification is a free lunch, the more broadly, the better. Concentrating on one kind of security, or one sector, turns down this free lunch.

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Re: Investing styles

Post by AltaRed » 02 Jun 2015 18:36

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.. :)
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.

FWIW, my portfolio yield is in the order of 3%, so I know of what you talk about. I fully expect, though, for my portfolio to underperform the broad market going forward as bond yields rise. It just has to be that way.
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Re: Investing styles

Post by SQRT » 12 Jun 2015 09:37

Div stocks might underperformance a bit in a raising interest rate envireonment, but they will generally perform in accordance with their underlying businesses. An equity is not a bond.
Back when interest rates were higher, it was fashionable to compare the yield of bank equities to the long Canada rate. Pundits constructed a rage of 50-70% of the bond rate as being the right bank yield. Boy, that sure fell apart. 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.

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Re: Investing styles

Post by Shakespeare » 12 Jun 2015 10:07

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.
Agreed. To fund a new car, I wound up selling several other dividend stocks, which seem to be (or have been) overpriced.
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Re: Investing styles

Post by DenisD » 25 Jul 2015 22:09

A Stock Market Pro’s Possibly-Bizarre Confession by Marc Gerstein, Portfolio123
OK. Here goes: I have no idea what stocks I own.
...
Really! I can’t name a single one, and I have a lot, almost 100.
...
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.”

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Re: Investing styles

Post by ghariton » 17 Aug 2015 17:57

Impact investing: With an Eye to Impact, Investing Through a ‘Gender Lens’
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.

<snip>

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.
Imagine that. What your financial advisor thinks of you is more important than the return you earn.
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.

<snip>

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.
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.

I'm looking for a canine empowerment impact fund, but am having difficulty finding one.

George
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Re: Investing styles

Post by Chuck » 18 Aug 2015 10:37

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.

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Re: Investing styles

Post by SQRT » 19 Aug 2015 10:36

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.
Agree. Well said.

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Re: Investing styles

Post by ghariton » 18 Dec 2016 21:19

I think this tongue in cheek but I'm not sure...
In 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.
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Re: Investing styles

Post by BRIAN5000 » 19 Dec 2016 18:58

Attachments
magic investing.png
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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Re: Investing styles

Post by GreatLaker » 19 Dec 2016 21:18

ghariton wrote:I think this tongue in cheek but I'm not sure...
In 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.
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Re: Investing styles

Post by NormR » 19 Dec 2016 21:34

GreatLaker wrote:I hope Norm Rothery does not read that. It would r e a l l y wreck his Christmas.
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 ...

Value stocks are stuck in a deep freeze, but spring will come again (sorry for the G&M paywall)

Pick up a copy of "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It" by Scott Patterson for some more on Cliff's troubles. (It's a good book.)
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Re: Investing styles

Post by farco » 24 Dec 2016 18:51

I like Tragic Pain (tm), it makes me money.
Nothing funnier than reading another VI bashing text. Opinions are liablities anyway.

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Re: Investing styles

Post by ghariton » 27 Sep 2017 13:15

Wes Gray: Is value investing dead? It depends on how you measure value.
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).

<snip>

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.

<snip>

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.
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.

FWIW, I've given up on both value and growth, and indeed any "style" that limits an investor to just a portion of the market. I believe that diversification is the only free lunch in finance, and I intend to diversify as widely as possible (consistent with keeping costs reasonable).

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Re: Investing styles

Post by AltaRed » 27 Sep 2017 16:19

US value investing (financial components anyway) got slaughtered in the financial crisis and the banks and lifecos still have not recovered. That 10 year stretch is almost data mining to make a point. It may not be worth the paper it is printed on. That said, I agree with George that sometimes it is just better to be part of the entire market. No one knows when 'your' fashion is out of favour.
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Re: Investing styles

Post by BRIAN5000 » 27 Sep 2017 16:21

I think many investing styles overlap and some or all of the below is what I use in my portfolio maybe that's why I'm confused most of the time :?

- Indexing - cap weighting
- Equal stock weighting
- Dividend Growth Stock Investing
- Buy & Hold
- Buy the Dip
- Growth at a reasonable price
- Dividend Value Investing
- Dogs of the Dow and BSTX
- Constant Sector Asset Allocation
- Piggybacking
- Technical analysis
- Fundamental analysis

I rarely if ever use
- buy high sell higher
- momentum investing
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little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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Re: Investing styles

Post by DenisD » 27 Sep 2017 21:52

Shareholder yield hasn't done too badly. My US and Canadian large-cap screens have beat the benchmark significantly over the past 10 years and the past five five-year periods. The US small-cap screen, using two different algorithms, hasn't done as well. Returns are up to the end of 2016.

Code: Select all

Name                          Symbol                    5 Year                 10 Year
                                         ------------------------------------    ----
                                         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
So far this year, the Canadian screen is doing well. The US screens not so well.

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Re: Investing styles

Post by deaddog » 27 Sep 2017 22:09

BRIAN5000 wrote:
27 Sep 2017 16:21
I think many investing styles overlap and some or all of the below is what I use in my portfolio maybe that's why I'm confused most of the time :?

I rarely if ever use
- buy high sell higher
- momentum investing
Maybe you should. I find it very rewarding.

Possibly someone who has access to the Globes Strategy Lab can post the most recent results.
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Re: Investing styles

Post by jay » 28 Sep 2017 09:12

deaddog wrote:
27 Sep 2017 22:09
BRIAN5000 wrote:
27 Sep 2017 16:21
I think many investing styles overlap and some or all of the below is what I use in my portfolio maybe that's why I'm confused most of the time :?

I rarely if ever use
- buy high sell higher
- momentum investing
Maybe you should. I find it very rewarding.

Possibly someone who has access to the Globes Strategy Lab can post the most recent results.
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?

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