The Loneliness of the Long-Distance Dividend Investor (with apologies to A. Sillitoe)

I’ve been arguing in favor of business investing through the stock market for decades now. The underlying principal is that distributable and distributed cashflows are the tangible manifestation of a successful business, especially in the most common instance where we do not have a controlling packet of the company. Most stock market investors are not Warren Buffett; instead, they are minority shareholders in an enterprise controlled by others. In that circumstance, investors should expect cash on the barrel, as one might in any other successful business endeavor such as real estate or a privately held enterprise. Obviously, start-ups, early-stage companies, …

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Equity duration: now is the “time.”

As a cashflow-oriented investor, I’ve been focused on equity duration for a while. Now others are beginning to catch on as well. Zero-Hedge may not be your cup of political tea, but it does have serious investing content, in this case a piece from data shop called VariantPerception. Their brief piece on equity duration can be seen here.  My case for using equity duration begins at the 22 minute mark of the Keep Calm and Carry On episode that dropped yesterday. And posts from May 12, 2021, November 29, 2018, and November 1, 2018.

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The power of narrative economics….

A recent New Yorker article by Charles Duhigg ties together nicely several threads of emerging finance that are worthy of notice. The first is the power of narrative economics (and finance) championed by Robert Shiller. My review of his 2019 book by that name appeared on the New Books Network. Shiller’s argument stands in stark contrast to the orthodox model of classical economics. The second is that investment bubbles of the type we are now seeing with SPACs can and have in the past left behind substantial technological and financial innovation after the bubble has burst and much money lost. …

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Equity duration, revisited for an even lower market yield.

Updating a post from late 2018 on equity duration. The yield of the market is now down to around 1.5% and inflation expectations are much higher than they were at that time. Hence it is worth revisiting the math of valuing cashflows in a rising rate environment, or at least one in which rates are not relentlessly declining. Updated table below.  The conclusion has not changed. If you have a choice of distributable cashflow options, get paid up front. Those distant cashflows take a real beating in any reasonable discounting exercise.  In that regard the S&P 500 Index is an …

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If it looks like a bubble, walks like a bubble, & talks like a bubble, is it a bubble?

History matters, no less so for your retirement account. Are we in a normal investing environment or is something “not quite right”? The asset bubble doctors are in and will see you now.   Join me for a conversation with Will Quinn, co-author along with John Turner, of the new and highly acclaimed, Boom & Bust: A Global History of Financial Bubbles (2020). The NBN podcast can be accessed here.

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Uninvestable, due to government overreach…

I was alarmed yesterday to see a sitting US senator assume that the Fed Chairman would naturally prohibit banks from paying dividends (or buybacks) under the new administration. The Fed Chair wisely deflected the question and the assertion behind it.  For folks unaware of how the stock market works, and specifically bank accounting, let me say that that was a “doozy” moment. Yes, it is true that the vast majority of quantitative easing and Federal Reserve activity over the past 13 years (since the GFC) has gone into the financial markets rather than the real economy. That is not because …

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No, Virginia, a dividend and a harvested capital gain are not the same……..

12pm Feb 21, 2021 update: Got some thoughtful pushback from KPA on the assertion that selling shares can still be viewed as a business-owner action and contingent variable in the overall assertion. My answers: 1. Investors have the option of taking cash or reinvesting the dividend. There is a very modest cost to doing the latter, but there is a cost, so it drives academics nuts. You could say that the business owner who does not need the cash now is forced to take it and/or incur the minor hassle of dividend reinvest. 2. Clientele effects. People who want dividends …

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Do books and articles about financial bubbles mean we are in a bubble?

I’m reading an excellent new academic account of bubbles in the financial markets by two Irish academics, William Quinn and John Turner, Boom and Bust. Their taxonomy of bubbles involves formally identifying them after the fact, though they believe their explanatory model would help forecast as them as well. Still it raises the question, which we all felt in 1999 and some of us feel in 2021, how one identifies a bubble whilst you are in the midst of it. While I was pondering that notion, the latest from the WSJ‘s Streetwise columnist, James Mackintosh, hit my device, “If it …

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Price discovery, Soviet Russia, and artistry

The elevator pitch to a book editor and movie producer that never happened: “the early 1960s Soviet experiment of loosening price controls would make for a great work of historical fiction and a high-end movie drama.”  No one in their right mind, right? And yet, it did. Francis Spufford’s Red Plenty came out in 2010. It is simply the best Western work of historical fiction about the post-war Soviet period. Spufford is not a trained Soviet specialist, but every professional historian of the Soviet Union secretly (and not so secretly) wants to have written that book. I know of what …

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