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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Defining risk in a high dividend-paying portfolio. It’s not what most people think.

As the manager of a high dividend-paying portfolio, I necessarily take dividend risk. The yields in the portfolio are, as you might expect, much higher than the market’s miserly 1.6%.  Individual securities in the portfolio have had, can have, and will have yields that can be in the high single digit range, and even sometimes low double-digit range.  Very high yields in a low yielding market is admittedly a sign of dividend risk, but not an assurance of it. And that’s what the goal of the enterprise is: to take an appropriate amount of dividend risk in order to maximize …

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Putting S&P 500 Index “dividend growth” in context….

For those of you keeping score, the S&P 500 Index managed to eke out in 2020 a small increase in the index dividend, 0.07%, over 2019. $58.24 went to $58.28. That’s pretty impressive given the economic circumstances and the reality that dividend-focused products had a tough time in 2020 actually collecting their dividends. The economic downturn affected the Old-Economy dividend payers more than the New-Economy work-from-home companies. So bully for the S&P 500 Index. But it is important to put that achievement in context. Growing the dividend off such a low base isn’t really much of an achevement. The S&P …

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The dividend chorus is getting louder. Will it make a difference?

Blackrock is jumping on the dividend bandwagon. According to a recent Bloomberg article, Blackrock is calling for strong dividend payers to benefit in 2021 from the paucity of income generated in the bond market. Their argument is more in regard to fixed income securities than it is versus other equities, but they are still highlighting the attractiveness of higher-dividend paying equities in a yield-starved market. Blackrock joins a lengthening list of market participants and commentators making the same call. Will it make a difference?  Interest rates have been low and declining for years without a major rotation into dividend stocks …

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“Dividends will have their day again,” says the WSJ. So will business investors.

Happy to have this Dividends will have their day again call out from the Wall Street Journal, but it is worth filling out the story a bit. Distributable profits are the most natural, logical way of generating return for minority shareholders in an on-going, for-profit enterprise. If that enterprise happens to be publicly traded they are called dividends. It is a form of business ownership.  Successful businesses that do not distribute their excess cashflow to company owners can be owned as stocks, and stocks only. Their only cash return comes from going into the market place and selling a stake–hopefully at a …

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NBN Interview with Paul Donovan: Profit & Prejudice

Prejudice is bad for business. That’s the long and short of it. Paul Donovan amply documents this in his recent work of Shiller narrative economics, Profit and Prejudice: The Luddites of the Fourth Industrial Revolution (Routledge, 2020). With that out in the open, shouldn’t prejudice in business cease? Well, that’s a tall order. Not every business person is a profit maximizing Fisherian with an MBA from the University of Chicago. Pointing out to prejudiced business people that they are leaving money on the table is, on its own, unlikely to put an end to their discriminatory practices.  Culture matters, as …

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December’s real-time test of market efficiency.

We have this month both a test of and an immediate HBS case study in market efficiency. A highly innovative electronic vehicle company is about to enter the major market index. Is that a problem for the many investors in the index funds and ETFs based on the S&P 500 Index, or are things as they should be in an efficient market? Market efficiency is presumed to be greatest in large-cap, liquid, well-researched companies. The EV company clears all three thresholds easily, with a market cap of over a half trillion (!) dollars, plenty of trading volume, and 36 separate …

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What if we counted differently……

Saijel Kishan’s recent Bloomberg article, provocatively titled, How Wrong was Milton Friedman is intriguing on many levels. It summarizes the work of George Serafeim, an HBS professor who wants to change how we measure company success and failure. Specifically, he wants to reward and punish companies on the income statement based on ESG impacts. That is, he proposes to put a dollar value on diversity or lack thereof, on polluting or not, etc. And then have those companies report profit and loss after consideration of their social impact. It’s an ambitious plan, and some would say just a natural extension …

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