The universally respected and admired Michael Mauboussin has chimed in on the now political issue of share repurchase programs. His opinion piece in the FT this week in defense of them tries to clear up what he considers “confusion and sloppy thinking” critical of buybacks. Cliff Asness, his equally formidable ally in support of buybacks, has made similar points in print recently. Wrestling with either of these finance heavyweights is done at one’s peril. But I can’t help but add some additional color around their assertions from the perspective of a dividend investor. I’ve spent the past two decades competing …
Category: Investing
More media coverage for dividend investing…
Even more coverage of dividend investing, this time an article in Business Insider.
Dividend investing is! sustainable investing
Dividend investing was “sustainable” decades ahead of the current frisson of ESG-based sustainability. Think about it. The attraction of an income stream—whether of a publicly traded or closely held asset—is its value over time. Whereas a “price only” asset can be bought or sold tomorrow with the intention of profiting from a change in price a week or month from now, an income stream-based asset delivers its worth over many years. Investors might agree or disagree as to the current value of that income stream—and put a changing, daily price on it—but the NPV of the income stream is measured …
Suddenly lots of media attention for dividend investing…
Is that a sign of a top in investor sentiment? Very near-term, perhaps. Longer-term, not at all. Dividend investing has been falling out of favor for the past three decades. The mean reversion back to “normal” business ownership practices and cash return metrics will play out over a decade, if not more. For now, however, a WSJ article about being at the top.
The NBN interview of Vitaliy Katsenelson
A well-lived life closely examined. Listen in to my New Books Network interview of Vitaliy Katsenelson — a rare US public intellectual–about his “Soul in the Game: the Art of a Meaningful Life”, just out from Harriman House. https://newbooksnetwork.com/soul-in-the-game
Talking rates, dividend investing & the future of the stock market w/Demetri Kofinas.
Great fun catching up with Demetri Kofinas on his Hidden Forces podcast. We discussed interest rates vs risk rates, cashflow real economy companies vs. rainbow stocks, and the role of agency in history…. Please listen in. The Revenge of Risk Rates & the Return of Dividend Investing | Daniel Peris
Stock market drawdowns during retirement…..
A follower wrote in to suggest a stronger assertion of the value of dividend-focused investing for retirees concerned about drawing down their portfolio. He argues that for those investors, the sequence of their returns matters hugely, especially in a market not moving up steadily. (He was responding to my post about the difference between a harvested capital gain vs. a dividend payment.) He writes: “The argument goes that there’s no difference between an income stream derived from selling stocks or one derived from amassing dividends. But that isn’t true. Selling stocks in a bad year means selling more stocks. Dividends …
A dollar may be fungible; how it is generated is not.
The recent market sell off has provided investors an opportunity to reconsider a fundamental belief in modern finance and investment. And that is that investors are indifferent between the two forms of return, a harvested capital gain or a cash dividend payment. That notion underpins pretty much all of modern stock market investing, from the calculation of return, to the capital allocation of corporations, to the behavior of investors. In short, it’s a biggie. And in a rising market, it looks like a pretty good assumption, since most of the time the market is up, open and liquid. The belief …
Gabelli Fordham Centennial Speaker Series on “Getting Back to Business”
My conversation about Getting Back to Business/operating as a historian in the capital markets with Fordham-Gabelli School of Business Professors Jim Kelly & Sris Chatterjee has now posted. Thanks to the Gabelli staff as well as co-sponsors the Museum of Finance and the New York CFA Society. Link: Gabelli school conversation
A meditation on trust in finance. Yes, you read that correctly.
I have been wondering about the role of trust in modern finance. To judge by the academic literature and the dominant rules and formulas, it has no role whatsoever. I find that paradoxical, to say the least, because trust is inseparable from participating in modern society. Everyday we make judgments, including economic and financial ones, based primarily if not exclusively on trust, as opposed to a calculation of odds, risks and rewards, costs and benefits. Academics refer to these daily challenges as exercises in “decision making under conditions of uncertainty.” Modern finance tries (and has failed) to quantify that decision-making …
History matters: is our current bout of inflation transitory?
Post a global pandemic, labor is in short supply, inflation is everywhere. Is it transitory? What happens next? History matters. Very similar circumstances after the Black Death in Medieval Europe …. One of many analyses to ponder: https://ideas.repec.org/p/tor/tecipa/munro-04-04.html
If it sounds too good to be true….
If it sounds too good to be true, …. Big takedown of the Private Equity industry by former PE manager Jeff Hooke (now of JHU-Carey). His new The Myth of Private Equity (Columbia Business School Publishing, 2021) highlights the sky-high costs, poor returns, & very low visibility. And yet, the industry persists… Hooke’s expose is a latter day “Where are the Customers’ Yachts?” The New Books Network interview.
How big is your platform? or “What color is your parachute?” 50 years later.
I recently got this very positive email mail through a professional social media platform: “:) .. your web site is treasure of great insights – I’m in my year two of my MBA journey and more and more I found myself checking historical and geopolitical “whereabouts” when reading the cases the profs. thrown on us .. I think it’s a/THE key to fully understand what is happening “behind the scenes” of all/most they want us to do (evaluate equities or M&A deals, making recommendations, etc. etc. ) unfortunately it’s mostly omitted…” I was touched. The thing is, nobody goes to …
NBN Interview with Jon Lukomnik on his Moving Beyond Modern Portfolio Theory
Jon Lukomnik thinks outside the box, specifically the Modern Portfolio Theory box. Rather than trying to pick up a few basis points here or there by operating within a flawed system, Lukomnik argues in favor of looking for factors which affect overall systemic risk and reward. That is, he looks at what factors will influence the health and levels of the overall capital markets. This is an important work for all market participants. Listen to the NBN interview here.
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.
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. …
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 …
Investing in the market as a historian…
On investing as a historian, & making the transition from academia to investment manager. Thank you Ashutosh Garg for having me on his The Brand Called You podcast.
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.
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 …
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 …
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 …
Tulips & T$sl@s. Two charts. Just saying….
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 …
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 …
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 …
“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 …
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 …
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 …
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 …