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20/11/2004 19:05
bruwin
N° messaggi: 1860 -
Iscritto da: 25/6/2004
First of all, is it such a big deal to outperform an index ? After all, what is an index other than the indication of the "average", weighted or otherwise, of all those stocks that belong to that index. So if the majority of those stocks aren't doing well then that index will reflect that poor performance. And to target those Dow stocks that have the highest dividend yield depends on the magnitude of that yield. The reason being is that there's a definite mathematical relationship between a stock's P/E and dividend yield. In addition, there's also a relationship between P/E and the best bank interest rate one can get. And finally, if one wants to determine whether a stock's price is 'cheap' or 'expensive', then P/E must play a major part in that determination. So, by doing some mathematical juggling, you will arrive at a dividend yield that will tell you whether the stock is at a bargain price or not.
But irrespective of the above, what one should be concentrating on is evaluating INDIVIDUAL COMPANIES. Trying to determine VALUE and a "FINANCIAL PEDIGREE" in a company should be what it's all about. And more often than not you will find greater potential for stock price increase in companies outside the Dow than within it. Belonging to the Dow Index is no automatic guarantee that you'll get a great return on your investment. What you may have are companies, that because of their size, are generally likely to be around for a long time. I have found numerous companies that gave great returns in capital gains and when you looked at their price history you would have seen a price graph moving upwards while the Index graph was moving in the opposite direction. Great companies, earning consistent profits, couldn't care less what any Index was doing. So my contention is this, stop getting too involved with Sector movement or Index movement or "Market" movement. Concentrate on finding financial quality in INDIVIDUAL companies because that's what will earn you great returns on your investment.
And should you want to know more about how to go about doing just that, then you may want to visit my Message "SATISFY THESE 9 LAWS BEFORE YOU BUY STOCKS".
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21/11/2004 15:00
wadedtrask
N° messaggi: 2 -
Iscritto da: 20/11/2004
Quite a sermon bruwin! It's Sunday morning here in Virginia and I feel like I can skip church today having already heard the holy word.
If there's anyone else out there who isn't quite so convinced of their infallibility and would actually like to have a dialog, please feel free.
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21/11/2004 16:11
bruwin
N° messaggi: 1860 -
Iscritto da: 25/6/2004
***SMILE***
Last thing I'd want to do, wadedtrask, is come between you and the church !! And I certainly wouldn't 'qualify' for spreading 'holy words' or assuming a status remotely close to 'infallibility'.
In fact I thought I was partaking in a form of dialogue. Maybe we just approach it from different directions.
You posed the question, or topic, "would buying the highest (dividend) yielding stocks in the Dow 30 Industrials outperform, over time, the Index itself ?"
Well, to kick off, let me ask a question of my own ....
"If Berkshire Hathaway, the company run by Warren Buffett, was one of those companies included in the Dow 30, would you rather own stock in the top dividend yielding company of the Dow 30, or in Berkshire Hathaway ?"
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22/11/2004 09:55
bruwin
N° messaggi: 1860 -
Iscritto da: 25/6/2004
"HULLOOOOOOO...." Anybody out there ??!!
Doesn't look like there's much 'discussing' going on here.....
We hope this doesn't turn out to be a one-sided affair !!
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22/11/2004 13:34
freestyled004
N° messaggi: 40 -
Iscritto da: 22/6/2004
Dividends are the top reason for investing. Trading which is different is about greed and greed is not good. Poeple quote the 'Wall St' mantra, but look what happened to Michael Douglas's character in the film. Its only hollywood, but greed is not a sustainable market strategy.
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22/11/2004 15:09
bruwin
N° messaggi: 1860 -
Iscritto da: 25/6/2004
Before I enter the discussion, here's a quote I found :-
"He did it again. On March 8, Warren Buffett's Berkshire Hathaway reported a net profit of $US4.2 billion for 2002, a more than 400 PER CENT INCREASE on the previous year, at a time when other investors have lost money hand over fist. The book value gain on the company's stock outperformed the S&P 500 by 32.1 per cent.
Today, with so many other investments underwater, the simplicity of his VALUE-investing approach - make decisions on the BASICS and DON'T BE BLINDED BY THE HYPE - seems increasingly compelling."
Hi there freestyle... You said "Dividends are the top reason for investing".
Hmmmmm .... well, it may surprise some to know that the company I referred to in my previous message HAS NEVER PAID A DIVIDEND TO ITS SHAREHOLDERS. Warren Buffett has always seen fit to plow the company earnings back into Berkshire Hathaway and by so doing has INCREASED SHAREHOLDER VALUE, IN TERMS OF SHARE PRICE, FROM APPROX. $2600 IN 1984 TO $85300 IN 2004 !! That's a percentage increase of 3110% in 20 years ! In the last 10 years the stock price went from $20600 to $85300 ... that's 317% up !
Now maybe I'm wrong, but I don't think that any other company in the DOW 30 Industrials can show such a phenomenal increase, IRRESPECTIVE of what they paid in dividends !
wadedtrask, in his initial message, referred to the "Dow Dividend THEORY".
So let's 'dialog' that last word "THEORY". Amongst many definitions, I came across the following for THEORY :
"A well tested explanation for observed events. A theory must allow one to make predictions which can be tested by experiment."
Now let's suppose that of the 30 companies in the Dow 30, the management of 25 of them decided to apply Warren Buffett's philosophy of not paying a dividend but rather to re-invest profits back into the company. In the process they bought back shares, they upgraded equipment, they improved employee benefits resulting in greatly increasing labour production and efficiencies, they bought up companies that provided a good fit with their own business plan etc.. etc..
And in so doing, obtained similar results, in terms of stock price percentage increase, as has Berkshire Hathaway. The other 5 companies decided to rather pay 'handsome' dividends of 8% per annum. That's about 4 times what you can get at the bank in the USA. So here we have a situation where 5 companies pay 100% more dividend than the other 25. The question is, which one would most of us buy ? But that's not all. The contribution that the 25 non-dividend paying companies would have to the Dow30 Index would be such that one would very likely make a better return on the Index than on any of the 5 dividend payers !
Personally, I think one would be hard pressed to satisfy "A well tested explanation for OBSERVED EVENTS" as described in the definition above. It's possible that this year the 5 best dividend payers may beat the Index but at some time in the future the Index could come out on top. It would very likely depend on Management's ability to obtain maximum shareholder value for their respective companies, in much the same way that Buffett has for the past 20 years.
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23/11/2004 19:43
penelope pitstop
N° messaggi: 70 -
Iscritto da: 17/3/2004
If the company is run for the stockholders why is the stock out of the financial reach of investor to hold, rather than trade? So often mergers turn up the unexpected, Buffett must have got lucky not to have found he bought a duff one sometimes, or one that's about to go sick. The best thing about Buffett is he's kept out of Politics unlike Soros, who seems to have lost his winning touch.
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26/11/2004 05:10
bruwin
N° messaggi: 1860 -
Iscritto da: 25/6/2004
Ahaaaa... it's penelope ... we "cross swords, or should that be keyboards, once again" !!
Well penelope, anybody who can afford to buy Berkshire stock is free to do so. In fact, had they taken the trouble to do some erudite company analysis 10 years ago, they could have bought BRK.A for about $20 000. Their investment would now have increased by approx. 320%!!
But you'll have to refer your question to Warren and Charlie Munger and ask them why they've never split their stock.
Personally I'd be surprised if Buffett based any of his company selections on "luck".
But penelope, this Message has as its theme the "Dow Dividend Theory". What can you contribute in this regard ?
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26/11/2004 05:11
bruwin
N° messaggi: 1860 -
Iscritto da: 25/6/2004
"HULLOOOOOOO......" Anybody out there ??!!!
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But irrespective of the above, what one should be concentrating on is evaluating INDIVIDUAL COMPANIES. Trying to determine VALUE and a "FINANCIAL PEDIGREE" in a company should be what it's all about. And more often than not you will find greater potential for stock price increase in companies outside the Dow than within it. Belonging to the Dow Index is no automatic guarantee that you'll get a great return on your investment. What you may have are companies, that because of their size, are generally likely to be around for a long time. I have found numerous companies that gave great returns in capital gains and when you looked at their price history you would have seen a price graph moving upwards while the Index graph was moving in the opposite direction. Great companies, earning consistent profits, couldn't care less what any Index was doing. So my contention is this, stop getting too involved with Sector movement or Index movement or "Market" movement. Concentrate on finding financial quality in INDIVIDUAL companies because that's what will earn you great returns on your investment.
And should you want to know more about how to go about doing just that, then you may want to visit my Message "SATISFY THESE 9 LAWS BEFORE YOU BUY STOCKS".