re: dividend investing

I think your argument here is certainly strong and for people who know what they’re doing it works. But I know quite a few people who purchased shares of companies simply based on the fact that they were around for a long time and offered a good dividend yield. Some of these were in the financial sector and they’ve since blown up or severely cut their dividend yields. People who depended on that income as a means of paying their mortgages may face some difficulties.

re: Full-time professionals

I think I had a different take on this point than you. I took it more to mean that most people with full-time jobs do not have the time to sit and learn how to invest so they inevitably are at a disadvantage. Guys like Warren Buffett spend hours a day pouring over 8Ks to get ideas. Even though I go to school, I spend a considerable amount of my free time on investing. I think that a person who’s just setting aside a couple of hours on the weekend probably will not be able to cut it.

re: dividend investing

I think your argument here is certainly strong and for people who know what they’re doing it works. But I know quite a few people who purchased shares of companies simply based on the fact that they were around for a long time and offered a good dividend yield. Some of these were in the financial sector and they’ve since blown up or severely cut their dividend yields. People who depended on that income as a means of paying their mortgages may face some difficulties.

re: Full-time professionals

I think I had a different take on this point than you. I took it more to mean that most people with full-time jobs do not have the time to sit and learn how to invest so they inevitably are at a disadvantage. Guys like Warren Buffett spend hours a day pouring over 8Ks to get ideas. Even though I go to school, I spend a considerable amount of my free time on investing. I think that a person who’s just setting aside a couple of hours on the weekend probably will not be able to cut it.

First, the idea that you wouldn’t invest in the stock market until your mortgage is completely paid off is as absurd as it’s unrealistic. The current dividend yield on Proctor & Gamble (since that was referenced as an example) isn’t much lower than the current rate on the average 30 year mortgage. And if you’ve held PG for any length of time, your effective yield would undoubtedly be considerably higher than your mortgage rate.

That’s the power of dividend growth investing in quality businesses – identifying and investing in superior companies that actually pay out a fair portion of the earnings to its investors. If, for example, you’d simply bought and held McDonald’s stock back in 1991-1992, you’d be earning a 25% annual dividend right now. Do you think those long term investors care whether the stock is up 50% or down 50%. Why would they sell and throw away their 25% (and rising) annual dividend.

Second, I was struck both by the arrogance and the inaccuracy in one of Klarman’s quotes included in your post:

“No one knows what he’s doing unless he’s a full-time professional,” he said. “As in many professions, full-time experts have an enormous advantage. Investing is highly sophisticated and nuanced. The average person would have an incredibly hard time competing.”

Right. That’s why the majority of mutual funds UNDERPERFORM the market. Furthermore, it isn’t investing that’s “highly sophisticated and nuanced” – that’s institutional trading and it’s vastly inferior to actual investing as evidenced by my first point.

On the contrary, the individual willing to put forth a modest amount of effort has considerable advantages over the overtrading, short-term, quarterly performance obsessed, trend chasing, group think, institutional traders responsible for administrating the vast, unruly sums of retirement funds of all the individuals who have abdicated making their own informed investment decisions.

Why? It’s simple – true investing is actually quite easy. After all, how much research does it take to realize the dominant profitability of companies like Proctor & Gamble, Coke, and McDonalds?

The rest is just valuation, and there are even some not particularly difficult option strategies the individual investor can employ to help lower his or her cost basis.

Who knows why there’s such an aversion to investing when the shortcomings of trading are so well documented? Perhaps investing is just too boring. Perhaps the lure of Vegas is just too strong and most people prefer gambling to waiting.

Anyway, thanks for the post – I enjoyed the reaction it generated in me.

Best of luck to you -

First, the idea that you wouldn’t invest in the stock market until your mortgage is completely paid off is as absurd as it’s unrealistic. The current dividend yield on Proctor & Gamble (since that was referenced as an example) isn’t much lower than the current rate on the average 30 year mortgage. And if you’ve held PG for any length of time, your effective yield would undoubtedly be considerably higher than your mortgage rate.

That’s the power of dividend growth investing in quality businesses – identifying and investing in superior companies that actually pay out a fair portion of the earnings to its investors. If, for example, you’d simply bought and held McDonald’s stock back in 1991-1992, you’d be earning a 25% annual dividend right now. Do you think those long term investors care whether the stock is up 50% or down 50%. Why would they sell and throw away their 25% (and rising) annual dividend.

Second, I was struck both by the arrogance and the inaccuracy in one of Klarman’s quotes included in your post:

“No one knows what he’s doing unless he’s a full-time professional,” he said. “As in many professions, full-time experts have an enormous advantage. Investing is highly sophisticated and nuanced. The average person would have an incredibly hard time competing.”

Right. That’s why the majority of mutual funds UNDERPERFORM the market. Furthermore, it isn’t investing that’s “highly sophisticated and nuanced” – that’s institutional trading and it’s vastly inferior to actual investing as evidenced by my first point.

On the contrary, the individual willing to put forth a modest amount of effort has considerable advantages over the overtrading, short-term, quarterly performance obsessed, trend chasing, group think, institutional traders responsible for administrating the vast, unruly sums of retirement funds of all the individuals who have abdicated making their own informed investment decisions.

Why? It’s simple – true investing is actually quite easy. After all, how much research does it take to realize the dominant profitability of companies like Proctor & Gamble, Coke, and McDonalds?

The rest is just valuation, and there are even some not particularly difficult option strategies the individual investor can employ to help lower his or her cost basis.

Who knows why there’s such an aversion to investing when the shortcomings of trading are so well documented? Perhaps investing is just too boring. Perhaps the lure of Vegas is just too strong and most people prefer gambling to waiting.

Anyway, thanks for the post – I enjoyed the reaction it generated in me.

Best of luck to you -