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General_Magician Special user United States 707 Posts |
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What you're ignoring is that investors can just as readily see a return through appreciation of the stock price. Remember: paying a dividend erodes the stock price. I never ignored that fact at all. But that doesn't mean a stock can't appreciate over time even with a dividend payout. I have seen my shares depreciate in value in my fund of index funds when I was paid a dividend but even after the payout, I still had a capital gain afterwards in addition to the income paid out. And I would agree with you in the case of Warren Buffet's company that it's probably better for his shareholders not to have a dividend payout because the dividend taxes are higher. But again, any shares sold are lost even though you save money on taxes from not having a dividend payout. Yet, Warren Buffet himself and his shareholders themselves benefit from dividend paying stocks that they themselves have invested in. Last time I checked, which was a few years ago, I simply don't have the capital to invest in Berkshire Hathaway, so I just learn as much as I can from Buffet and others like him and make my own investments with what resources I have to invest with.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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balducci Loyal user Canada 227 Posts |
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On Jul 31, 2014, S2000magician wrote: For the sake of discussion and instruction, would you be so kind as to describe what simple arbitrage transactions ALWAYS exist to ensure that that's the case?
Make America Great Again! - Trump in 2020 ... "We're a capitalistic society. I go into business, I don't make it, I go bankrupt. They're not going to bail me out. I've been on welfare and food stamps. Did anyone help me? No." - Craig T. Nelson, actor.
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Jul 31, 2014, General_Magician wrote: But it appreciates more slowly. Suppose that there are two companies, Company A and Company B, that are in every respect identical except that Company A pays a 5% annual dividend on its stock while Company B does not pay a dividend. Before the ex-dividend date, suppose that both stocks are selling at $10/share. After the ex-dividend date, stock A will sell at $9.50/share while stock B will still sell at $10/share. So, while they they may both appreciate, stock A's price will lag stock B's price by $0.50 this year, and more the next year, and more the year after that, and so on. |
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mastermindreader 1949 - 2017 Seattle, WA 12586 Posts |
I don't understand why this is so hard to understand.
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Dannydoyle Eternal Order 21219 Posts |
Me either but that makes me a troll.
Danny Doyle
<BR>Semper Occultus <BR>In a time of universal deceit, telling the truth is a revolutionary act....George Orwell |
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mastermindreader 1949 - 2017 Seattle, WA 12586 Posts |
Since you're a troll, Danny, I have to ask- Do you own or rent your bridge?
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Jul 31, 2014, balducci wrote: The last day before the stock goes ex-dividend, buy a put option and buy a call option, each with a strike equal to the stock price less the dividend; ignoring one day's time value, the put should be free, and the call should cost the amount of the dividend, so the dividend will pay for the options. The next day, if the price drops less than the value of the dividend, you exercise the call and make a profit; if the price drops more than the value of the dividend, you exercise the put and make a profit. Either way, you have a risk-free profit. |
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Dannydoyle Eternal Order 21219 Posts |
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On Jul 31, 2014, mastermindreader wrote: I rent and invest fictitious money in index funds I do not understand.
Danny Doyle
<BR>Semper Occultus <BR>In a time of universal deceit, telling the truth is a revolutionary act....George Orwell |
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mastermindreader 1949 - 2017 Seattle, WA 12586 Posts |
I suspected as much!
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balducci Loyal user Canada 227 Posts |
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On Jul 31, 2014, S2000magician wrote: Thanks. I appreciate that one can certainly design dividend arbitrage strategies using put options (I figured you would have something using puts in mind), but there is an assumption there that options on the stock exist (let alone at the desired strike price). I would just comment that that's not "always" the case. And even if the options exist, technically it is more accurate to include the effect of taxation from the after-tax perspective of a share holder when calculating the drop in the price of a share of stock. So saying "the effect of the dividend is always a reduction by exactly the value of the dividend" is not quite true. In theory under certain assumptions, yes, but not quite in practice. Sorry to nit-pick, but I always get excited when I see people use the words "always" and "exactly" in a sentence.
Make America Great Again! - Trump in 2020 ... "We're a capitalistic society. I go into business, I don't make it, I go bankrupt. They're not going to bail me out. I've been on welfare and food stamps. Did anyone help me? No." - Craig T. Nelson, actor.
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balducci Loyal user Canada 227 Posts |
So how about them markets today? Was it a buying opportunity, or the start of an even bigger leg down?
Make America Great Again! - Trump in 2020 ... "We're a capitalistic society. I go into business, I don't make it, I go bankrupt. They're not going to bail me out. I've been on welfare and food stamps. Did anyone help me? No." - Craig T. Nelson, actor.
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General_Magician Special user United States 707 Posts |
I say it is a buying opportunity if you are an index fund investor like me. I am keeping my money right where it is. Won't be able to buy until I take out a profit distribution from my company. Speaking of my company, I pay my shareholders (members, LLC shareholders are called members) a profit distribution while also keeping some capital in the company to invest and grow the business. But I also make sure to pay out some of my own dividends to my other shareholders. After all, shareholders like to get paid and it's part of the reason of being a shareholder. My members/shareholders are no different than any other shareholder in any other company. But I do keep some capital on hand to expand and grow the business when need be.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Jul 31, 2014, balducci wrote: In point of fact, I had no idea what the arbitrage transaction would be. When you asked me to describe it, I had to figure it out first. Finance students are taught that the price always drops by exactly the value of the dividend. However, because the dividend isn’t paid immediately, it should drop by the present value of the dividend (discounted at the risk-free rate). I wrote what I did because I didn’t want to muddy the discussion with time-value-of-money and transactions costs and so on; the key point (which I know you know) is that the dividend doesn’t create or destroy wealth: the price of the stock drops when it goes ex-dividend. The details are in the noise. Now, if you want an interesting arbitrage transaction, tell me what ensures that the fixed rate on a forward rate agreement (FRA) has to be the forward rate implied by today’s spot rates for the start and the end of the loan period. But I digress. |
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mastermindreader 1949 - 2017 Seattle, WA 12586 Posts |
General Magician-
You wrote: Quote:
It also seems you guys have changed your position in that you think that it is always good that a company doesn't pay a dividend. That's the whole problem with this discussion. You are putting words into our mouths. Please quote anyone here who said that it's ALWAYS good that a company doesn't pay a dividend. No one did. I seems to me that since you often appear to state opinions as absolutes, you are projecting that tendency upon others. |
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General_Magician Special user United States 707 Posts |
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In point of fact, I had no idea what the arbitrage transaction would be. When you asked me to describe it, I had to figure it out first. I stay away from options. I read up on them briefly but have no first hand experience using options and honestly, I have no interest in using options. I simply prefer to either index fund invest or find some excellent individual high quality stock selling at a discount and invest in those and just hold on to the stock. I don't think it's necessary to use options to invest in high quality stock already being sold at a discount if you do your homework and research the companies you think might be worth buying into. But you have to do the work and determine if the companies are high quality and if they are selling at a discount.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Aug 1, 2014, General_Magician wrote: Nor, I venture to say, does anyone else here. Do you think that we do? |
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General_Magician Special user United States 707 Posts |
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That's the whole problem with this discussion. You are putting words into our mouths. Please quote anyone here who said that it's ALWAYS good that a company doesn't pay a dividend. No, that's not the problem with the discussion and I haven't tried to put words into anybody's mouth. You guys came out hard arguing in favor of companies that don't pay dividends and I was just pointing out that just because a company doesn't pay a dividend doesn't mean it's a good thing. The same also holds true with companies that do pay dividends. But I like to see a company pay some kind of dividend to it's shareholders to share in the earnings of the company. If you're a shareholder, you should be getting some of the earnings of the company that you are entitled to as a shareholder. Quote:
Nor, I venture to say, does anyone else here. No, not at all.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Aug 1, 2014, General_Magician wrote: Actually, you came out hard arguing that if a company isn't paying a dividend, you shouldn't buy its stock: Quote:
On Jul 29, 2014, General_Magician wrote: We simply pointed out why that thinking is flawed. Let's not revise history, shall we? |
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General_Magician Special user United States 707 Posts |
I'm not revising history. I stated that Buffet's company didn't pay a dividend and that was good for his shareholders given that they can just sell the capital gain and only pay capital gains taxes which are low right now. I also stated that Buffet invests primarily in dividend paying stocks and you have conviently left that part of history out. So, no, no revision of history is taking place. Let's not try to play the "let's just all gang up on General Magician even though he is making some perfectly legitimate points, lets just ignore those points and accuse him of ignoring us and gang up on him!" game either. Also, here is an article which discusses which stocks have performed better over the long term.
Dividend paying stocks or non-dividend paying stocks: Quote:
In investing, there are precious few universal truths. One of them is that companies that consistently pay dividends are good investments. http://abcnews.go.com/Business/rules-inv......18275522 So, after reading this article, it makes perfect sense why I would want to invest in a company that has been paying dividend consecutively for at least 20 years. I have also pointed out after my index fund made a dividend payout, I still had a capital gain even after the dividend payout and it's factored into my return on investment as well. It's a good idea to question why a company isn't paying a dividend. Maybe the CEO is getting an outsized bonus that he hasn't earned. Edit: But also, just like I have already stated here in this thread, just because a company pays a dividend, doesn't mean you should invest with it either. They could be just using a dividend payout to lure investors into what could be an otherwise bad company and whose earnings would not be able to sustain consistent dividend payouts, which is why it's important you do your homework and your research beforehand. It's also why I like to see a company payout a dividend for 20 consecutive years before I consider investing with it.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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S2000magician Inner circle Yorba Linda, CA 3465 Posts |
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On Aug 1, 2014, General_Magician wrote: Yes, you are. You made the categorical statement that one shouldn’t buy a stock that doesn’t pay a dividend. It was to that that everyone responded. You revised history when you said that we were coming out hard in favor of companies that don’t pay dividends, whereas we were actually coming out hard against your statement that one shouldn’t but a stock that doesn’t pay a dividend. Quote:
On Aug 1, 2014, General_Magician wrote: Nobody’s disputed that Buffet’s strategy has worked well. We dispute that it’s the only strategy that works well. Quote:
On Aug 1, 2014, General_Magician wrote: Because the discussion didn’t concern Buffet’s strategy; it concerned your categorical statement that nobody should buy a stock that doesn’t pay a dividend. Quote:
On Aug 1, 2014, General_Magician wrote: Nobody here is ganging up on anyone. If you noticed, when Lobo and Bob made questionable statements about the price of a stock falling when a dividend is paid, I corrected them as well. People here have addressed the statements you make that are incorrect, and rather than engage them in meaningful discussion on those points, you ignore them and continue to reiterate both those points and others which nobody disputes. Why not address those points? We all might learn something. Quote:
On Aug 1, 2014, General_Magician wrote: If 40% of the total return has come from dividends, then 60% has come from price appreciation. That’s the point that we’re making: shareholders don’t need dividends to reap the reward for their investment. Quote:
On Aug 1, 2014, General_Magician wrote: Note that last sentence: growth companies don’t tend to pay dividends; mature companies do. This is what Bob and I have been saying. Quote:
On Aug 1, 2014, General_Magician wrote: If the shareholders are concerned that the board is paying unjustified bonuses to senior management, they should vote in a new board; the board’s duty is to protect the shareholders’ interests, not management’s. If shareholders think that receiving a dividend is going to rein in a board that would otherwise pay unjustified bonuses to senior management, they’re naïve: the board’s doing it anyway, dividend or not. Quote:
On Aug 1, 2014, General_Magician wrote: Again, that the result of a faulty board. Receiving a dividend treats a symptom, not the disease. Quote:
On Aug 1, 2014, General_Magician wrote: And it would make perfect sense why someone else would want to invest in a company that doesn’t pay a dividend. The difference is that I’ve never said that buying a dividend-paying stock is bad (nor has Lobo, nor Bob, nor Danny); you did say that people shouldn’t buy stocks that don’t pay dividends. Quote:
On Aug 1, 2014, General_Magician wrote: Nobody’s disputed that. We get it. Do you get that you’d have had a bigger capital gain if those companies didn’t pay dividends? You’ve never acknowledged that. Quote:
On Aug 1, 2014, General_Magician wrote: And maybe they have better things to do with the money than pay it to the shareholders, like investing in growth that will earn the shareholders a better return. Again, you’ve never acknowledged that that’s an alternative reason for not paying a dividend. Quote:
On Aug 1, 2014, General_Magician wrote: Nobody here disputes any of this. |
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