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Some common myths about the markets that are untrue and/or 99% do not know
Posted on 4/16/24 at 3:23 pm
Posted on 4/16/24 at 3:23 pm
Dividends are a good sign. Nope, not really. While they are tax advantaged (a good thing) any company that pays a dividend is taking money out their operations. If the business was truly booming, they should not pay a dividend but reinvest in their business. Case and point- Buffett’s Berkshire has NEVER paid a dime in dividends. Fed Ex did noy pay one for its first 40 years- grow your business if it is good.
The DJIA and S&P 500 are calculated the same way. Nope the S&P 500 is market weighted where a stocks capitalization moves the market pro rata to its size. The DJIA moves based on each company’s stock price. So, if Goldman Sachs stock is trading at $400 and Honda at $200, GS has twice the impact as HON no matter their market capitalization.
Stock splits are good- Nope study after study shows near zero correlation between stock splits and stock performance. In fact, it costs about $1 million just to split a stock. Using Buffett as an example-he has never split Berkshire, although he did issue another class of stock.
The NYSE and NASDAQ operate the same way. Nope the NYSE uses floor brokers and traders where the NASDAQ is 100% computers. NYSE has a trading flood, NASDAQ does not.
Robinhood is the “wild west” way to trade. Nope, all stock exchanges are heavily regulated and play by the same rules. When they halt Meme stocks it is NOT their choice, they are being forced by regulators to do so.
The DJIA and S&P 500 are calculated the same way. Nope the S&P 500 is market weighted where a stocks capitalization moves the market pro rata to its size. The DJIA moves based on each company’s stock price. So, if Goldman Sachs stock is trading at $400 and Honda at $200, GS has twice the impact as HON no matter their market capitalization.
Stock splits are good- Nope study after study shows near zero correlation between stock splits and stock performance. In fact, it costs about $1 million just to split a stock. Using Buffett as an example-he has never split Berkshire, although he did issue another class of stock.
The NYSE and NASDAQ operate the same way. Nope the NYSE uses floor brokers and traders where the NASDAQ is 100% computers. NYSE has a trading flood, NASDAQ does not.
Robinhood is the “wild west” way to trade. Nope, all stock exchanges are heavily regulated and play by the same rules. When they halt Meme stocks it is NOT their choice, they are being forced by regulators to do so.
12
Posted on 4/16/24 at 3:34 pm to secfballfan
Berkshire Hathaway's Top Holdings PAY DIVIDENDS.
Including by far his largest holding AAPL.
Berkshire Collects 2.1 Billion a year in dividends from AAPL,KHC,BAC alone.
The S&P 500, Dow Jones, & Nasdaq all pay Dividends (SPY,DOW,QQQ)..
Did you not buy NVDA a year ago because it pays a dividend and "that's a bad sign" ?
AAPL and MSFT have paid dividends for years, they are two of the best performers over the last decade.
You might just want to delete this thread since I'm the only one that's read it.
Including by far his largest holding AAPL.
Berkshire Collects 2.1 Billion a year in dividends from AAPL,KHC,BAC alone.
The S&P 500, Dow Jones, & Nasdaq all pay Dividends (SPY,DOW,QQQ)..
Did you not buy NVDA a year ago because it pays a dividend and "that's a bad sign" ?
AAPL and MSFT have paid dividends for years, they are two of the best performers over the last decade.
You might just want to delete this thread since I'm the only one that's read it.
This post was edited on 4/16/24 at 4:20 pm
Posted on 4/16/24 at 4:09 pm to secfballfan
quote:Your framing is poor. There's a place for everything. Why does it have to be DIVIDENDS GOOD or DIVIDENDS BAD instead of "your portfolio should contain a mix of income-producing and growth companies"?
Dividends are a good sign. Nope, not really. While they are tax advantaged (a good thing) any company that pays a dividend is taking money out their operations. If the business was truly booming, they should not pay a dividend but reinvest in their business.
quote:And yet owns a portfolio of equities worth scores of billions of dollars where about half of those holdings pay substantial dividends.
Case and point- Buffett’s Berkshire has NEVER paid a dime in dividends
Again, your framing is sweeping and poor - completely lacking in nuance or actual understanding.
quote:Everyone knows this. However, they have been increasingly similar in the age of mega companies.
The DJIA and S&P 500 are calculated the same way. Nope the S&P 500 is market weighted where a stocks capitalization moves the market pro rata to its size. The DJIA moves based on each company’s stock price. So, if Goldman Sachs stock is trading at $400 and Honda at $200, GS has twice the impact as HON no matter their market capitalization.
quote:What % of total NYSE volume is through floor brokers? High enough that your point still stands? I'd be surprised.
Nope the NYSE uses floor brokers
Posted on 4/16/24 at 4:22 pm to secfballfan
I remember my first commercial banking / investing class.
Posted on 4/16/24 at 4:57 pm to secfballfan
The thing about dividends is that it ends up being so little really unless you have a million in your investing account which no one my age does.
The theory is that dividends are not a net positive. They are taking cash out the balance sheet to pay investors which will lower market cap by whatever they take out. Whether that is actuality based on studies, I dont know.
The theory is that dividends are not a net positive. They are taking cash out the balance sheet to pay investors which will lower market cap by whatever they take out. Whether that is actuality based on studies, I dont know.
This post was edited on 4/16/24 at 4:59 pm
Posted on 4/17/24 at 7:57 am to secfballfan
quote:
Dividends are a good sign. Nope, not really.
Silly, silly take.
Dividends can certainly be bad. Dividends can also be good. It all depends on that specific company at that specific time.
A large, stable, profitable company should certainly distribute some of that profit to the owners. Yes, the analysis should be, "Can we make more on this dime by reinvesting it?" If a company is paying a dividend because it is stable and profitable, that is good. If a company is paying a dividend to artificially bolster its share price, that is probably a bad sign.
YMMV
This post was edited on 4/17/24 at 7:58 am
Posted on 4/17/24 at 8:47 am to secfballfan
You are trying too hard to sound smart. Readers should not infer that dividends nor stock splits are a bad sign.
Posted on 4/17/24 at 9:32 am to secfballfan
quote:
Dividends are a good sign. Nope, not really.
Advisor Perspectives: “Why Dividends Matter"
quote:
For an average holding period of 1 year, dividends accounted for 27% of total returns for the S&P500 since 1940. If we increase the holding period to 3 years, dividends account for 38%, 5 years it increases to 42%, over a 10 year period it rises to 48%, and with a 20 year holding period dividends account for some 60% of total returns. It is important to note, too, that here we are just looking at the S&P500 as a whole and not focusing purely on companies that actually pay a dividend. If we did, we think these results would likely be even more striking.”
As noted in the above article, time frame or holding period matters. So that we can make more of an apples to apples comparison, can you provide data which shows that companies within the S&P 500 that did not pay dividends outperformed those that did?
Since longer term investors aren’t typically “traders”, choose some reasonable holding period, say 3-5 years. Opinions on either side of the issue are just opinions… if no data is provided. I’m not here to be argumentative, just asking if you have actual data to legitimize your opinion?
Posted on 4/17/24 at 10:00 am to secfballfan
quote:
Robinhood is the “wild west” way to trade. Nope, all stock exchanges are heavily regulated and play by the same rules. When they halt Meme stocks it is NOT their choice, they are being forced by regulators to do so.
Now it’s going to seem like I’m picking on you, and I’m really not. But Robinhood is not an “exchange” - it’s a brokerage company. And yes, there are SEC and other base rules in place which all brokerages must follow. But brokerages are allowed to set their own minimums and other rules above and beyond that regulatory base.
So to your example, yes, if exchange trading is halted on a meme stock or some other equity, at least on the regulated exchanges, no brokerage could execute a trade. But Robinhood and others did institute their own restrictions on both equities and options during that “meme period” - and not all investors, traders or account types were treated equally. While I wasn’t able to execute an options trade on the TOS platform on one of those crazy IV equities during the meme frenzy (when Robinhood, TDA, Fidelity, etc. had put on severe trading restrictions), by placing a call to my TDA account rep and having him review my account type and size and the complexity of my past options trades, he approved it and my trade was executed.
So again, not here to pick on you. But your description was just a bit incomplete.
Posted on 4/17/24 at 11:47 am to secfballfan
Not all companies are in growth mode. Not all companies can find a good use of cash to grow. If a company can't find a good way to invest their cash into future additive growth, then they should keep some cash as a reserve, and pay dividends on the rest.
You mention Berskshire.
1) Warren B has said MANY times over the years how much he loves his dividend players. They provide a ton of cash that can be reinvested in other ways.
2) Berkshire over the years was very much a growth company, but in recent years has struggled to find growth opportunities at scale, so they have an ever-increasing cash pile. Warren has changed his tune a bit to say that having that much cash, while not desirable, does at least provide a LOT of protection.
He's right, but how much protection do you need?
I would not be surprised if after his passing, if Berskshire is still having trouble finding good growth opportuniies, if they do not face presure to start dividends.
Also... Berkshire HAS, at times, done stock repurchases, so it's not like they refuse to ever return any cash to stockholders.
You mention Berskshire.
1) Warren B has said MANY times over the years how much he loves his dividend players. They provide a ton of cash that can be reinvested in other ways.
2) Berkshire over the years was very much a growth company, but in recent years has struggled to find growth opportunities at scale, so they have an ever-increasing cash pile. Warren has changed his tune a bit to say that having that much cash, while not desirable, does at least provide a LOT of protection.
He's right, but how much protection do you need?
I would not be surprised if after his passing, if Berskshire is still having trouble finding good growth opportuniies, if they do not face presure to start dividends.
Also... Berkshire HAS, at times, done stock repurchases, so it's not like they refuse to ever return any cash to stockholders.
Posted on 4/17/24 at 1:40 pm to secfballfan
quote:
company that pays a dividend is taking money out their operations
That is absolutely not true.
Posted on 4/18/24 at 10:56 pm to secfballfan
In economics, there is the point of diminishing returns. Some companies have utility maxed and are able to keep it that way by issuing dividends.
Posted on 4/19/24 at 4:37 am to secfballfan
I like dividends.
Earnings can be manipulated. Dividends have to either be paid out or not.
Lowe/Weiss wrote a simple book called Dividends Don’t Lie.
I hope they were right.
Earnings can be manipulated. Dividends have to either be paid out or not.
Lowe/Weiss wrote a simple book called Dividends Don’t Lie.
I hope they were right.
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