PP vs Dividend Growth Investing

Discussion of the Stock portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 4:29 pm

mathjak107 wrote:
Fri Feb 14, 2020 4:26 pm
That is a silly analogy ..if I was the only investor in the world with no stock appreciation all that would happen is they are handing me back the invested dollars I gave them ...without other buyers to bid the stock up there is zero. Return
But taken as a whole, investors are doing exactly that, just passing the same thing around among themselves, with a net gain of $0. Until there's a dividend.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 4:31 pm

Wrong ....right up until it goes ex div I can sell the same dollars off and be in the same position..I don’t need them to hand me back a piece of my invested dollars to make investing worth it .

All stocks need the same appreciation to survive or grow and any can spin off cash flow off that appreciation
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 4:34 pm

Nope, selling is just passing the same thing around. The investors, as a whole, are still up exactly $0.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 4:41 pm

Nonsense .

I can have a portfolio of non div payers and draw 4% off it ......that is no different than a 4% dividend ....

In the. Case of the dividend if that stock Is flat once it is reduced than your return is zero and you have less dollars compounding going forward

If my portfolio is flat after pulling out the same dollars representing 4% than my return is zero and I have less invested going forward


It is the identical end result.. if both saw 4% appreciation then both returns are the same 4%
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 4:43 pm

You're only up because someone else is down. The investors as a whole have made zero from owning the stock.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 4:47 pm

Xan wrote:
Fri Feb 14, 2020 4:43 pm
You're only up because someone else is down. The investors as a whole have made zero from owning the stock.
wrong again ..STOCKS ARE NOT A ZERO SUM GAME .

i can buy a stock and sell it to you at a profit , you sell it to the next guy at a profit , he makes a profit and he sells it .. we can have hundreds of investors making money and banking it all off my one purchase. to think stocks are a zero sum game is false .
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 4:49 pm

mathjak107 wrote:
Fri Feb 14, 2020 4:47 pm
Xan wrote:
Fri Feb 14, 2020 4:43 pm
You're only up because someone else is down. The investors as a whole have made zero from owning the stock.
wrong again ..STOCKS ARE NOT A ZERO SUM GAME .

i can buy a stock and sell it to you at a profit , you sell it to the next guy at a profit , he makes a profit and he sells it .. we can have hundreds of investors making money and banking it all off my one purchase
Until there's a dividend, they are indeed zero sum.

Take my example from earlier: add up all the money everybody has ever spent on Berkshire stock, and all the money they've ever received for it. It is exactly zero. Do you agree?
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 4:50 pm

whether you create your own cash flow by selling the equal dollars from a non div portfolio or they sell off a piece of your share price is irrelevant .
here is a perfect example ... on dec 11th if you had 10 shares of this you had 57.41 x 100 shares = 5741 for markets to compound on ..
the stock went x div and handed you back roughly .47 cents .

when the stock opened the next morning it was reduced to 56.96 so now you have 5696. compounding for you plus the dividend in pocket ... that is the same 5741 you had before the dividend .

so if you reinvest the 47 dollar dividend you will buy in at the reduced price of 56.96 giving you more shares but the same 5741 for markets to act on .
if the stock did not pay the div out and went up 5% the next day you have 5741 x 1.05 = 6028.05

if the stock paid a dividend and you did not reinvest , you have 5696 x 1.05 = 5980.80 or less then you would have had if no div was paid .
if you reinvest then you have more shares worth the same 5741 x 1.05= the same 6028 working for you .

DIVIDENDS BEHAVE LIKE STOCK SPLITS . THEY MERELY SWITCH AROUND EXACTLY WHAT YOU HAD .

they cushion nothing in a down market -period . this is a myth that won't die ...the stock may hold up better because RISING dividends are a sign of health but that has nothing to do with the stock doing any better from the mechanics of that dividend . the stock is still solely dependent on appreciation to gain a penny .

all your gains are based on total return and all that counts is dollars invested x the percentage up or down ... number of shares is irrelevant .

Image
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 4:52 pm

Xan wrote:
Fri Feb 14, 2020 4:49 pm
mathjak107 wrote:
Fri Feb 14, 2020 4:47 pm
Xan wrote:
Fri Feb 14, 2020 4:43 pm
You're only up because someone else is down. The investors as a whole have made zero from owning the stock.
wrong again ..STOCKS ARE NOT A ZERO SUM GAME .

i can buy a stock and sell it to you at a profit , you sell it to the next guy at a profit , he makes a profit and he sells it .. we can have hundreds of investors making money and banking it all off my one purchase
Until there's a dividend, they are indeed zero sum.

Take my example from earlier: add up all the money everybody has ever spent on Berkshire stock, and all the money they've ever received for it. It is exactly zero. Do you agree?
no , because as i explained equities are NEVER a zero sum game. potentially we all can be winners. all we need is a buyer for each share , that is all that is required and no one has to be a loser . options are a zero sum game , not stocks .
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 5:01 pm

Won't you take my Berkshire challenge? What, mathjak, is the grand total all investors have made from owning Berkshire? If it's other than zero, please explain how.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 5:07 pm

i just told you ... if i bought berkshire day one and sold it to you at a profit , you held it a while and sold it to the next guy at a profit , he sells it at a profit to someone else and it repeats over and over .. today there may be no one who ever sold that share at a loss in theory ..... hundreds of us could have made money off that one share ..

stocks are not zero sum .
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 5:10 pm

But every time you sell, someone else is putting in the same amount you just got out. It is zero sum.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 5:13 pm

Xan wrote:
Fri Feb 14, 2020 5:10 pm
But every time you sell, someone else is putting in the same amount you just got out. It is zero sum.
But they are taking out more then they put in ...your are mixing up a buy price and a sell price ..

As a wholesaler in the electrical business We buy a widget , we sell a widget to a middle man for more than we paid , he sells the widget to an end user ....he paid what I sold it at to him but he sold it for more to the end user ....we both earn a living doing that.. perhaps the end user has a customer and while paid the middleman the same price the middleman paid he will earn his living selling it for more ..

It is anything but what you described
Last edited by mathjak107 on Fri Feb 14, 2020 5:17 pm, edited 1 time in total.
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 5:16 pm

But every single penny that all those people earn has to come from somewhere. In this case, the buyer.

Stocks are zero sum without dividends.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 5:17 pm

Xan wrote:
Fri Feb 14, 2020 5:16 pm
But every single penny that all those people earn has to come from somewhere. In this case, the buyer.

Stocks are zero sum without dividends.
dividends are zero sum without matching share price appreciation......and stocks are not zero sum ever based on appreciation.

In fact a stock with zero share price appreciation paying a dividend will eventually hit zero value or a penny as the share price is reduced by every dollar you get back every time ...you need the same appreciation to be anything but your own money coming back or all you did is get back the money you gave them but at zero return
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 5:23 pm

Anytime you pay a dollar and take a dollar of value off my balance that is zero sum.....that is how dividends work .....market appreciation now has to recoup that dollar in share price appreciation or I have zero return and just a piece of my own money back...

If my non div appreciates that same dollar I can draw a dollar off and have the same results as the dividend payer ..both need the same appreciation in share price or you got nothing
Last edited by mathjak107 on Fri Feb 14, 2020 5:27 pm, edited 1 time in total.
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 5:27 pm

I think you're having a micro discussion while I'm having a macro discussion. Most of your points are true but not relevant.

Sure, you can make swapping stock certificates into a non-zero-sum game if you blithely ignore the other half of the equation.

Will post more later.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 5:29 pm

Xan wrote:
Fri Feb 14, 2020 4:34 pm
Nope, selling is just passing the same thing around. The investors, as a whole, are still up exactly $0.
All I can say is I hope you don’t actually believe this ....have a good night..

You would have to believe no one ever made money in gold either since that pays no dividend and is based on the same fact someone buys at what I sell at so they make no money ......see how silly that sounds
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: PP vs Dividend Growth Investing

Post by dualstow » Fri Feb 14, 2020 6:18 pm

Well, this conversation has certainly taken off lately!

Vinny
RIP Marcello Gandini
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Fri Feb 14, 2020 6:30 pm

dualstow wrote:
Fri Feb 14, 2020 6:18 pm
Well, this conversation has certainly taken off lately!

Vinny
The belief that somehow every stock has a matching loser is flat out wrong whether it pays a dividend out or not .....

Getting ones own money back and subtracting the payout off your balance going forward is zero sum so dividends are a zero sum game .they see return of your invested dollars from an existing value .

But stocks can pass from one investor to another endlessly with each one making a profit and selling it to the next ...stocks are based on fear ,greed and perception of future growth ...... a stock never needs to pay a dividend , it can just keep appreciating and you can take your own cash flow off that appreciation if you want ....after all don’t people get dividends and reinvest them back in to the same company ? Of course they do ......

Reinvesting only brings the value you had back to what it was before it went ex div , more shares at a lower price , same value in dollars compounding as you had ..it is just arranged differently ....in fact anyone buying that stock after it goes ex div with the same amount of money you have invested will get the same shares as you have .....
User avatar
vnatale
Executive Member
Executive Member
Posts: 9422
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: PP vs Dividend Growth Investing

Post by vnatale » Fri Feb 14, 2020 7:10 pm

Xan wrote:
Fri Feb 14, 2020 4:43 pm
You're only up because someone else is down. The investors as a whole have made zero from owning the stock.
Intuitively I think that I'm with Mathjak on this one.

Let me see if I can successfully spell it out.

There is one public company. You are its sole owner. When it was started it had $1,000 in cash, $4,000 in real estate (unimproved land) and no liabilities. You paid the net book value for the company - $5,000.

Five years later, you are still the sole owner, the company still has that $1,000 of cash and still with no liabilities, but it's developed that real estate so it is now worth $29,000. You've received no dividends along the way. You decide to sell to me who is willing to pay the current net book value for the company - now $30,000.

You now have a gain of $25,000. No dividends. All from capital appreciation. I purposely kept out any hoped for future valuations to keep it simple.

If you had received dividends of $1,000 along the way, there would have been $0 cash and then I'd have only bought it from you for $29,000. You still received the same total $30,000 minus your $5,000 basis for the same $25,000 total return.

Am I missing something?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP vs Dividend Growth Investing

Post by Xan » Fri Feb 14, 2020 8:15 pm

Vinny,

The only reason the buyer of the company was willing to pay really anything at all for it is because he would be able to get his hands on the $30,000. If (by some magic) there were an ironclad rule that the $30,000 could never be paid out to shareholders, then there would be no interest in buying the company.

It's the potential for a dividend that gives value to any company. Without it, the money that it owns is locked up and useless forever.

Will post more about my Berkshire thought experiment later.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: PP vs Dividend Growth Investing

Post by dualstow » Fri Feb 14, 2020 8:45 pm

I don’t disagree with everything mathjak is saying. The comparison to stock splits, I would take issue with.
Theories aside, I like dividends because I want supplemental income right now. Additionally, I don’t want to use bonds for all of that extra income.

Lots of info here - http://pages.stern.nyu.edu/~adamodar/Ne ... idend.html
RIP Marcello Gandini
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: PP vs Dividend Growth Investing

Post by Kbg » Sat Feb 15, 2020 1:17 am

Let’s try a different analogy...why and how do people buy and sell homes at a profit or a loss? All homes are cash flow negative every single year without fail. Note I said homes, not commercial property.

A business is no different. There are real assets involved and perception of value. The first is tangible the second intangible but both contribute to price. Dividends most definitely not required.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP vs Dividend Growth Investing

Post by mathjak107 » Sat Feb 15, 2020 3:01 am

dividends come from appreciation ... period ...the stock price goes up , they return a piece to you via the company selling off a piece of your share price ...any liquid asset can create it's own dividend by you selling equal dollars . to think otherwise is ridiculous .

my reference to a stock split is because both a dividend and stock split are neutral events as far as your value goes ...

all one has to do is think of a mutual fund ... you go to sleep with 100k invested .. the stock pays a 10% dividend so you wake up with 90k still invested and 10k in pocket ... now only 90k gets compounded on in that investment .

you can spend or reinvest that 10k , if you do reinvest you are right back to 100k being compounded on again .. nothing gained nothing lost ----zero sum event.

you have more shares at a lower share price if you reinvested but the same dollars as you had before it went ex div are compounding by the markets .
Last edited by mathjak107 on Sat Feb 15, 2020 5:00 am, edited 2 times in total.
Post Reply