I do not understand what kind of fool only cares about a number on their T1 and not actual returns on investment. If the company did not pay out dividends plus associated corporate taxes before handing out those dividends, that company could have put that money back into their own business to earn a higher return for its shareholders.
Passive income from dividends. Is it a mistake?
- Thread starter Zoot Allures
- Start date
twice you’ve been shown tax tables that show how you are completely and utterly wrong about almost everything you claim. You continue to say just dumb shit and are unable to back up or prove anything you say.
You have zero, zero credibility. how senile are you?
So the fact that dividends come out of after-tax corporate income is not a factor in your investment decisions? You just look at a chart and pick the lowest number without understanding the caveats and context?
WHY the fuck do I care if Bell Canada pays dividend from their corporates income? You're just explaining WHY the DTC exists to compensate for that. Do you just learn this and this it's important information?
My god you're SUCH a noob. You're just clueless or the worst troll ever.
Dividends come out of after-tax income, it is already taxed at the Corporate tax rate before you get the dividend. If you do not take this into account before you invest then you are retarded.
Suppose you get 1k in dividends, the corporation had to earn ~1.25k pre-taxed income to pay the 1k in dividends. Alternatively, the corporation could have spent the money doing a stock buyback, stock buyback is done using pre-taxed income and a reasonable assumption (the only reasonable assumption one can make) is that the stock buyback will appreciate your stock position by 1.25k.
Would you rather have 1k in dividends or 1.25k in capital gains?
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FP Answers: What is a 'behavioural edge' in investing and how does it affect returns?
By Julie Cazzin with Felix Narhi
Q: What is a “behavioural edge” in investing? How does it potentially enhance returns? How can an investor develop it? — Giovanni
FP Answers : Giovanni, the term behavioural edge is just another way of saying “temperament,” which refers to the habitual way a person behaves in each situation. For example, one person may be easygoing and relaxed while another is more likely to be impatient and assertive.
Temperament is the unsung hero of investing success. Gaining insight about our innate emotional temperament and learning how to work with it gives investors an edge.
The common misconception is that you need a high level of intelligence to be a successful investor. No doubt, that can be helpful, but based on many years in the industry, I’ve seen it is not always the most important differentiator.
Once someone has at least an average level of intelligence, it is temperament that often provides the investing edge in leading to better returns over the long term. “Investing is not a business where the guy with the 160 IQ beats the guy with the 130 IQ,” famed investor Warren Buffett has pointed out.
Having the right temperament can potentially enhance investment returns in several ways. An investor who is very reactive to external events is likely to fare poorly over the long term because, quite simply, the world is full of uncertainty and always will be. Markets are highly reactive, abetted by algorithmic trading and automatic rebalancing by exchange-traded funds. Individual investors should not be.
Research shows that investors who trade frequently or try to time the market underperform. On the other hand, those investors who can remain calm and patient throughout market cycles do better because markets historically trend upwards. Hands down, being calm, cool and collected is the right temperament for an investor to have.
The concept of “homo economicus” — or economic man — describes a hypothetical person who consistently makes rational decisions. In real life, our decisions are coloured by our formative experiences, moods, external circumstances, what we ate for lunch and a host of other factors. These influences drive our behaviours, but they often operate below conscious awareness (even artificial-intelligence apps “hallucinate”).
Given that behaviour is some combination of cognitive and emotional inputs, an investor can create an edge by developing a disciplined investment process that overrides temperament, especially during highly volatile periods.
The term “active patience” means being clear about your investment principles and what you are looking for, and practicing active patience until the right opportunity arises.
In contrast, regular patience is making an investment decision and sticking with it no matter what, even if it was the wrong decision. The latter approach is unlikely to bring financial success, which is the major goal of investing.
Active patience is what Buffett would call the “fat pitch,” which occurs when the market (occasionally) presents a very attractive opportunity. It is easy to spot a great opportunity and take full advantage of it when an investor has clear principles on what they are looking for.
Can we change our temperament? Recent studies show that personality traits and moods are subject to change, sometimes within the hour, so temperament may not be as fixed as we’ve been led to believe.
Becoming a better investor starts with self-knowledge — and lots of practice. The behavioural traits associated with good investment outcomes are patience, discipline, emotional control and risk awareness. It so happens, these qualities lead to good life outcomes, too. A calm temperament is the bedrock of making sound investment decisions.
Every investor must determine for themselves how to achieve greater equanimity and there is no shortage of books, videos and TikTok tutorials on that evergreen topic. I would also add the importance of staying humble.
In investing, as in life, the learning never stops. Staying open to new information and having the courage to challenge our own and others’ beliefs and habitual behaviours are the keys to future success.
Felix Narhi is chief investment officer and portfolio manager at PenderFund Capital Management Ltd.
By Julie Cazzin with Felix Narhi
Q: What is a “behavioural edge” in investing? How does it potentially enhance returns? How can an investor develop it? — Giovanni
FP Answers : Giovanni, the term behavioural edge is just another way of saying “temperament,” which refers to the habitual way a person behaves in each situation. For example, one person may be easygoing and relaxed while another is more likely to be impatient and assertive.
Temperament is the unsung hero of investing success. Gaining insight about our innate emotional temperament and learning how to work with it gives investors an edge.
The common misconception is that you need a high level of intelligence to be a successful investor. No doubt, that can be helpful, but based on many years in the industry, I’ve seen it is not always the most important differentiator.
Once someone has at least an average level of intelligence, it is temperament that often provides the investing edge in leading to better returns over the long term. “Investing is not a business where the guy with the 160 IQ beats the guy with the 130 IQ,” famed investor Warren Buffett has pointed out.
Having the right temperament can potentially enhance investment returns in several ways. An investor who is very reactive to external events is likely to fare poorly over the long term because, quite simply, the world is full of uncertainty and always will be. Markets are highly reactive, abetted by algorithmic trading and automatic rebalancing by exchange-traded funds. Individual investors should not be.
Research shows that investors who trade frequently or try to time the market underperform. On the other hand, those investors who can remain calm and patient throughout market cycles do better because markets historically trend upwards. Hands down, being calm, cool and collected is the right temperament for an investor to have.
The concept of “homo economicus” — or economic man — describes a hypothetical person who consistently makes rational decisions. In real life, our decisions are coloured by our formative experiences, moods, external circumstances, what we ate for lunch and a host of other factors. These influences drive our behaviours, but they often operate below conscious awareness (even artificial-intelligence apps “hallucinate”).
Given that behaviour is some combination of cognitive and emotional inputs, an investor can create an edge by developing a disciplined investment process that overrides temperament, especially during highly volatile periods.
The term “active patience” means being clear about your investment principles and what you are looking for, and practicing active patience until the right opportunity arises.
In contrast, regular patience is making an investment decision and sticking with it no matter what, even if it was the wrong decision. The latter approach is unlikely to bring financial success, which is the major goal of investing.
Active patience is what Buffett would call the “fat pitch,” which occurs when the market (occasionally) presents a very attractive opportunity. It is easy to spot a great opportunity and take full advantage of it when an investor has clear principles on what they are looking for.
Can we change our temperament? Recent studies show that personality traits and moods are subject to change, sometimes within the hour, so temperament may not be as fixed as we’ve been led to believe.
Becoming a better investor starts with self-knowledge — and lots of practice. The behavioural traits associated with good investment outcomes are patience, discipline, emotional control and risk awareness. It so happens, these qualities lead to good life outcomes, too. A calm temperament is the bedrock of making sound investment decisions.
Every investor must determine for themselves how to achieve greater equanimity and there is no shortage of books, videos and TikTok tutorials on that evergreen topic. I would also add the importance of staying humble.
In investing, as in life, the learning never stops. Staying open to new information and having the courage to challenge our own and others’ beliefs and habitual behaviours are the keys to future success.
Felix Narhi is chief investment officer and portfolio manager at PenderFund Capital Management Ltd.
I'm getting several hundred thousand a year, every year, without having to do anything for it, other than having bought some quality companies many years ago.
What is the % annually?
Imagine if you get a video game and start to play it and got better over time to the point where you are winning the vast majority of times. You would have no incentive to keep playing the game. There is a prize when you pick a good stock. I am not perfect in stock picking, but I win more than I lose. I do have dividend stocks parked, you can not put your whole bundle out on the market all at once. My active stock picks outperform my passive dividend stock and make more weekly as compared to the annual dividends.
Recently two of my aristo dividend makers, TRP and ENB took off to 52 week highs. If they look like they are peaking, I may sell to buy back later.
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Ah, another dividend thread.
I think the pro-dividend crowd should seriously consider reading this (written by a CFP):
edrempel.com
But, of course, self-made/homemade dividends (the latter being the official academic term in university finance textbooks) is difficult for many due to cognitive biases, which many people are unable to overcome despite education. This is why even Ben Felix (the guy in the YouTube video the OP posted) even concedes in another video that there's no optimal portfolio strategy [1, 4:25 mark].
What cognitive biases?
1) endowment effect--ownership of a stock makes you perceive the value of it exceeds its market value.
E.g., my buddy who worked at big bank (then eventually laid him off) still has its stock he earned through ESOP (employee share ownership plan) and unwilling to sell because it represents his "hard work" despite the fact that threw him out just like that despite 20 years of "hard work" (he never took a sick day).
e.g. 2, won't sell a stock that made you lots of gains and thus unwilling to sell it (like they say, never marry a stock).
2) loss aversion--unwillingness to sell shares at a loss (even if you're up overall). You don't wanna sell shares to create your own dividends (even if you're technically up, but it's down at the moment), BUT when a company pays a dividend, its share price falls by the dividend (this is mathematically indisputable). Getting a dividend in a down market is EXACTLY the same thing as selling off an equivalent dollar amount of stock in the same down market (this is mathematically indisputable).
3) mental accounting bias--probably the main cognitive bias that the pro-dividend crowd suffer from and hence have an affinity to dividends; it feels good to see money flowing into your account, it's like "free money" while you don't work for it (in other words, passive income). People who spend their tax refund because they think it's "free money" suffer from the same bias. There's that BS Wall Street jargon, "You're being paid to wait in this stock." In other words, " The dividend yield is high for a reason. The stock stinks" [2].
https://awealthofcommonsense.com/2024/05/translating-wall-street-jargon/
[1]
[2]https://awealthofcommonsense.com/2024/05/translating-wall-street-jargon/
I think the pro-dividend crowd should seriously consider reading this (written by a CFP):
Self-Made Dividends – Dividend Investing Perfected – Ed Rempel
Dividend or income investors, here are the fundamental facts on how to save tax. Would you like to receive dividends of any amount you want from your non-registered investments, and pay less tax than on ordinary dividends? You can easily do this with a little planning and proper understanding of...
edrempel.com
But, of course, self-made/homemade dividends (the latter being the official academic term in university finance textbooks) is difficult for many due to cognitive biases, which many people are unable to overcome despite education. This is why even Ben Felix (the guy in the YouTube video the OP posted) even concedes in another video that there's no optimal portfolio strategy [1, 4:25 mark].
What cognitive biases?
1) endowment effect--ownership of a stock makes you perceive the value of it exceeds its market value.
E.g., my buddy who worked at big bank (then eventually laid him off) still has its stock he earned through ESOP (employee share ownership plan) and unwilling to sell because it represents his "hard work" despite the fact that threw him out just like that despite 20 years of "hard work" (he never took a sick day).
e.g. 2, won't sell a stock that made you lots of gains and thus unwilling to sell it (like they say, never marry a stock).
2) loss aversion--unwillingness to sell shares at a loss (even if you're up overall). You don't wanna sell shares to create your own dividends (even if you're technically up, but it's down at the moment), BUT when a company pays a dividend, its share price falls by the dividend (this is mathematically indisputable). Getting a dividend in a down market is EXACTLY the same thing as selling off an equivalent dollar amount of stock in the same down market (this is mathematically indisputable).
3) mental accounting bias--probably the main cognitive bias that the pro-dividend crowd suffer from and hence have an affinity to dividends; it feels good to see money flowing into your account, it's like "free money" while you don't work for it (in other words, passive income). People who spend their tax refund because they think it's "free money" suffer from the same bias. There's that BS Wall Street jargon, "You're being paid to wait in this stock." In other words, " The dividend yield is high for a reason. The stock stinks" [2].
https://awealthofcommonsense.com/2024/05/translating-wall-street-jargon/
[1]
[2]https://awealthofcommonsense.com/2024/05/translating-wall-street-jargon/
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I own some where my dividend Yield on Cost is over 100% - I get my total original investment, and then some, back every year. But thats not the norm.
Banks, BCE, ENB, for example, are all likely within 35-50% YOC, because I've held them a for awhile, generally only averaged down rather than DCA, and management of these such companies tend to grow their dividends 3-5% annually. Compounding is the 8th wonder of the world, as per Einstein......Albert Einstein, renowned smart-guy, not Bob Einstein, aka Super Dave Osborne. If we calculated in capital appreciation, then the total return on some of these is 1800-2200%.
If you enjoy what you're doing, continue doing it. If you dont mind the volatility, risk, and time required as an active trader, you could be successful at it. I'd go so far as to recommend that you consider a career in it. Personally, I like the freedom my method has given me. But all the research backs up that buy & hold (quality stocks) over the long term, is the best strategy for long-term, significant returns.
I trimmed down you're post for brevity.Ah, another dividend thread.
I think the pro-dividend crowd should seriously consider reading this (written by a CFP):
Self-Made Dividends – Dividend Investing Perfected – Ed Rempel
Dividend or income investors, here are the fundamental facts on how to save tax. Would you like to receive dividends of any amount you want from your non-registered investments, and pay less tax than on ordinary dividends? You can easily do this with a little planning and proper understanding of...
But, of course, self-made/homemade dividends (the latter being the official academic term in university finance textbooks)........
I think anybody who reads that link, (written by a CFP!), shouldnt consider taking it seriously.
I've got lots of "university finance textbooks", and I did a random survey through the index of a few, and not even 1 mentions "self-made/homemade dividends".
Would you like to know why that is?
Because what this fellow is describing it either a capital gain, or a capital loss. It is not a dividend.
If I were to get a cat, name it "Fido", feed it dogfood, take it to the dogpark, ITS NOT A DOG!! ITS STILL A FUCKING CAT!!!
Seriously, he recommends selling off a portion of your position to generate cash flow. While there is nothing wrong with capital gains, and capital losses can serve a purpose, neither are dividends. If you have to sell of an asset to generate cashflow, you've probably fucked up bigtime.
"Never put yourself in a situation where you have to sell something in an environment where you should be buying."
Bruce Flatt
Maybe, just maybe, my university finance textbooks are old, so if anyone can cite any such textbook that recommends this stupidity as a feasible strategy for building wealth, please let me know & i'll pick up a copy
I wrote the LATTER term is used in textbooks. Search again--you'll find it. Or just type it in google.
Your analogy of animals or statement of, "While there is nothing wrong with capital gains, and capital losses can serve a purpose, neither are dividends."
You get a dividend, or you sell shares--what do you end up with? Money. They're treated differently for tax purposes, but, point remains, ultimately you end up with money. Thinking dividends are "special" or "free money" just illustrates the mental accounting bias I mentioned.
As mentioned...
"You don't wanna sell shares to create your own dividends , BUT when a company pays a dividend, its share price falls by the dividend (this is mathematically indisputable). Getting a dividend in a down market is EXACTLY the same thing as selling off an equivalent dollar amount of stock in the same down market (this is mathematically indisputable)."
Or as Prof Samuel M. Hartzmark put it, getting a dividend is like "taking out money out of your left pocket [from the share price] then putting it into your right pocket [the dividend]." He wrote papers on dividends, but nobody here is gonna read them--he was interviewed and talks about dividends starting around the 38 min mark [1].
"If you have to sell an asset to generate cash flow, you've probably fucked bigtime." Uh, yeah, sure. Tell that to the wealthiest people on the planet.
[1]
Friend, I searched both terms "self-made" and "homemade" dividends, as well as the entire cockamamie "theory of dividend irrelevence" in several of my actual university level and CFA textbooks - nuthin' there. I'm sure those terms are probably all over the internet, but I don't really rely on the internet for something as important as my finances.
Ex-dividend and cum dividend are well known, unlike this Prof Hartzman. If you could point me to his published academic papers, as befitting a Professor, I'd gladly read them, as well as any actual university finance textbook that discusses "homemade dividends".
Here's an interesting fact - you can google my ex-wife, and you'll find that shes a bestselling author, and one of her books was glowingly reviewed by a top official at the US Treasury Dept. Thats all on Google........except that she's not a bestselling author, or a successful entrepeneur. Its bullshit, like alot of stuff on the internet.
Anyhow, you follow whatever strategy you wish, & I wish you the best of luck in whatever you're doing.
Bro, are you implying you studied finance and seriously never heard of homemade dividends/dividend irrelevance? Start with an entry-level corporate textbook--it's there (e.g., Fundamentals of Corporate Finance by Ross et al, or Fundamentals of Corporate Finance by Berk et al).
I'll even give you a site where you can download these textbooks for free:
Hartzman:
"whatever strategy you wish, & I wish you the best of luck in whatever you're doing."
Yes, concur, despite a potentially better way of investing from an objective and rational standpoint, it still might not be someone's personal optimal strategy because it might not be psychologically optimal for the individual (e.g., some people just can't pull the trigger to sell shares); goes against their beliefs, etc.
On average the total returns on pure equity stocks is better than pure dividend stocks. If you factor in tax treatment of capital gains vs qualified dividends, pure equity stocks still put more money in your pocket on average.
If reliable cashflow is the priority then dividend stocks have their place but GICs and bonds are more reliable albeit lower total returns on average and tax treatment on interest is usually the worst.
Now might be a good time to get into dividend stocks like BCE and Enbridge as those companies require intense capital investment that is financed through debt and interest rates are falling. You could be collecting that sweet 8.65% BCE dividend and the stock appreciates significantly from the drop in interest rates.
If reliable cashflow is the priority then dividend stocks have their place but GICs and bonds are more reliable albeit lower total returns on average and tax treatment on interest is usually the worst.
Now might be a good time to get into dividend stocks like BCE and Enbridge as those companies require intense capital investment that is financed through debt and interest rates are falling. You could be collecting that sweet 8.65% BCE dividend and the stock appreciates significantly from the drop in interest rates.
Bro, are you implying you studied finance and seriously never heard of homemade dividends/dividend irrelevance? Start with an entry-level corporate textbook--it's there (e.g., Fundamentals of Corporate Finance by Ross et al, or Fundamentals of Corporate Finance by Berk et al).
I'll even give you a site where you can download these textbooks for free:
Hartzman:
"whatever strategy you wish, & I wish you the best of luck in whatever you're doing."
Yes, concur, despite a potentially better way of investing from an objective and rational standpoint, it still might not be someone's personal optimal strategy because it might not be psychologically optimal for the individual (e.g., some people just can't pull the trigger to sell shares); goes against their beliefs, etc.
Thanks Sprite for providing that info & i mean that sincerely, not sarcastically.
I pulled some books off my shelves; the stack on the right DO refer to "homemade dividends", while the stack in the center and left, do NOT.
The image isnt very clear, but, except for "The Intelligent Investor" and "A random walk down Wall Street" (both top of center stack & IMO required reading for anyone wanting to try investing independently), these are all either university textbooks and the CSC book (all approx 35-40 years old), and a few more recent CFA books. The books that reference 'homemade dividends" are, as you pointed out, Corporate Finance books, while the ones that don't are Investment Science, capital market functionality, portfolio management, etc. And even at that, "homemade dividends" IMO gets just a passing reference, meriting barely a paragraph in either book pn Corporate Finance. Maybe more recent textbooks pay greater attention to "homemade dividends"?
While the subjects of Corporate Finance and Investments, portfolio mgmt, etc etc are all extremely closely interrelated, there are differences (like humans and chimps, lets say). While I would NOT apply the "Homemade dividend" theory to my investment decisions, I won't try to dissuade others if they wish to do so. If you think this gives you an edge in investment decisions, AND you enjoy practicing it, don't let anyone tell you otherwise. Best of luck to you!!
Regards, Maxx
themaxx
I own some where my dividend Yield on Cost is over 100% - I get my total original investment, and then some, back every year. But thats not the norm. I do have dividend stocks, but to compound to 100%+ takes years.
Banks, BCE, ENB, for example, are all likely within 35-50% YOC, because I've held them a for awhile, generally only averaged down rather than DCA, and management of these such companies tend to grow their dividends 3-5% annually. Compounding is the 8th wonder of the world, as per Einstein......Albert Einstein, renowned smart-guy, not Bob Einstein, aka Super Dave Osborne. If we calculated in capital appreciation, then the total return on some of these is 1800-2200%.
If you enjoy what you're doing, continue doing it. If you dont mind the volatility, risk, and time required as an active trader, you could be successful at it. Volitility and risk is what it is all about. if you do a search you will find a thread where a U-man panic sold his BTE because it dropped 8-9%, I recognized the stock to be good and bought BTE. I made money when the stock regained the 8-9% and additional profit when it achieved a greater height. I'd go so far as to recommend that you consider a career in it. Why work for someone else under pressure when I can do it for myself? Personally, I like the freedom my method has given me. But all the research backs up that buy & hold (quality stocks) over the long term, is the best strategy for long-term, significant returns.
[/QUOTE]
I also buy and hold. some for longer and some for a few days, why wait a year for the same profit when you can have it in a few days? There is no stock that moves up or down in a straight line. I take advantage of the peaks and valleys. As I have demonstrated in the BCE thread and the
Canadian hedged American companies thread, I can approximate the peaks and valleys and take advantage of the situation.
................some people say you can not time the market.
I own some where my dividend Yield on Cost is over 100% - I get my total original investment, and then some, back every year. But thats not the norm. I do have dividend stocks, but to compound to 100%+ takes years.
Banks, BCE, ENB, for example, are all likely within 35-50% YOC, because I've held them a for awhile, generally only averaged down rather than DCA, and management of these such companies tend to grow their dividends 3-5% annually. Compounding is the 8th wonder of the world, as per Einstein......Albert Einstein, renowned smart-guy, not Bob Einstein, aka Super Dave Osborne. If we calculated in capital appreciation, then the total return on some of these is 1800-2200%.
If you enjoy what you're doing, continue doing it. If you dont mind the volatility, risk, and time required as an active trader, you could be successful at it. Volitility and risk is what it is all about. if you do a search you will find a thread where a U-man panic sold his BTE because it dropped 8-9%, I recognized the stock to be good and bought BTE. I made money when the stock regained the 8-9% and additional profit when it achieved a greater height. I'd go so far as to recommend that you consider a career in it. Why work for someone else under pressure when I can do it for myself? Personally, I like the freedom my method has given me. But all the research backs up that buy & hold (quality stocks) over the long term, is the best strategy for long-term, significant returns.
[/QUOTE]
I also buy and hold. some for longer and some for a few days, why wait a year for the same profit when you can have it in a few days? There is no stock that moves up or down in a straight line. I take advantage of the peaks and valleys. As I have demonstrated in the BCE thread and the
Canadian hedged American companies thread, I can approximate the peaks and valleys and take advantage of the situation.
................some people say you can not time the market.
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Yes--theories by Miller and Modigliani (homemade dividends being one of them) are always in entry-level corporate finance textbooks, but only sometimes mentioned in more advanced texts, depending on the course (because it is assumed the student already learned it in first or second-year finance).
