Monthly Archives: January 2016

In investing, don’t doubt the power of dividends

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Decades ago, one of my colleagues made a presentation at a financial conference on the importance of dividends. As he left the podium, he was confronted by a college professor who declared, “I just don’t believe in dividends.”

But dividends are real, they don’t require faith — they simply “are.” Rather than approach the topic in an analytical fashion, the professor seemed to react to investing as though it were a religion. Which is precisely the opposite of what we seek to do.

Investing successfully requires a kind of agnostic thought process. We must be indifferent to emotion and volatility. Undogmatic, dispassionate, concerned only with the facts.

The question is not whether we believe in dividends, the question is what they tell us. Blind bias adds little to total return. We must contend with the world and stock market we are given. It is there we will find value. It is there we collect dividends, whether we believe in them or not.

Don Kilbride, the manager of the Vanguard Dividend Growth fund, remarked toBarron’s in November of 2013, “Ninety percent of what we do is opinion — value, quality, estimates. But two (factors) are not debatable: Price and dividend. I focus as much as I can on fact.”

I have written in the past of the importance of dividends as a stock selection input, but they also contribute significantly to total return. Last year, the price return of the S&P 500 was a negative 0.7 percent, but when the dividend return was added in, the total return for the S&P was 1.4 percent. Over time, the contribution of dividends to total return compounds significantly.

For the rest of the article, click here:  The Arizona Republic

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Stick with investment plan amid brutal market correction

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For  25 years, I commuted into San Francisco to work. During the Internet bubble at the end of the end of the 1990s, the traffic grew to epic proportions.

A normally  30-minute drive morphed into an hour, sometimes an hour and a half. Too many cars, too few lanes. The traffic made me crazy, and I drove like it. I was the driver who merged first into one lane and then another to anticipate the flow. Inevitably, once I switched lanes, the traffic slowed and the cars in my previous lane whooshed past. If I shifted back over, the traffic in front of me once again suddenly slowed and I watched another stream of cars whiz by on either side. By trying to anticipate future traffic flows, I inevitably came up short and increasingly frustrated.

On the heels of the worst short-term opening for stocks (ever!), it is important to have a plan, know your risk tolerance and to implement your discipline with conviction. One day I observed that changing lanes didn’t pay. The best strategy was to pick a particular lane and stick to it. I learned not to zig. Or zag. I resisted the lure of chasing the apparent traffic flow, because from my vantage — in the thick of the traffic jam — I lacked perspective so I stuck with my driving discipline and didn’t veer from the plan.

According to Deutsche Bank, the stock market, on average, has a correction every 357 days, or about once a year…

Read more here:  The Arizona Republic

Don’t Let Stock Market Volatility Do You In

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Volatility brings out the worst in even the best investors. It has a way of clouding our memory and activating our flight hormone, inspiring us to do exactly the wrong thing at exactly the wrong time. But on the heels of the worst-ever year opening for stocks — down 6 percent for the S&P 500, 6.2 percent for the Dow Jones Industrial Average and 7.3 percent for last year’s super-star, the NASDAQ — investors are understandably nervous.

Behavioral economics studies the effect of the recency of a risky event on subsequent financial behavior. For example, I can tell you where I was and what I was doing during the crash of 1987, the market rout of the third quarter of 1990, the minute the market re-opened after the terrorist attacks in the fall of 2001, and during the market meltdown of 2008. The memory of those difficult markets stands out starkly — particularly the most recent decline. Despite over 30 years of professional and personal investing, I am not immune to that sinking feeling of panic when the market sells off with the kind of vigor we have experienced recently. The only thing that keeps me focused on the long-term is a cursory understanding of behavioral economics and knowledge of the long-term, historical performance of stocks.

Interestingly, I cannot pinpoint where I was or what I was doing during the many market rallies I’ve enjoyed. Like most people, I remember the negative events much more vividly than the pleasant ones. When the market rises, we accept it like we do a safe flight or an automobile performing as expected. When the market declines, we are reminded of the harsh reality — that markets, like airline travel, for example, contain inherent risk that we often take for granted.

But let’s take a look at the facts.  Click here for the rest of the article:  The Arizona Republic