Money and Finance
I am sure there are a number of reasons why dividend investing works, not the least of which is dividends role in long term total returns.
I see another factor that dividend investing one reason why dividend investing works so well, and it has to do with the investor's thought process.
Dividend investing basically forces you to think about next quarter, next year, three years, five years, ten years, and so on. That's diametrically opposed from traders who hang breathlessly on taper this or QE that. As Matt Coffina said "in 10 years who is going to care whether the taper started this month as opposed to next month or the month after."
Guessing about macro factors is not a game worth playing in my view. Investing is about long term, not headlines in the current month.
So to get a long term orientation its important to have a different thought process. Dividend investing helps here. After all who cares about a 3% current yield? No one puts their money at risk to earn 3%.
But what you're really thinking about in dividend investing is seeing that yield double to 6%. It takes years for that to play out, years before things get interesting.
So the questions are along the lines of - how long will it take to double today's 3% yield to 6% yield on cost? These things take time. Years. The thought process is about long term process of getting there, not flavor of the month IPOs, deciphering Fedspeak, macro guru pronouncements, etc.
From there you get to the questions which are the true essence of investing - over that time horizon what competition will come into play? How wide is their moat? How sustainable is their competitive advantage? Once you are asking these questions, you are thinking like an investor not a trader.
So that's a subtle but absolutely crucial advantage in dividend investing - you're automatically oriented to a long term outlook.
- How To Get Someone Started: Part 2
Last month I asked you all for some help with getting some of my relatives interested in dividend growth investing. The idea of this comes from my desire to help and teach and also the simple fact that time in the market is extremely important. My...
- The Surprising Link Between Jeff Bezos And Neil Woodford And What It Means To Dividend Investors
On the surface it appears that Amazon and Jeff Bezos are worlds away from anything a dividend investor would care about. After all, Amazon struggles to even show earnings, much less pay a dividend. But remember the first rule of investing, you are...
- The Wine Cellar - The Remarkable True Story Of A $146,194-per-year Income Portfolio
Brian Richards reports on the science fiction writer Hayford Peirce's $146,194 per year Income portfolio. It is a concentrated high yield portfolio: Three common stocks (Altria, J&J, Philip Morris International)Nine master limited partnerships...
- The Wine Cellar - James Montier: Dividends Still Matter
One of the main things I am using the blog for is an ongoing notebook of my favorite insights on investing. The Wine Cellar is the ideas, papers and analysis that are most useful and informs my perspective over the long haul. So the first one to...
- Dividend Reinvestment
Hi Everyone, I was thinking about what I have left out with regards to my investing style and it hit me: I have not discussed whether or not I reinvest dividends or I "bank" the money and use it all at once to purchase another stock that I feel...
Money and Finance
One Reason Dividend Investing Works So Well
I am sure there are a number of reasons why dividend investing works, not the least of which is dividends role in long term total returns.
I see another factor that dividend investing one reason why dividend investing works so well, and it has to do with the investor's thought process.
Dividend investing basically forces you to think about next quarter, next year, three years, five years, ten years, and so on. That's diametrically opposed from traders who hang breathlessly on taper this or QE that. As Matt Coffina said "in 10 years who is going to care whether the taper started this month as opposed to next month or the month after."
Guessing about macro factors is not a game worth playing in my view. Investing is about long term, not headlines in the current month.
So to get a long term orientation its important to have a different thought process. Dividend investing helps here. After all who cares about a 3% current yield? No one puts their money at risk to earn 3%.
But what you're really thinking about in dividend investing is seeing that yield double to 6%. It takes years for that to play out, years before things get interesting.
So the questions are along the lines of - how long will it take to double today's 3% yield to 6% yield on cost? These things take time. Years. The thought process is about long term process of getting there, not flavor of the month IPOs, deciphering Fedspeak, macro guru pronouncements, etc.
From there you get to the questions which are the true essence of investing - over that time horizon what competition will come into play? How wide is their moat? How sustainable is their competitive advantage? Once you are asking these questions, you are thinking like an investor not a trader.
So that's a subtle but absolutely crucial advantage in dividend investing - you're automatically oriented to a long term outlook.
- How To Get Someone Started: Part 2
Last month I asked you all for some help with getting some of my relatives interested in dividend growth investing. The idea of this comes from my desire to help and teach and also the simple fact that time in the market is extremely important. My...
- The Surprising Link Between Jeff Bezos And Neil Woodford And What It Means To Dividend Investors
On the surface it appears that Amazon and Jeff Bezos are worlds away from anything a dividend investor would care about. After all, Amazon struggles to even show earnings, much less pay a dividend. But remember the first rule of investing, you are...
- The Wine Cellar - The Remarkable True Story Of A $146,194-per-year Income Portfolio
Brian Richards reports on the science fiction writer Hayford Peirce's $146,194 per year Income portfolio. It is a concentrated high yield portfolio: Three common stocks (Altria, J&J, Philip Morris International)Nine master limited partnerships...
- The Wine Cellar - James Montier: Dividends Still Matter
One of the main things I am using the blog for is an ongoing notebook of my favorite insights on investing. The Wine Cellar is the ideas, papers and analysis that are most useful and informs my perspective over the long haul. So the first one to...
- Dividend Reinvestment
Hi Everyone, I was thinking about what I have left out with regards to my investing style and it hit me: I have not discussed whether or not I reinvest dividends or I "bank" the money and use it all at once to purchase another stock that I feel...