Random thoughts about stocks, investing, business and philosophy in everyday life
I have written numerous articles about dividends and compounding. To sum up, in order to create the biggest amount of wealth, you would want to invest in a company that has high returns on capital and opportunities to redeploy the earnings into the business at the same returns or close to same returns (I have provided relevant links at the
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Introduction and summary: Many investors have a strong focus on dividends, so much that I would like to call it an irrational dividend bias. Dividend investors focus only on dividend stocks, and for the most part ignore those stocks which don’t pay a dividend. Thus, they leave out a huge segment of the market that has the potential of compounding
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This article covers these topics: Why dividend investing is not necessarily the most efficient way to compound capital. Dividends are paid out of book value, but usually reinvested above book value. Why accept to receive a dividend at book value when you can for example sell shares at two times book value? Where is the best place for your capital?
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Introduction and summary: My idea with this article is to show that dividends are simply return of shareholders’ capital (a partial liquidation), exactly the same as selling the equivalent number of shares to create “income”. Admittedly, selling shares to support consumption feels a little like sawing off the branch I’m sitting on. Strangely enough, why doesn’t it feel the same about a
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To shelter your savings from taxation while building your nest egg is extremely important. I believe this is pretty obvious for most investors, but I suspect it’s still neglected because the headwind takes about ten years to really make a difference. Unless you have a tax-sheltered account you will take a beating whenever you receive a dividend or sell a
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