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Is a 2% higher dividend in A$ worth it?

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  1. #11

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    Quote Originally Posted by Jeff_:
    OK, but still, if you get (say) 6% franked dividend, it's like receiving 6.9% non-franked dividend (if the tax is 15%) or 7.8% dividend (if the tax is 30%).

    In my opinion, a post-tax dividend of 6.32% (for example from the National Australia Bank), distributed twice a year, isn't bad at all. HSBC has a 5% dividend, minus 30% taxes if you want to buy it in the US, = 3.5%.
    Why on earth would you buy HSBC in the US?
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  2. #12

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    Quote Originally Posted by cendrillon:
    Why on earth would you buy HSBC in the US?
    Haha. Just an example, lah.

    Goldman Sachs v. NAB then (10 year change):

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    I believe the dividend makes a difference (though of course the currency too)
    Last edited by Jeff_; 06-10-2017 at 03:54 PM.

  3. #13

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    Quote Originally Posted by cendrillon:
    Why on earth would you buy HSBC in the US?
    Haha. Just an example, lah.

    Goldman Sachs v. NAB then (10 year change):

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    Let's see, just a very rough calculation:

    GS: dividend of 1.22 a year (in 2017) - 30% taxes = 0.854
    NAB: dividend of 6.32 a year (in 2017)

    GS share prices: up 17%
    NAB share prices: down 17%

    A$ - US$ almost unchanged, though large swings during this period.

    Overall NAB wins in this case, although of course GS's dividend is ridiculously low for a bank.

  4. #14

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    Quote Originally Posted by Jeff_:
    Haha. Just an example, lah.

    Goldman Sachs v. NAB then (10 year change):

    Name:  Clipboard02.jpg
Views: 150
Size:  52.5 KB

    Let's see, just a very rough calculation:

    GS: dividend of 1.22 a year (in 2017) - 30% taxes = 0.854
    NAB: dividend of 6.32 a year (in 2017)

    GS share prices: up 17%
    NAB share prices: down 17%

    A$ - US$ almost unchanged, though large swings during this period.

    Overall NAB wins in this case, although of course GS's dividend is ridiculously low for a bank.
    I strongly, strongly oppose this kind of approach. Two things I really don't like (this is just my opinion but I still want to make this point for you to consider):

    1. Deciding the quality of an investment based on the dividend yield.
    2. Deciding the quality of an investment based on what the stock price did over the past x years.

    This is just my opinion but I think the market does a reasonable job pricing pretty much all public information in (and often non-public too when you look at what happens to stock prices a few days before the earnings come in.). Once you put stock picking to the side all then that remains it to make sure you're efficient in terms of fees and taxes. In particular if you're in a different tax situation to the typical investor (e.g. non-resident and franking) you could end up better or worse even in an efficient market.
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  5. #15

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    I agree in principle, and this makes a lot of sense, but surely if the market was so perfect in estimating the present value and future profits of companies, you wouldn't have large swings, and companies whose price keeps increasing (e.g. Blackrock +3,000% in 18 years), and companies whose price doesn't increase as much (e.g. LTC Properties +360% in 25 years). You have these differences even within the same industries (e.g. LTC and Senior Housing Properties +14% in 18 years). If the market knew what the future profits of these companies are, you would have the price set on day 1, and then no change.

    In reality, some companies are in better markets, better sectors and are better managed than others. And this may be reflected by historic changes (even though of course past performance is not indicative of future performance)?

    I don't know if I make sense. I guess not.


  6. #16

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    Quote Originally Posted by Jeff_:
    I agree in principle, and this makes a lot of sense, but surely if the market was so perfect in estimating the present value and future profits of companies, you wouldn't have large swings, and companies whose price keeps increasing (e.g. Blackrock +3,000% in 18 years), and companies whose price doesn't increase as much (e.g. LTC Properties +360% in 25 years). You have these differences even within the same industries (e.g. LTC and Senior Housing Properties +14% in 18 years). If the market knew what the future profits of these companies are, you would have the price set on day 1, and then no change.

    In reality, some companies are in better markets, better sectors and are better managed than others. And this may be reflected by historic changes (even though of course past performance is not indicative of future performance)?

    I don't know if I make sense. I guess not.
    There is uncertainty in all future predictions. When I say the market is efficient I don't mean it's prescient, what I mean is that the market prices are at their fair value, which is the net present value of expected future cashflows (dividends typically) with a fair discount for the volatility of those cashflows.

    I do think that for 99% of people trying to beat the market and pick winners is a fool's errand.
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  7. #17

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    Original Post Deleted
    I'm not saying you need to benchmark yourself, after all if you do better or worse than the market it will be very difficult to tell if its luck or skill.

    What I'm saying is that for the vast majority of people diversification is the best approach, and when I say diversification I really mean not picking stocks, i.e. having no opinions on individual companies and simply buying all of them in some reasonable way, which could be replicating a market cap index (saves you having to rebalance frequently), or equal weight or whatever suits your situation. There's been many studies that have shown that for the vast majority of people (including fund managers) actively intervening in their investments leads to a significant reduction in returns.

    I think with stock picking people lose on two fronts 1. they lose diversification, hence more volatility and 2. human nature being what it is, they will likely pick the worst stocks because of behavioral economics, herd effects, asymmetric response to losses vs. gains, basically all the stuff that got wired into us through evolution and that is really bad when making investment decisions. Finally for many people, even if against all odds they find a strategy that beats the index in the long run, the question is whether they have the conviction to stand by their investment strategy when the market is booming and their stock picks are not. People often give up on their approach at precisely the worst time.

    As to the question of why you would benchmark, if you were spending time actively investing and it was actually costing you returns, wouldn't you want to know that?

  8. #18

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    Original Post Deleted
    It doesn't have to be absolutely return. It can be risk normalised, or something else too if you prefer (e.g. I usually look at what will maximize my safe withdrawal rate when comparing two options). I think we're getting too hung up on benchmarks here by the way, which isn't really my point. (I don't care where you are on the efficient frontier as long as you're on it.)

    What I'm not a fan of is e.g. reading earnings reports and going oh this seems like a good company, earnings have been stable, growth has been good over the past X years, management seems like they know what they're doing, this is in a growing area (VR, 3D TVs, big data, electric cars etc.) I think I'll buy this stock. The entire market has exactly the same information and has priced it in, so by picking only these kinds of stocks a person loses diversification for no good reason.

    As you can see I'm a big fan of the efficient market hypothesis, at least from my own perspective.

    Maybe you can elaborate a little on what alternative approaches or criteria you would use to pick stocks, or why you think the market has mispriced certain types of stocks and they should be either avoided or more focused on.

    Just as an aside keep in mind that for any portfolio optimization problem "maximize return subject to the constraint volatility < V" there's an R such that "minimise volatility subject to the constraint return > R" gives the same answer. These two problems are duals. So I think we're just arguing semantics here.
    Last edited by cendrillon; 07-10-2017 at 08:38 AM.

  9. #19

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    Don't you think that you can achieve the same risk profile by taking a stock index and bond index in the right proportion? It seems mixing stocks and bonds can achieve any target risk level a person would want.

    On the topic of Chinese banks, this is a very good example. Do you feel that the market has not priced in their systemic risks appropriately? At a PE of 5 they're not exactly expensive.

    Perhaps you feel that a market cap based index like HSI is overly concentrated in Chinese financials. That's a fair point but I'd argue that should be solved not by restricting your portfolio to even less Hong Kong listed stocks but rather by diversifying more internationally. I think the problem with stock picking is that you are excluding known systematic risks that are priced in while still being exposed to the risks that nobody knows about.

    I remember well just before the US financial crisis everyone was wondering when the Chinese market would crash. Nobody thought it would be the US that would go first.
    Last edited by cendrillon; 07-10-2017 at 09:31 AM.